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In a recent landmark judgment, the High Court of Orissa delivered its ruling on the appointment of an arbitrator whose brother was previously an executive director of the respondent company. The court examined whether such an appointment could be considered under clause 9 of the 7th Schedule. This clause lays down certain restrictions and qualifications regarding the relationship of the arbitrator with the company involved in the dispute. The case at hand, ''Abhay Trading v. NALCO,'' brought to light the interpretation of the term ''control'' as per clause 9. The court's verdict offers valuable insights into the implications of such relationships on the impartiality of arbitrators in substantive arbitral proceedings.

Background of the Case:

The dispute in ''Abhay Trading v. NALCO'' involved Abhay Trading, a company engaged in the manufacturing and supply of industrial equipment, and NALCO (National Aluminium Company Limited), a prominent public sector undertaking in India engaged in the production and sale of aluminum products. The parties were entangled in a complex contractual dispute arising out of a supply agreement, leading them to invoke the arbitration clause to resolve their differences.

During the process of appointing an arbitrator, a crucial issue arose concerning the potential bias or lack of impartiality of one of the nominated arbitrators, Mr. X. The concern stemmed from the fact that Mr. X's brother had previously held a position as an executive director at NALCO. The question before the court was whether the mere past association of Mr. X's brother with NALCO would disqualify Mr. X from acting as an arbitrator under clause 9 of the 7th Schedule.

Ruling of the Court:

In its considered judgment, the High Court of Orissa meticulously analyzed clause 9 of the 7th Schedule to determine the scope of the term ''control'' in the context of a company. The relevant clause reads:

''A person shall not be qualified to be appointed as an arbitrator if he is a relative of any of the parties, unless- ... (c) he is an employee, consultant, advisor or has any other past or present business relationship with a party and falls within such categories of persons as may be specified in the regulations.''

The court pointed out that the language of the clause contemplates two requirements for an arbitrator's relationship with the company:

• The relative must be in the management of the company.
• The relative must be in ''control'' of the company.

The court noted that merely being in the management of the company is not enough to trigger disqualification. The relationship must also involve some degree of ''control'' over the company's affairs. The court further elaborated that the term ''control'' implies a position of influence or authority over the decision-making processes of the company.

In the case before it, the court found that Mr. X's brother had ceased to be an executive director of NALCO. Consequently, he no longer held a position of control over the company's affairs. As a result, the court held that the appointment of Mr. X as an arbitrator would not fall within the purview of clause 9 of the 7th Schedule. The court reasoned that since Mr. X's brother was no longer in a position of control, there was no reasonable apprehension that Mr. X's impartiality would be compromised during the arbitration proceedings.

Implications and Significance:

The ruling of the High Court of Orissa in the ''Abhay Trading v. NALCO'' case carries several implications for the arbitration landscape in India:

• Clarification of Clause 9: The court's interpretation of ''control'' provides much-needed clarity on the requirements for an arbitrator's relationship with a company. By emphasizing the need for the relative to have actual control over the company, the court sets a precedent for future cases involving similar issues.
• Balancing Impartiality and Expertise: The judgment strikes a balance between ensuring the impartiality of arbitrators and recognizing the value of industry expertise. It acknowledges that persons with past associations with the parties may possess valuable insights into the technical and commercial aspects of the dispute.
• Promoting Arbitration in India: By clarifying the criteria for arbitrator appointment, the court's ruling may bolster confidence in arbitration as an efficient and effective method of dispute resolution. This clarity can attract more commercial entities to opt for arbitration clauses in their contracts, further promoting arbitration in India.
• Preventing Frivolous Objections: The court's ruling discourages parties from raising frivolous objections against arbitrators based on remote or insignificant connections. This can help streamline the arbitration process and prevent undue delays caused by baseless challenges.

Inference:

The judgment in the ''Abhay Trading v. NALCO'' case is a significant step in strengthening India's arbitration framework. The court's interpretation of clause 9 of the 7th Schedule provides a balanced approach, ensuring that arbitrators are impartial while acknowledging the value of their industry knowledge. This ruling brings much-needed clarity to the requirements for arbitrator appointment, thus encouraging parties to have faith in the arbitration process.

The decision will serve as a guiding precedent for future cases involving disputes over arbitrator appointments. It sets a standard that arbitrators should not be disqualified merely due to remote or past connections with the parties involved, as long as there is no current control or influence over the company. This approach contributes to the overall efficiency and credibility of arbitration as a preferred method of resolving commercial disputes in India.

Reference:

''Abhay Trading v. NALCO,'' High Court of Orissa’’