Arbitration (Amendment) Act, 2015 not retrospective for ongoing arbitration unless parties agree otherwise, SC

The Supreme Court has reiterated that the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act) cannot have retrospective operation in arbitral proceedings which commenced before the Amendment Act came into force, unless the parties otherwise agree..The Court also clarified that mere neglect of an arbitrator to act, or delay in passing the award by itself cannot be a ground to appoint another arbitrator in deviation from the terms agreed to by the parties..A Bench of Justices R Banumathi and Indira Banerjee delivered this verdict in an appeal against a decision of the Rajasthan High Court..By way of background, there was an arbitration agreement between the appellant, Rajasthan Small Industries Corporation Limited and the Respondent-Contractor.The terms of the contract provided for arbitration by the Managing Director himself or his or her nominee for the sole arbitration..When dispute arose between the parties, one IC Shrivastava was initially was appointed as the sole arbitrator. Since the progress of the sole arbitrator was not satisfactory, he was removed. In his place, the Chairman-cum-Managing Director of the appellant-Corporation was appointed to act as the sole arbitrator with the consent of both the parties..The arbitration proceedings could not, however, be concluded and there were repeated adjournments..Subsequently, the respondent-Contractor filed an application under Section 11(6) and Section 15 of the Arbitration and Conciliation Act, 1996 before the High Court seeking appointment of an independent arbitrator for the adjudication of dispute..Meanwhile, the arbitrator passed an ex-parte award on January 21, 2016 without hearing the respondent..Subsequently, the High Court allowed the arbitration application thereby appointing JP Bansal (Retd.), District Judge as the sole arbitrator. The High Court held that the respondent Contractor had to approach the High Court due to prolongation of the matter before the sole arbitrator. Only after the notice of the arbitration petition was served upon the appellant-Corporation, the arbitrator sped up the proceedings and the ex-parte award was passed without hearing the respondent-Contractor. The High Court was of the view that the arbitrator concluded the proceedings in a hurry with a view to frustrate the arbitration application.The appellant approached the Supreme Court in appeal. The following questions, inter alia, were considered by the Supreme Court..Whether by virtue of Section 12 of the Arbitration and Conciliation (Amendment) Act, 2015, the Chairman-cum-Managing Director has become ineligible to act as the arbitrator?.Whether the High Court was right in terminating the mandate of the arbitrator whom the parties have agreed and appointing substitute arbitrator on the ground that there was delay in passing the award?.Answering the first question, the Court noted that after the amendment to the Arbitration and Conciliation Act, Section 12(5) prohibits the employee of one of the parties from being an arbitrator. In the present case, the agreement between the parties was entered into in 2000 and the arbitration proceedings commenced way back in 2009..Thus, the respondent cannot invoke Section 12(5) of the Amendment Act. As per Section 26 of the Act, the provisions of the Amendment Act shall not apply to arbitral proceedings commenced in accordance with the provisions of Section 21 of the principal Act, before the commencement of the Amendment Act unless the parties otherwise agree..The Court placed reliance on the judgment in Board of Control for Cricket in India v. Kochi Cricket Private Limited and others [(2018) 6 SCC 287] wherein the Supreme Court had held that the provisions of Amendment Act, 2015 cannot have retrospective operation in arbitral proceedings already commenced unless the parties otherwise agree..In the present case, there was nothing to suggest that the parties had agreed that the provisions of the new Act shall apply in relation to the arbitral proceedings. Hence, the Court concluded that the Chairman cum Managing Director is eligible to act as arbitrator..The court then proceeded to answer the next question – regarding termination of the mandate of the arbitrator on account of delay in passing the award..It noted that there was some delay in passing the award. However, it also observed that between 2011 and 2013, the respondent did not file any application to expedite the proceedings and for passing of the award. The respondent neither filed a Request Case for passing of the award at an early date nor filed a petition under Section 14 of the Act for termination of the mandate of the arbitrator..Mere neglect of an arbitrator to act or delay in passing the award by itself cannot be a ground to appoint another arbitrator in deviation from the terms agreed to by the parties, the Court ruled..Hence, the Court set aside the judgment of the High Court which had terminated the mandate of the arbitrator. However, the ex-parte award passed by the arbitrator in 2016 was set aside with a direction to decide the dispute after affording sufficient opportunity to both the parties to adduce further evidence and make oral submissions.