Appointment of former employees of a party has been a controversial topic and it was expected that the 2015 amendments would settle the issue once and for all. However, recent developments have titled in favour of allowing former employees to act as arbitrators. A few days back, the Supreme Court of India held in —The Government of Haryana PWD Haryana (B and R) Branch v. M/s. G.F. Toll Road Pvt. Ltd. & Ors., that there is no bar under the Arbitration and Conciliation Act, 1996, even after the 2015 amendments, barring former employees of a party from acting as arbitrator. This 14 slide presentation addresses the decision of the Supreme Court.

1. Badrinath Srinivasan, LL.M., F.I.I.I., M.C.I.Arb.
lawbadri@gmail.com
7 January 2019
Former Employee as
Arbitrator after GF Toll

2. Case Analysis: Details
 The Government of Haryana PWD Haryana
(B and R) Branch v. M/s. G.F. Toll Road Pvt.
Ltd. & Ors.
 Case Details: Civil Appeal No. 27/2019 (Arising out
of SLP (C) No. 20201/2018
 Date of decision: 03.01.2019
 Bench: AM Sapre and Indu Malhotra, JJ.

3. Facts
 Build Operate Transfer contract- Concession
Agreement between Haryana & GF Toll Road
(Contractor) for building road within 24 months
 Arbitration clause for 3 member tribunal with each
party having right to appoint arbitrator
 Under aegis of Indian Council of Arbitration (ICA)
 Contractor appointed its nominee
 When Haryana appointed Chief Engineer (Retd.),
Haryana, ICA objected that former employee was not
permissible

4. Brief Facts (2)
 Haryana refuted that:
 1996 Act did not prohibit appointing former employee
 The employee retired 10 years back & no bias can be imputed
 ICA reiterated its objections
 Haryana sought 30 days to appoint substitute
 ICA went ahead with the constitution by appointing
Haryana’s nominee and presiding arbitrator
 Haryana challenged this u/s S 15 of the 1996 Act before
the District Court: ground- constitution of tribunal was
illegal, arbitrary & against natural justice.

5. Brief Facts (3)
 District Court rejected the application on the ground
that Haryana could object u/s 16.
 A Civil Revision Petition was filed in the Punjab &
Haryana High Court and was rejected.
 Haryana therefore raised objections u/s 16 before the
tribunal
 Tribunal rejected the objections without a speaking
order
 Aggrieved, Haryana filed a Special Leave Petition in
the Supreme Court

6. Questions Involved in the Case
 Whether a former employee can be appointed as
arbitrator?
 Whether an objection would lie to the Court for
faulty constitution by an institution of the arbitral
tribunal?

7. Relevant Legal Provisions
Section 14:
(1) The mandate of an arbitrator shall terminate and he
shall be substituted by another arbitrator, if -
(a) he becomes de jure or de facto unable to perform his
functions or for other reasons fails to act without undue
delay; and
(b) he withdraws from his office or the parties agree to the
termination of his mandate.
(2) If a controversy remains concerning any of the grounds
referred to in clause (a) of sub-section (1), a party may,
unless otherwise agreed by the parties, apply to the Court
to decide on the termination of the mandate…

8. Relevant Legal Provisions
S. 15(2): Where the mandate of an arbitrator terminates, a
substitute arbitrator shall be appointed according to the rules
that were applicable to the appointment of the arbitrator
being replaced.
THE FIFTH SCHEDULE
See section 12 (1)(b)
The following grounds give rise to justifiable doubts as to the
independence or impartiality of arbitrators:
Arbitrator's relationship with the parties or counsel
1. The arbitrator is an employee, consultant, advisor or has
any other past or present business relationship with a party…

9. Summary of Supreme Court’s Decision
 The substitute arbitrator has to be appointed as per the
procedure u/s. 15(2) as per the agreement
 Haryana sought 30 days’ time which should not have
been rejected by the ICA
 Usurping Haryana’s right of appointing the arbitrator by
ICA was not correct.
 ICA’s objections on Haryana’s nominee are unjustified.
 The nominee retired ten years back from Haryana
Government
 As such no reasonable bias could be imputed.

10. Summary of Supreme Court’s Decision
 Even otherwise, the 1996 Act, even after the 2015
amendments, does not disqualify a retired employee
from acting as arbitrator as long as there are no
justifiable doubts as to his independence or
impartiality
 Entry I of V Schedule talks of current employees and
also other who have had business relationship with
the party.
 It does not cover former employees.
 Hence, the mandate of the three member tribunal
should be terminated.

11. Importance of the Decision
 The decision clarifies that former employees could be
appointed as arbitrator.
 However, there should be no justifiable grounds of
independence or impartiality.

12. Problems with the Decision
 Decision does not cite an important decision on similar
lines: Offshore Infrastructure Limited v. Bharat Heavy
Electricals Limited (2018).
 In Offshore, a Section 11 application was filed in the
Madras High Court since a former employee was
appointed by BHEL as arbitrator.
 The High Court along held the same lines as the Supreme
Court- Item 1 of V Schedule does not include former
employee
 But Item 31 “The arbitrator had been associated within
the past three years with a party or an affiliate of one of
the parties in a professional capacity, such as a former
employee or partner.” deals with former employee

13. Problems with the Decision (2)
 Therefore the HC held an arbitrator who has retired
three years from the party could be appointed as
arbitrator.
 SLP filed against this decision has been dismissed.
(order)
 This decision was not cited in the Haryana case.
 The three years gap in Offshore Infra seems to be
more prudent, given the circumstances.
 Supreme Court in the Haryana case has not noticed
Item 31 V Schedule possibly.

14. Concluding Thoughts
 In the Pre-2015 amendments regime, only government
entities could appoint former employees as arbitrators.
 Now, with decisions like Offshore Infrastructure & the
present case, there is no bar on private parties retaining
the right to appoint arbitrators to appoint their former
employees as arbitrators.
 Not a good development for arbitration.
 Creation of an independent panel of arbitrators with
rigorous training and excellent credentials is important.
 A larger Bench should revisit these two decisions of the
Supreme Court.