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REPORTABLE  

IN THE SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION  

CIVIL APPEAL NO. 27/2019  

(Arising out of S.L.P.(C) No. 20201 of 2018)  

The Government of Haryana  PWD Haryana (B and R) Branch       …Appellant    

Versus  

M/s. G.F. Toll Road Pvt. Ltd. & Ors.             …Respondents  

J U D G M E N T  

INDU MALHOTRA, J.  

Leave granted.  

1. The present Civil Appeal has been filed by the Appellant –  

State of Haryana to challenge the Order dated 01.03.2018  

passed by the High Court of Punjab and Haryana at  

Chandigarh in C.R. No. 3279/2017.  

2. The factual matrix leading to the filing of the present Appeal,  

briefly stated is, as under:

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2.1. On 12.12.2008 the Appellant – State issued a Letter of  

Acceptance to Respondent No. 1 - M/s. G. F. Toll Road  

Pvt. Ltd. for execution of a works contract for  

construction, operation and maintenance of Gurgaon-

Faridabad Road and Ballabhgarh-Sohna Road on BOT  

(Build, Operate and Transfer) basis.  

2.2. A Concession Agreement was entered into between the  

parties on 31.01.2009. The period of construction was  

24 months from 31.05.2009. The said agreement  

contained a dispute resolution clause which is set out  

hereinbelow:  

“39.2 Arbitration  39.2.1. Any dispute, which is not resolved  amicably as provided in Clause 39.1 shall  be finally decided by reference to  arbitration by a Board of Arbitrators,  appointed pursuant to Clause 39.2.2. sub- clause (b) below. Such arbitration shall be  held in accordance with the Rules of  Arbitration of the Indian Council of  Arbitration and shall be subject to the  provisions of the Arbitration Act.  

39.2.2. There shall be a Board of three  arbitrators of whom each party shall select  one and the third arbitrator shall be  appointed in accordance with the Rules of  Arbitration of the Indian Council of  Arbitration.”  

(Emphasis supplied)

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2.3. During the execution of the Agreement, disputes arose  

between the parties. The Respondent No. 1 - M/s. G. F.  

Toll Road Pvt. Ltd. vide Letter dated 30.03.2015 to  

Respondent No. 2 – Indian Council of Arbitration (“ICA”)  

invoked the Arbitration Clause, and requested the ICA to  

commence arbitration proceedings. On 05.05.2015,  

Respondent No. 1 - M/s. G. F. Toll Road Pvt. Ltd.  

appointed a retired Engineer-in-Chief – Mr. Surjeet  

Singh as their nominee Arbitrator.  

The Appellant – State herein also nominated a retired  

Engineer-in-Chief, Mr. M.K. Aggarwal as their nominee  

arbitrator vide Letter dated 08.06.2015.  

2.4. The Respondent No. 2 - ICA vide Letter dated  

03.08.2015 raised an objection to the arbitrator  

nominated by the Appellant – State on the ground that  

he was a retired employee of the State, and there may be  

justifiable doubts with respect to his integrity and  

impartiality to act as an arbitrator. The Respondent No.  

2 - ICA advised the State to reconsider its nomination.  

The Appellant – State refuted the objection raised by  

Respondent No. 2 – ICA on the ground that there was no

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rule which prohibited a former employee from being an  

arbitrator, and there could not be any justifiable doubt  

with respect to his impartiality since the nominee  

arbitrator had retired over 10 years ago.  

On 24.09.2015, Respondent No. 1 - M/s. G. F. Toll  

Road Pvt. Ltd. raised an objection regarding the  

independence and impartiality of the Appellant’s  

nominee arbitrator – Mr. M.K. Aggarwal. Respondent No.  

2 – ICA forwarded the said objection to the Appellant –  

State.    

2.5. The Respondent No. 2 – ICA vide its Letter dated  

30.10.2015 reiterated that it has been firmly established  

that Mr. M.K. Aggarwal had a direct relationship with  

the Appellant – State as its former employee, which may  

raise justifiable doubts as to his independence and  

impartiality in adjudicating the dispute. The Respondent  

No. 2 – ICA stated that it was in the process of  

appointing an arbitrator in place of Mr. M.K. Aggarwal  

and its decision shall be communicated to the Appellant.

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2.6. In response, the Appellant – State vide Letter dated  

16.11.2015 requested the Respondent No. 2 – ICA for a  

period of 30 days to appoint a substitute arbitrator.   

