Delhi High Court
M.V. Omni Projects (India) Ltd vs Union Of India Through Dy Chief Engg ... on 15 May, 2025
Author: Jasmeet Singh
Bench: Jasmeet Singh
$~J
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 17.04.2025
Judgment pronounced on:15.05.2025
+ O.M.P. (T) (COMM.) 5/2025
M.V. OMNI PROJECTS (INDIA) LTD. .....Petitioner
Through: Mr. Subodh Kr. Pathak, Mr. Amit
Sinha, Mr. Pawan Kumar Sharma, Mr.
Niraj Kumar, Advs.
versus
UNION OF INDIA THROUGH DY CHIEF ENGG NORTHERN
RAILWAY & ANR. .....Respondent
Through: Mr. Ruchir Mishra, Sr. Panel
Counsel with Mr. Rajkumar Maurya,
GP with Mr. Sanjiv Kr. Saxena, Mr.
Mukesh Shukla, Ms. Poonam Shukla,
Ms. Reba Jena Mishra, Ms. Harshita
Sharma, Advs.
+ O.M.P. (T) (COMM.) 6/2025
M.V. OMNI PROJECTS (INDIA) LTD. .....Petitioner
Through: Mr. Subodh Kr. Pathak, Mr. Amit
Sinha, Mr. Pawan Kumar Sharma, Mr.
Niraj Kumar, Advs.
versus
UNION OF INDIA THROUGH DY CHIEF ENGG NORTHERN
RAILWAY & ANR. .....Respondent
Through: Mr. Ruchir Mishra, Sr. Panel
Counsel with Mr. Rajkumar Maurya,
GP with Mr. Sanjiv Kr. Saxena, Mr.
Mukesh Shukla, Ms. Poonam Shukla,
Ms. Reba Jena Mishra, Ms. Harshita
Sharma, Advs.
+ O.M.P. (T) (COMM.) 7/2025
M.V. OMNI PROJECTS (INDIA) LTD. .....Petitioner
Through: Mr. Subodh Kr. Pathak, Mr. Amit
Sinha, Mr. Pawan Kumar Sharma, Mr.
Niraj Kumar, Advs.
Page 1 of 27
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versus
UNION OF INDIA THROUGH DY CHIEF ENGG NORTHERN
RAILWAY & ANR. .....Respondent
Through: Mr. Ruchir Mishra, Sr. Panel
Counsel with Mr. Rajkumar Maurya,
GP with Mr. Sanjiv Kr. Saxena, Mr.
Mukesh Shukla, Ms. Poonam Shukla,
Ms. Reba Jena Mishra, Ms. Harshita
Sharma, Advs.
CORAM:
HON'BLE MR. JUSTICE JASMEET SINGH
JUDGMENT
1. Since both the parties are common in all the petitions and the reliefs
sought are also identical, thepetitions are being decided by this
common judgment.
2. These are petitions filed under section 14 of Arbitration and
Conciliation Act, 1996 ("1996 Act") seeking termination of the
mandate of the present Arbitral Tribunal and appoint a Sole Arbitrator
to adjudicate the disputes arising out of the Contract Agreement bearing
No. 47-A/CS/Dy.C.E/C-III/LKO dated 17.06.2016, Contract
Agreement bearing No. 43-A/CS/Dy.C.E/C-III/LKO dated 17.06.2016
and Contract Agreement bearing No. 42-A/CS/Dy.C.E/C-III/LKO
dated 17.06.2016.
FACTUAL BACKGROUND
3. Brief facts are that the petitioner was awarded contractual work of
construction. After some negotiations with respect to the rates for the
work, the petitioner was awarded Letter of Intent/ Letter of Acceptance
and thereafter, the parties entered into a Contract Agreement dated
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17.06.2016.
4. Subsequently, on account of various disputes, the respondent
terminated the Contract on 26.12.2018 in O.M.P. (T) (COMM.) 5/2025
and O.M.P. (T) (COMM.) 7/2025 and on 19.05.2018 in O.M.P. (T)
(COMM.) 6/2025.
5. Thereafter, the petitioner made representation to the respondent in
terms of Clause No. 64 of the GCC which is the applicable provision
for the dispute resolution. Relevant portion of the said Clause is
extracted below:-
"64 (1) (i) - Demand for Arbitration
In the event of any dispute or difference between the parties
hereto as tothe construction or operation of this contract, or
the respective rightsand liabilities of the parties on any
matter in question, dispute ordifference on any account or as
to the withholding by the Railway ofany certificate to which
the contractor may claim to be entitled to, or ifthe Railway
fails to make a decision within 120 days, then and in anysuch
case, but except in any of the "excepted matters" referred to
inClause 63 of these conditions, the contractor, after 120
days but within180 days of his presenting his final claim on
disputed matters shalldemand in writing that the dispute or
difference be referred toarbitration.
64 (1) (ii) - The demand for arbitration shall specify the
matters whichare in question, or subject of the dispute or
difference as also theamount of claim item wise. Only such
dispute(s) or difference(s) inrespect of which the demand has
been made, together with counterclaims or set off, given by
the Railway, shall be referred to arbitrationand other
matters shall not be included in the reference.
64 (1) (ii) - (a) The Arbitration proceedings shall be assumed
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to havecommenced from the day, a written and valid demand
for arbitration isreceived by the Railway.
(b) The claimant shall submit his claim stating the
factssupporting the claims along with all the relevant
documents and therelief or remedy sought against each claim
within a period of 30 daysfrom the date of appointment of the
Arbitral Tribunal.
(c) The Railway shall submit its defence statement
and counter claim(s), if any, within a period of 60 days of
receipt of copy of claims from Tribunal thereafter, unless
otherwise extension has been granted by Tribunal.
