Employees’ power to act as and nominate arbitrators

Bombay High Court in DBM Geotechnics & Constructions Pvt Ltd v Bharat Petroleum Corporation Ltd recently considered how the bar on the appointment of a party’s employees as arbitrators is to be interpreted, in light of amendments to the Arbitration and Conciliation Act, 1996.

In this case, the parties had agreed that the power to nominate an arbitrator (necessarily an employee of Bharat Petroleum) would vest exclusively in the director of the company’s marketing division (DM), to be exercised in the event that he himself did not act as arbitrator. However, the amendment to section 12(5) read with the newly introduced seventh schedule to the act has resulted in any employee of Bharat Petroleum being ineligible to act as arbitrator, save with the consent of DBM, i.e. by its waiving of section 12(5) of the act, and this consent had been refused.

The high court observed that DBM’s refusal to consent was directed at the DM’s nominee for arbitrator and not at the DM, as the person empowered by the contract to make the nomination. The DM, who was still vested with powers of appointment, was required to exercise this power in accordance with law, i.e. by appointing an independent and neutral arbitrator. The court held that the DM’s right to appoint an arbitrator could not be invalidated, but that the portion of the arbitration clause that specified the pool of nominees could be severed from the arbitration clause in view of the introduction of the seventh schedule.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Parinaz Vakil is a senior associate.