Delhi High Court
M/S Maan Builders Pvt. Ltd vs The General Manager Norther Railway on 21 May, 2025
Author: Jyoti Singh
Bench: Jyoti Singh
$~76
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 21st May 2025
+ ARB.P. 718/2025
M/S MAAN BUILDERS PVT. LTD. .....Petitioner
Through: Mr. Avinash Trivedi and Mr. Rahul
Aggarwal, Advocates.
versus
THE GENERAL MANAGER NORTHERN
RAILWAY .....Respondent
Through: Mr. Vineet Dhanda, CGSC with Ms.
Akansha Choudhary, Advocate.
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JUDGEMENT
JYOTI SINGH, J. (ORAL)
1. This petition is filed on behalf of the Petitioner under Section 11(6) of
the Arbitration and Conciliation Act, 1996 ('1996 Act') for appointment of
an Arbitrator to adjudicate the disputes between the parties.
2. It is averred in the petition that Respondent awarded the work of
supplying, fabrication, assembling, erection/launching of steel girder in the
State of Jammu and Kashmir along with other allied work in connect with
doubling of Kathua-Madhopur Punjab Section of Ferozpur Division. The
stipulated date of completion of work was 11.06.2019, albeit the work was
completed on 30.04.2022 and completion certificate was issued by the
Respondent on 28.02.2023. Petitioner sent repeated reminders for release of
the outstanding amount and Bank Guarantee, however, Respondent sent an
e-mail on 23.06.2023 pointing out defects in the executed work. Disputes
having arisen, Petitioner invoked Arbitration Clause 64 of GCC and sought
appointment of an Arbitrator but there was no response.
3. Learned counsel for the Petitioner submits that the contract in
question contains an Arbitration Clause 64 of GCC, which provides that in
cases where the total value of claims exceeds Rs.25 lacs, Arbitral Tribunal
shall consist of panel of three Gazetted Railway Officers as Arbitrators, for
which purpose Railway will send a panel of more than three names of
Gazetted Railway Officers of one or more Departments of the Railways,
which may also include names of retired officers empanelled to work as
Railway Arbitrator, to the contractor, from which the contractor will suggest
two names as contractor's nominee of which one will be appointed by the
General Manager, simultaneously appointing the balance number of
Arbitrators. It is argued that this arbitration clause is in the teeth of judgment
of the Supreme Court in Central Organisation for Railway Electrification
v. ECI SPIC SMO MCML (JV) A Joint Venture Company, 2024 SCC
OnLine SC 321, and thus the appointment by the Railways in terms of this
clause will be a unilateral appointment.
4. Learned CGSC for the Railways does not dispute the applicability of
the judgment in Central Organisation for Railway Electrification (supra)
to the present case.
5. For the ease of reference, relevant part of the arbitration clause is
extracted hereunder:-
"64.(3) Appointment of Arbitrator :
....
64.(3) (a)(ii) In cases not covered by the Clause 64(3)(a)(i), the
Arbitral Tribunal shall consist of a Panel of three Gazetted Railway
Officers not below JA Grade or 2 Railway Gazetted Officers not
below JA Grade and a retired Railway Officer, retired not below the
rank of SAG Officer, as the arbitrators. For this purpose, the Railway
will send a panel of more than 3 names of Gazetted Railway Officers
of one or more departments of the Railway which may also include the
name(s) of retired Railway Officer(s) empanelled to work as Railway
Arbitrator to the contractor within 60 days from the day when a
written and valid demand for arbitration is received by the GM.
Contractor will be asked to suggest to General Manager at least 2
names out of the panel for appointment as contractor's nominee
within 30 days from the date of dispatch of the request by Railway.
The General Manager shall appoint at least one out of them as the
contractor's nominee and will, also simultaneously appoint the
balance number of arbitrators either from the panel or from outside
the panel, duly indicating the 'presiding arbitrator' from amongst the
3 arbitrators so appointed. GM shall complete this exercise of
appointing the Arbitral Tribunal within 30 days from the receipt of the
names of contractor's nominees. While nominating the arbitrators, it
will be necessary to ensure that one of them is from the Accounts
Department. An officer of Selection Grade of the Accounts
Department shall be considered of equal status to the officers in SA
grade of other departments of the Railway for the purpose of
appointment of arbitrator."
