Section 12(5) Application

In Divisional Manager, H.P. State Forest Development Corporation Ltd vs. Prem Lal,[1] The Himachal Pradesh High Court (“HP HC”) ruled that someone ineligible to serve as an arbitrator under Section 12(5) of the Arbitration and Conciliation Act, 1996 (“the Act”) cannot appoint another arbitrator to resolve the dispute.

Case Issues

This case involves Section 12(5) of the Act, which prohibits certain types of individuals from acting as arbitrators, regardless of any prior agreement between the parties. Any individual who comes under the categories indicated in the Seventh Schedule is disqualified to be appointed as an arbitrator under Section 12(5) if their relationship with the parties, counsel, or subject matter of the dispute could compromise their impartiality. Those with a direct or indirect interest in the outcome of the dispute, individuals with a link to one of the parties that could impact impartiality, and individuals related to one of the parties or their counsel are all included in the Seventh Schedule.

Court Proceedings

The Court ruled that if a person is ineligible to serve as an arbitrator under Section 12(5) of the Act, they cannot nominate another arbitrator to resolve the dispute. If an ineligible arbitrator makes such an appointment, it is null and void from the start, and any awards granted are also null and void.

In this instance, the Court rejected the argument that an agreement predating Section 12(5) should take precedence over the provision. The Court ruled that the non-obstante clause of Section 12(5) supersedes any such arrangement. The HP HC further elaborated that any appointment made by an ineligible individual is void from the start, and any proceedings arising from such an appointment are null and void. The Court made these findings while hearing three petitions challenging District Judge rulings denying applications under Section 36 of the Act for enforcing arbitral judgments.

Conclusion

The HP HC decided that the learned District Judge made no errors in dismissing the petitioner’s execution applications seeking enforcement of the void awards. The case emphasizes the necessity of ensuring that arbitrators are eligible to act under the Act and that any appointment of arbitrators is in conformity with the Act’s provisions. It also emphasizes the need to ensure that parties to an arbitration agreement follow the provisions of the Act, regardless of whatever prior agreements they may have made between themselves.

[1]2023 LiveLaw (HP) 8.