In the meanwhile, the Respondent No. 2 – ICA vide its  

Letter dated 23.11.2015 informed the Appellant – State  

that it had already appointed a nominee arbitrator on  

behalf of the Appellant, as well as the Presiding  

Arbitrator.  

2.7. Aggrieved by the appointment made by Respondent No.  

2 – ICA of the nominee arbitrator, the Appellant – State,  

filed an application under Section 15 of the Arbitration  

and Conciliation Act, 1996 (“the Act”) before the District  

Court, Chandigarh on the ground that the constitution  

of the arbitral tribunal was illegal, arbitrary and against  

the principles of natural justice.  

2.8. The Appellant – State also raised an objection before the  

Arbitral Tribunal under Section 16 on the issue of  

jurisdiction.    

On 08.12.2016, the arbitral tribunal ordered that it  

shall not hear the objection under Section 16 of the Act,

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and shall await the decision of the District Court,  

Chandigarh.  

2.9. The District Court vide its Order dated 27.01.2017 held  

that the Petition was not maintainable, since the Arbitral  

Tribunal had been constituted, and an objection under  

Section 16 should be raised before the Tribunal to rule  

on its own jurisdiction.  

2.10. Aggrieved by the Order dated 27.01.2017, the Appellant  

– State filed a Civil Revision Petition before the Punjab  

and Haryana High Court, Chandigarh being C. R. No.  

3279 of 2017.   

2.11. The learned Single Judge of the Punjab and Haryana  

High Court vide the impugned Order dated 01.03.2018  

dismissed the Civil Revision Petition on the ground that  

the Appellant – State could raise the issue of jurisdiction  

under Section 16 before the arbitral tribunal.  

It was further held that in a situation where an  

objection is raised regarding the nomination of an  

arbitrator by one of the parties, and the agreement is  

silent with regards to the mode of appointment of a  

substitute arbitrator, the rules applicable would be those

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of the Institution under which the arbitration is held.  

Therefore, in the facts of the present case, Rules 25 and  

27 of the ICA Rules would apply.   

2.12. Subsequent to the impugned Judgment being passed,  

the Application under Section 16 filed by the Appellant –  

State was dismissed by a non-speaking Order of the  

Arbitral Tribunal dated 12.05.2018.   

2.13. Aggrieved by the Order dated 01.03.2018 and  

12.05.2018, the Appellant – State has filed the present  

Petition.  

3. We have heard the learned Counsel for both the parties, and  

perused the pleadings.  

3.1. The High Court while considering the application under  

Section 15 failed to take note of the provisions of Section  

15(2) of the Act.   

Section 15(2) provides that a substitute arbitrator  

must be appointed according to the rules that are  

applicable for the appointment of the arbitrator being  

replaced. This would imply that the appointment of a  

substitute arbitrator must be according to the same

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procedure adopted in the original agreement at the  

initial stage.   

Section 15(2) of the Act reads as under :  

“15. Termination of mandate and  substitution of arbitrator.—  (1) …  (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.”    

(Emphasis supplied)  

3.2. The provisions of Section 15(2) require that when the  

mandate of an arbitrator terminates either by his  

withdrawal from office, or pursuant to an agreement by  

the parties, or for any reason, a substitute arbitrator  

shall be appointed according to the rules applicable to  

the appointment of the arbitrator being replaced.   

This Court in ACC Ltd. v. Global Cements Ltd.1 held  

that the procedure agreed upon by the parties for the  

appointment of the original arbitrator is equally  

applicable to the appointment of a substitute arbitrator,  

even if the agreement does not specifically provide so.  

                                                                 1 (2012) 7 SCC 71

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3.3. In the present case, Clause 39.2.2. of the agreement  

expressly provided that each party shall nominate one  

arbitrator, and the third arbitrator shall be appointed in  

accordance with the Rules of the ICA.   

3.4. The Appellant – State had vide Letter dated 16.11.2015  

requested for 30 days’ time to appoint another nominee  

arbitrator, after objections were raised by the ICA to the  

first nomination. The ICA declined to grant the period of  

30 days, and instead appointed the arbitrator on behalf  

of the Appellant – State. The ICA could have filled up the  

vacancy only if the Appellant – State had no intention of  

filling up the vacancy. The ICA could not have usurped  

the jurisdiction over appointment of the nominee  

arbitrator on behalf of the State prior to the expiry of the  

30 days’ period requested by the Petitioner.  

3.5. The appointment of the nominee arbitrator on behalf of  

the Appellant – State by the ICA was unjustified and  

contrary to the Rules of the ICA itself.  