6. In Central Organisation for Railway Electrification (supra), the
Supreme Court was examining clause 64(3)(b) of GCC which provided that
the Arbitral Tribunal shall consist of panel of three retired Railway Officers
for which Railways will send a panel of at least four names of retired
Railway Officers from which contractor will suggest at least two names as
contractor's nominee and one of them will be appointed as Member of the
Tribunal. The Supreme Court held that such an Arbitrator appointment
clause is likely to give rise to justifiable doubt as to the independence and
impartiality of Arbitrators for two reasons: (i) contractor is restricted to
choosing its Arbitrator from the panel of four Arbitrators nominated by the
party who is a disputant; and (ii) contractor's choice is further constrained
because it is made subject to decision of the General Manager who will
choose one among the two persons suggested by the parties. Since the
contractor has to select from a curated panel, the arbitration clause does not
allow the contractor equal participation in the appointment of the Arbitrator.
The Supreme Court emphasised on equal treatment of parties at the stage of
appointment of an Arbitrator to ensure impartiality during arbitral
proceedings. Relevant passages from the judgment are as follows:-
"129. Equal treatment of parties at the stage of appointment of an
arbitrator ensures impartiality during the arbitral proceedings. A
clause that allows one party to unilaterally appoint a sole arbitrator is
exclusive and hinders equal participation of the other party in the
appointment process of arbitrators. Further, arbitration is a quasi-
judicial and adjudicative process where both parties ought to be treated
equally and given an equal opportunity to persuade the decision-maker
of the merits of the case. An arbitral process where one party or its
proxy has the power to unilaterally decide who will adjudicate on a
dispute is fundamentally contrary to the adjudicatory function of
arbitral tribunals.
130. In comparison, a three-member arbitral tribunal usually allows
each party to nominate one arbitrator of their choice, with the third
arbitrator being appointed either by the two party-appointed
arbitrators or by agreement of parties. The fact that both parties
nominate their respective arbitrators gives them "a sense of investment
in the arbitral tribunal." A three-member arbitral tribunal also
enhances the quality of the adjudicative deliberations and ensures
compliance with due process. According to Gary Born, the major
advantage of a three-member tribunal is that the parties can participate
in the selection of the tribunal to the maximum extent possible.
131. In a three-member tribunal, each of the parties seeks to appoint a
co-arbitrator. However, the third arbitrator is usually appointed by a
process which allows equal participation of both parties in the
appointment process. The equal participation of parties enables the
appointment of an independent and impartial third arbitrator. Hence,
any perceived tilt of an arbitrator in favour of the party which
nominated that arbitrator is offset by the appointment of the third
arbitrator in the course of a deliberative process involving both the
arbitrators or as envisaged in the agreement between parties. Perkins
(supra) rightly observed that whatever advantage a party may derive by
nominating an arbitrator of its choice would get counter-balanced by
equal power with the other party. This counter-balancing will ideally
apply only in situations where the arbitrators are appointed by the
parties in the exercise of their genuine party autonomy. TRF (supra)
and Perkins (supra) have been relied upon by this Court on numerous
occasions, including in Glock Asia-Pacific Limited v. Union of
Indiaand Lombardi Engg Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd.
132. In Voestalpine (supra) and CORE (supra), one of the parties
curated a panel of arbitrators and mandated the other party to select
their arbitrator from the panel. Since the curation of the list is
exclusively undertaken by one party, the other party is effectively
excluded from the process of curating the panel from which exclusively,
the appointment of an arbitrator is to be made. The other party has to
mandatorily select its arbitrator from a curated panel, restricting their
freedom to appoint an arbitrator of their choice. This is against the
principle of equal treatment contained under Section 18. In this
situation, there is no effective counter-balance because both parties do
not participate equally in the process of appointing arbitrators. The
party curating the panel can restrict the choice of the party only to a
person who is on the panel selected by the other party and to no other
person.
