TRF Ltd v. Energo Engineering Projects Ltd
Background
Under a commercial purchase order's arbitration clause, the respondent's own Managing Director was named as the arbitrator, with power to nominate someone else in his place. After a 2015 amendment to the Arbitration Act made persons connected to a party (such as that party's own Managing Director) statutorily ineligible to act as arbitrator, the Managing Director nonetheless went ahead and nominated a substitute arbitrator. The appellant challenged this nomination before the High Court under Section 11(6) of the Act, but the High Court upheld the appointment.
Decision Breakdown
The Supreme Court held that once a named arbitrator becomes ineligible by operation of law, he also loses the power to nominate a replacement, "once the infrastructure collapses, the superstructure is bound to collapse." Since the Managing Director himself could no longer act as arbitrator under the new Section 12(5) disqualification, his act of nominating someone else in his place was equally invalid. The High Court's order upholding that appointment was therefore set aside. However, because the rest of the arbitration clause survived independently, the matter was sent back to the High Court to appoint a fresh, properly qualified arbitrator: the core legal question of whether a disqualified arbitrator can nominate a substitute was finally and conclusively decided by this judgment.
Lesson Learnt
A party cannot work around the law's independence requirements for arbitrators by having a disqualified person nominate someone else in their place, once an arbitrator is rendered ineligible by statute, that disqualification extends to any power of nomination they held under the contract.