3.6. The objection raised by the ICA with respect to the  

appointment of Mr. M.K. Aggarwal as the nominee of the

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State was wholly unjustified and contrary to the  

provisions of the 1996 Act.  

3.7. The objection raised by Respondent No. 2 – ICA to the  

arbitrator nominated by the Appellant – State, was that  

the nominee arbitrator was a retired employee of the  

Appellant – State, and as such there may be justifiable  

doubts to his independence and impartiality to act as an  

arbitrator.  

3.8.  The said objection was refuted by the Appellant – State  

on the ground that the nominee arbitrator was a Chief  

Engineer who retired over 10 years ago from the services  

of the State. The apprehension of the Respondents was  

hence unjustified since the test to be applied for bias is  

whether the circumstances are such as would lead to a  

fair-minded and informed person to conclude that the  

arbitrator was infact biased.   

In Locabail Ltd. v. Bayfield Properties2, the House of  

Lords held that :  

“The greater the passage of time between  the event relied on as showing a danger of  bias and the case in which the objection is  

                                                                 2 2000 (1) All ER 65

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raised, the weaker (other things being  equal) the objection will be.”  

The Court of Appeal in Re Medicaments and related  

Classes of Goods (No.2) 3 while propounding the ‘real  

danger’ test for bias held that :  

“The question is whether the fairminded  and informed observer, having considered  the facts, would conclude that there was a  real possibility that the Tribunal was  biased.”  

3.9. The 1996 Act does not disqualify a former employee from  

acting as an arbitrator, provided that there are no  

justifiable doubts as to his independence and  

impartiality.  

The fact that the arbitrator was in the employment of  

the State of Haryana over 10 years ago, would make the  

allegation of bias clearly untenable.  

3.10. The present case is governed by the pre-amended 1996  

Act. Even as per the 2015 Amendment Act which has  

inserted the Fifth Schedule to the 1996 Act which  

contains grounds to determine whether circumstances  

exist which give rise to justifiable doubts as to the                                                                    3 2002 (1) All ER 465

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independence or impartiality of an arbitrator. The first  

entry to the Fifth Schedule reads as under :  

“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.”  

 (Emphasis supplied)  

Entry 1 of the Fifth Schedule and the Seventh  

Schedule are identical. The Entry indicates that a  

person, who is related to a party as an employee,  

consultant, or an advisor, is disqualified to act as an  

arbitrator. The words “is an” indicates that the person so  

nominated is only disqualified if he/she is a  

present/current employee, consultant, or advisor of one  

of the parties.  

An arbitrator who has “any other” past or present  

“business relationship” with the party is also  

disqualified. The word “other” used in Entry 1, would  

indicate a relationship other than an employee,  

consultant or an advisor. The word “other” cannot be  

used to widen the scope of the entry to include  

past/former employees.

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3.11. The ICA made only a bald assertion that the nominee  

arbitrator – Mr. M. K. Aggarwal would not be  

independent and impartial.   

The objection of reasonable apprehension of bias  

raised was wholly unjustified and unsubstantiated,  

particularly since the nominee arbitrator was a former  

employee of the State over 10 years ago. This would not  

disqualify him from act as an arbitrator. Mere allegations  

of bias are not a ground for removal of an arbitrator.   

It is also relevant to state that the appointment had  

been made prior to the 2015 Amendment Act when the  

Fifth Schedule was not inserted. Hence, the objection  

raised by the ICA was untenable on that ground also.  

3.12. In this view of the matter, the impugned judgment dated  

01.03.2018 passed by the Punjab & Haryana High Court  

in C.R. No. 3279.2017 is set aside.  

4. During the conclusion of arguments, the counsel for both  

parties mutually agreed to the arbitration being conducted by  

a Sole Arbitrator in supersession of the arbitration clause in  

the agreement which provided for a three-member arbitration  

panel.

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The Counsel for both parties mutually agreed to the  

appointment of Justice S.S. Nijjar (Retd.) as the Sole Arbitrator  

to adjudicate the disputes arising out of the Concession  

Agreement dated 31.01.2009.  

Accordingly, the mandate of the three-member arbitral  

tribunal constituted under the ICA Rules on 05.12.2015  

stands terminated. The Sole Arbitrator shall proceed in  

continuation of the previously constituted arbitral tribunal.   

The material already on record shall be deemed to have been  

received by the Sole Arbitrator.  

The Appeal is disposed of accordingly.  

…..……...........................J.  (ABHAY MANOHAR SAPRE)  

..….……..........................J.  (INDU MALHOTRA)  

New Delhi  January 3, 2019.