133. Many PSUs are regularly involved in arbitration disputes and
constantly need the services of arbitrators. Such institutions often
maintain a pool of potential arbitrators with the sole object of having a
ready pool of qualified professionals who have committed their time
and consented to act as arbitrators for fixed fees. The Arbitration Act
does not prohibit parties to an arbitration agreement from maintaining
a curated panel of potential arbitrators. However, the problem arises
when the PSUs make it mandatory for other parties to select their
nominees from the curated panel of arbitrators. When a PSU exercises
its discretion to curate a panel, the very factor that the PSU is choosing
only a certain number of persons as potential arbitrators and not others
will raise a reasonable doubt in the mind of a fair-minded person. The
PSUs may conceivably have nominated a person on the panel of
potential arbitrators because they have a certain predisposition in
favour of the former. This doubt is reinforced when the other party is
given no choice but to select its arbitrator from the curated panel.
134. In CORE (supra), the three-member tribunal was sought to be
constituted in the following manner : (i) the Railways would suggest at
least four names of retired railway officers; (ii) the contractor would
select two names out of the panel for appointment as their arbitrator;
(iii) The General Manager (of the Railways) would thereafter choose at
least one person out of the two to be appointed as the contractor's
arbitrator; and (iv) The General Manager would proceed to appoint the
balance arbitrators from the panel or outside the panel and also
indicate the presiding arbitrator.
135. Such an arbitrator-appointment clause is likely to give rise to
justifiable doubts as to the independence and impartiality of arbitrators
for two reasons : (i) the contractor is restricted to choosing its
arbitrator from the panel of four arbitrators nominated by the party
who is a disputant; and (ii) the contractor's choice is further
constrained because it is made subject to the decision of the General
Manager who will choose one among the two persons suggested by the
party. Since the contractor has to select its arbitrator from a curated
panel, the arbitration clause does not allow the contractor equal
participation in the appointment of their arbitrator. Moreover, the
clause allows the General Manager to appoint the balance arbitrators
from either the panel or outside the panel. Thus, the process of
appointing the arbitrators is unequal because the General Manager can
go beyond the panel of four potential arbitrators, while the contractor
is bound by the names enlisted in the panel.
136. In a three-member tribunal, the independence and impartiality of a
third or presiding arbitrator are prerequisites to the integrity of the
arbitral proceedings. In CORE (supra), the arbitration clause allowed
the General Manager to unilaterally nominate the presiding officer out
of the panel of three arbitrators. The clause does not countenance any
participation from the contractor in the process of appointing or
nominating the presiding officer. Thus, the process of appointing and
nominating the presiding officer is unequal and prejudiced in favour of
the Railways. The fact that the General Manager is nominating the
presiding officer gives rise to a reasonable doubt about the
independence and impartiality of the entire arbitration proceedings.
137. Given the above discussion, it needs reiteration that the
Arbitration Act does not prohibit PSUs from empanelling potential
arbitrators. However, an arbitration clause cannot mandate the other
party to select its arbitrator from the panel curated by PSUs. The PSUs
can give a choice to the other party to select its arbitrators from the
curated list provided the other party expressly waives the applicability
of the nemo judex rule."
7. In light of the aforesaid judgment, any appointment from the curated
panel prepared by the Railways in terms of Clause 64(3)(a)(ii) of GCC will
be a unilateral appointment and cannot be sustained in law.
8. Accordingly, this petition is allowed appointing Mr. Sunil Gaur,
former Judge of this Court (Mobile No. 9971000718), is appointed as a Sole
Arbitrator to adjudicate the disputes between the parties. Arbitral
proceedings will be held under the aegis of Delhi International Arbitration
Centre ('DIAC') and as per its Rules. Fee of the Arbitrator shall be as per
fee schedule of DIAC (Administrative Cost & Arbitrators' Fees) Rules
2018.
9. Learned Arbitrator shall give disclosure under Section 12 of the 1996
Act before entering upon reference.
10. It is made clear that this Court has not expressed any opinion on the
merits of the case and all rights and contentions of the respective parties are
left open.
11. Petition is disposed of in the aforesaid terms.
JYOTI SINGH, J
MAY 21, 2025/shivam
