Judgement Briefs

Alternative Dispute Resolution

HRD Corporation v. GAIL (India) Ltd.

(2018) 12 SCC 471

Citation
(2018) 12 SCC 471
Court
Supreme Court of India
Date
31 August 2017
Bench
R.F. Nariman and Sanjay Kishan Kaul, JJ.

Facts

  • HRD Corporation entered into a long-term agreement with GAIL for exclusive supply of wax from GAIL’s plant.
  • Several disputes arose over different contractual periods.
  • Three earlier arbitrations had already taken place between the parties.
  • A fourth tribunal was constituted for a later period.
  • Its members included:
  • Justice T.S. Doabia, who had participated in an earlier related arbitration; and
  • Justice K.K. Lahoti, who had previously given GAIL one legal opinion in an unrelated matter.
  • HRD challenged both arbitrators after the 2015 amendments introduced:
  • Section 12(5);
  • the Fifth Schedule; and
  • the Seventh Schedule.
  • It argued that:
  • Justice Lahoti’s earlier opinion created a prohibited advisory relationship;
  • Justice Doabia’s prior involvement in related arbitration made him ineligible;
  • both mandates had terminated; and
  • the court could remove them under Section 14.

Issue

  • What is the distinction between the Fifth and Seventh Schedules.
  • When can a party approach the court directly under Section 14.
  • Whether prior legal advice or service in an earlier related arbitration creates automatic ineligibility.

Rule

  • The Fifth Schedule identifies circumstances that may give rise to justifiable doubts about independence or impartiality.
  • A Fifth Schedule challenge ordinarily follows Section 13:
  • it is first raised before the tribunal;
  • the tribunal decides it;
  • if rejected, proceedings continue; and
  • the objection may later be raised under Section 34.
  • The Seventh Schedule creates de jure ineligibility under Section 12(5).
  • Where a Seventh Schedule category applies:
  • the person cannot legally act;
  • the mandate terminates under Section 14; and
  • the court may be approached directly.
  • Schedule entries must be interpreted fairly and contextually, neither artificially expanded nor unduly narrowed.
  • The test is whether a reasonable third person would see a real likelihood of influence beyond the merits.

Application

  • Justice Lahoti had given one professional legal opinion to GAIL in an unrelated matter.
  • The Court held that this did not make him a current or regular business adviser.
  • The Seventh Schedule provisions concerning advisory relationships require a sufficiently continuing or relevant connection.
  • A single arm’s-length opinion unrelated to the dispute was insufficient.
  • The Court also rejected the argument that his participation in another pending GAIL arbitration automatically created ineligibility.
  • Such repeat appointments may appear in the Fifth Schedule and require contextual examination.
  • They are not necessarily absolute Seventh Schedule bars.
  • Justice Doabia had participated in an earlier arbitration between the same parties under the same long-term contract but for a different period.
  • The Seventh Schedule reference to previous involvement “in the case” concerns involvement in the very dispute presently before the tribunal.
  • It does not automatically include every earlier arbitration involving:
  • the same contract;
  • the same parties; or
  • related issues.
  • Reading it so broadly would make the Fifth Schedule provisions concerning repeat appointments largely redundant.
  • The Court found no evidence that Justice Doabia had prejudged the later claims or could not approach them with an open mind.
  • The challenges therefore did not establish de jure ineligibility.
  • The judgment is significant procedurally.
  • Parties must identify whether their complaint falls within:
  • a waivable doubts-based challenge; or
  • an absolute statutory disqualification.
  • They cannot use Section 14 to bypass the Section 13 process for every allegation of possible bias.
  • At the same time, true Seventh Schedule ineligibility can be raised directly because the arbitrator lacks legal capacity to continue.

Conclusion

  • The Supreme Court upheld both appointments and dismissed the challenges.
  • It clarified that the Fifth Schedule concerns justifiable doubts, while the Seventh Schedule creates automatic statutory ineligibility.
  • A single unrelated legal opinion and participation in an earlier related arbitration did not fall within the claimed Seventh Schedule categories.
  • Use this case for: Fifth Schedule objections follow Section 13, whereas Seventh Schedule ineligibility permits direct termination under Section 14.