Section 12(5) of The Arbitration Act I

An Arbitrator’s appointment was argued to be bad for the reason of Item 1 of the Seventh Schedule read with Section 12(5) of The Arbitration Act that ensures if the Arbitrator is an employee, consultant, advisor or has ‘any other’ past or present business relationship with a party to the Arbitration he becomes ‘ineligible’ to act as Arbitrator. The Arbitrator in question had previously tendered a legal opinion to one of the parties.

Justice Nariman has held in HRD Corporation (Marcus Oil & Chemical Division) v. GAIL (India) Ltd., [Civil Appeal No. 11126 of 2017]:

“On reading Item 1 of the Seventh Schedule, it is clear that the item deals with “business relationships”. The words “any other” show that the first part of Item 1 also confines “advisor” to a “business relationship”. The Arbitrator must, therefore, be an “advisor” insofar as it concerns the business of a party. Howsoever widely construed, it is very difficult to state that a professional relationship is equal to a business relationship, as, in its widest sense, it would include commercial relationships of all kinds, but would not include legal advice given. This becomes clear if it is read along with Items 2, 8, 14 and 15, the last Item specifically dealing with “legal advice”. Under Items 2, 8 and 14, advice given need not be advice relating to business but can be advice of any kind.

The importance of contrasting Item 1 with Items 2, 8 and 14 is that the Arbitrator should be a regular advisor under items 2, 8 and 14 to one of the parties or the appointing party or an affiliate thereof, as the case may be. Though the word “regularly” is missing from Items 1 and 2, it is clear that the Arbitrator, if he is an “advisor”, in the sense of being a person who has a business relationship in Item 1, or is a person who “currently” advises a party or his affiliates in Item 2, connotes some degree of regularity in both items.

The advice given under any of these items cannot possibly be one opinion given by a Retired Judge on a professional basis at arm’s length. Something more is required, which is the element of being connected in an advisory capacity with a party. Since the Arbitrator in question has only given a professional opinion to GAIL, which has no concern with the present dispute, he is clearly not disqualified under Item 1.”