Factual Background 

In the matter of Prime Store v. Sugam Vanijya Holdings Chennai Silks, a retail operating company, appealed a decision by an arbitrator that favoured Sugam Vanijya, the respondent party. The lease deed agreement issue between the two parties led to their decision to submit it to arbitration. Justice A Ramamoorthy, a retired judge from the Madras High Court, was selected as the sole arbitrator.

Related Provision 

The Arbitration and Conciliation Act’s Section 12(5) Any person whose relationship with the parties, counsel, or the dispute falls under one of the categories listed in the seventh schedule is ineligible to be chosen as an arbitrator, regardless of any prior agreement to the contrary.

The contention from both parties 

While Chennai Silks initially took part in the proceedings, the appellant claims that after the award was made in the respondents’ favour, Chennai Silks approached the High Court. It asserted that the entire process should be deemed unlawful because Justice Ramamoorthy was selected unilaterally. With the caveat that parties may expressly and in writing waive the applicability of this subsection after problems have arisen between them.

The respondents countered that since Chennai Silks had taken part in the proceedings, they were not entitled to complain later. They added that Justice Ramamoorthy was a retired judge, making him an unbiased third party as Arbitrator, he is free from any disqualification and no bias can be attributed.

Court Interference 

Justice Krishnan Ramasamy of a single-judge bench ruled that the proviso to Section 12(5) of the Act’s proviso prohibiting the unilateral appointment of a sole arbitrator without the express written consent of the parties was unconstitutional. He added that anyone who served as an advisor or offered an opinion in the dispute would undoubtedly fall under this category. Furthermore, he argued that it is important to remember that Section 12(5) of the Act, when read with the Act’s Seventh Schedule, deals with a person’s ineligibility to be appointed as an arbitrator. This provision of the Act is mandatory and non-derogable, and it identifies the ineligible people to be appointed as arbitrators as a result of being disqualified under the Seventh Schedule. Therefore, everyone, including the retired Judge, would be subject to disqualification under the Seventh Schedule.

The Court stated that pursuant to the Supreme Court’s decision in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd interested parties to a dispute would not only be ineligible to act as an arbitrator but also be prohibited from appointing an arbitrator to adjudicate the dispute. The Court noted that the petitioners waived their right to object to the unilateral appointment.

The decision further emphasized that section 12(5) read with schedule seven of the act does grant retired judges privileges and that they would appoint sole arbitrators to serve as advisors. Given the approved legislation, it is unacceptable for the learned Senior Counsel to assert that the learned Arbitrator, a retired judge, is impartial. Thus, the Court overturned the contested arbitral award and challenge a retired judge to serve as the new arbitrator in the dispute.