The Hon’ble Supreme Court in The Government of Haryana PWD Haryana (B and R) Branch v. G.F. Toll Road Pvt. Ltd. and Ors. (S.L.P. (C) No. 20201 of 2018) has clarified the procedure for appointment of a substitute arbitrator when a nominee arbitrator is disqualified. The Supreme Court has also held that the Arbitration and Conciliation Act, 1996 ("the Act”) does not disqualify former employees of a party to an arbitration from being appointed as the arbitrator.

Facts of the case:

A concession agreement containing an arbitration clause was executed between the Government of Haryana (hereinafter referred to as “the Appellant”) and G.F. Toll Road Pvt. Ltd. (hereinafter referred to as the “Respondent No. 1”). As per the said arbitration clause, the arbitral tribunal was required to consist of three arbitrators, with each party appointing one arbitration and the third being appointed as per the Rules of Arbitration of the Indian Council of Arbitration (hereinafter referred to as the “Respondent No. 2”).

In due course, disputes arose between the parties and the Respondent No. 1 invoked the said arbitration clause by requesting the Respondent No. 2 to commence proceedings. Accordingly, the Appellant and Respondent No. 1 each nominated an arbitrator. However, the Respondent No. 2, objected to the arbitrator appointed by the Appellant, on the ground of the arbitrator being a former employee of the Appellant.

The Appellant requested the Respondent No. 2 for 30 days to appoint a substitute arbitrator. However, the Respondent No. 2 informed the Appellant that it had already appointed a substitute arbitrator on behalf of the Appellant.

Aggrieved by such appointment by the Respondent No. 2, the Appellant challenged the constitution of the arbitral tribunal under Section 15 of the Act before the District Court, Chandigarh. The District Court, Chandigarh dismissed the appeal. The Appellant filed a civil revision before the High Court which was dismissed with the observation that if an arbitration agreement is silent with regards to the mode of appointment of a substitute arbitrator, the rules applicable would be those of the Institution under which the arbitration is held.

Supreme Courts observations and findings:

The Hon’ble Supreme Court held that the High Court had failed to consider the provisions of Section 15(2) of the Act which provides that a substitute arbitrator must be appointed according to the same procedure adopted in the original agreement at the initial stage. 

Further, citing its judgement in ACC Ltd. v. Global Cements Ltd. [(2012) 7 SCC 71], the Hon’ble Supreme Court reiterated that the procedure agreed upon by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not explicitly provide so. It therefore held that the Respondent No. 2 had erred by appointing a nominee arbitrator on behalf of the Respondent No. 1.

The Hon’ble Supreme Court further observed that only present employees were disqualified under the fifth schedule of the Act and the words “any other past or present business relationship” does not refers to a relationship other than that of an employee, consultant, or advisor. Therefore, it held that ex-employees of the Respondent No. 1 may be nominated as arbitrators to the arbitration proceedings.