(d) The place of arbitration would be within the
geographicallimits of the Division of the Railway where the
cause of action arose or the Headquarters of the concerned
Railway or any other place with the written consent of both
the parties.
64 (1) (iii) - .............
64 (1) (iv) - If the contractor(s) does/do not prefer his/their
specific andfinal claims in writing, within a period of 90 days
of receiving theintimation from the Railways that the final
bill is ready for payment,he/they will be deemed to have
waived his/their claim(s) and theRailway shall be discharged
and released of all liabilities under thecontract in respect of
these claims.
64 (2) - Obligation During Pendency of Arbitration - Work
under the contract shall, unless otherwise directed by the
Engineer, continue during the arbitration proceedings, and
no payment due or payable bythe Railway shall be withheld
on account of such proceedings, provided, however, it shall
be open for Arbitral Tribunal to considerand decide whether
or not such work should continue during arbitration
proceedings.
64 (3) (a) (i) - In cases where the total value of all claims in
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questionadded together does not exceed Rs.10,00,000/-
(Rupees ten lakhs only),the Arbitral tribunal shall consist of
a sole arbitrator who shall be a gazetted officer of Railway
not below JA grade, nominated by theGeneral Manager. The
sole arbitrator shall be appointed within 60days from the day
when a written and valid demand for arbitration isreceived
by GM.
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 Rly. Officers not below JA grade or 2 Railway
Gazatted 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 Rly. Officer of one or more
departments of the Rly. 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
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other departments of the Railway for the purpose of
appointment of arbitrator.
64 (3) (a) (iii) - If one or more of the arbitrators appointed as
aboverefuses to act as arbitrator, withdraws from his office
as arbitrator, orvacates his/their office/offices or is/are
unable or unwilling toperform his functions as arbitrator for
any reason whatsoever or diesor in the opinion of the
General Manager fails to act without unduedelay, the
General Manager shall appoint new arbitrator/arbitratorsto
act in his/their place in the same manner in which the earlier
arbitrator/arbitrators had been appointed. Such
re-constitutedTribunal may, at its discretion, proceed with
the reference from thestage at which it was left by the
previous arbitrator (s)."
(Emphasis added)
6. Pursuant to the aforesaid representation, the respondent appointed three
serving railway employees as Arbitrators to adjudicate the disputes
between the parties.
7. The petitioner appeared before the Arbitral Tribunal constituted by the
respondent on 7 hearings and thereafter, filed the present petition.
8. Before going into the submissions, it is apposite to extract the relevant
paragraphs of the orders passed by the Arbitral Tribunal.
"Order dated 19.10.2024 i.e. 7th Hearing
"2.0 During hearing it was brought to the notice of Arbitral
Tribunal that though Claimant and Respondent have
separately submitted waiver of applicability of section 12(5)
of Arbitration & Conciliation Act, an express agreement in
writing between Claimant & Respondent is yet to be entered
into.
3.0 Arbitral Tribunal brought to the attention of Claimant
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and Respondent that certain documents filed by them are not
legible and also directed claimant and respondent to re-look
such documents filed by them and submit clear and legible
copies on next hearing.
4.0 After hearing both the parties, Arbitral Tribunal has
directed that following documents are to be submitted by
14.11.2024.
4.1 Agreement for waiver of applicability of Section 12(5) of
Arbitration & Conciliation Agreement, duly signed jointly by
authorized representatives on behalf of Claimant and
Respondent."
Order dated 02.12.2024 i.e. 9th Hearing
2.0 Vide Para 2.0 of Order Sheet of 7 th hearing dated
19.10.2024, it was recorded that, "During hearing it was
brought to the notice of Arbitral Tribunal that though
Claimant and Respondent have separately submitted waiver
of applicability of section 12(5) of Arbitration & Conciliation
Act an express agreement in writingbetween Claimant &
Respondent is yet to be entered into". Vide Para 4.1 of
OrderSheet of 7th hearing dated 19.10.2024,
ArbitralTribunal has directed that, Agreement for waiver of
application of section 12 (5) of Arbitration & Conciliation
Act, duly signed by authorized representative of Claimant
and Respondent to be submitted by 14.11.2024.
3.0 During 8th hearing dated 22.11.2024, compliances of 7th
hearing were pending. Claimant and Respondent were again
directed to ensure compliances as discussed and agreed
during 7th hearing dated 19.10.2024 & next (9th) hearing
was fixed on 02.12.2024.
4.0 During 02.12.2024, agreement duly signed by
Respondent for waiver of application of section 12(5) of
Arbitration & Conciliation Act was brought by Respondent
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representative Shri Rakesh Kumar, AXEN/C/LKO. However,
this was not signed by Claimant & during hearing dated
02.12.2024, Claimant Advocatehas verbally informed that a
petition under Section 14 of Arbitration & ConciliationAct
seeking constitution of new Arbitral Tribunal has been filed
by them before Hon‟ble High Court of Delhi, adjudication of
same is awaited from Hon‟ble High Court of Delhi and final
order as and when received will be duly intimated to the Ld.
Arbitral Tribunal. E-mail confirmation from Claimant on the
issue is placed as Annexure-A/1-2."
9. It is the sole contention of Mr. Pathak, learned counsel for the petitioner
that the Arbitral Tribunal has been appointed unilaterally by the
respondent which is against the settled principles of law and hence, the
mandate of the Arbitral Tribunal be terminated and new Arbitral
Tribunal be constituted. Reliance is placed on judgments of this Court
passed in Arb. P. No. 703 of 2023, Arb. P. 1715 of 2024 and connected
matters.
10. Per Contra, Mr. Mishra, learned counsel for the respondent states that
the petitioner has already waived the applicability of section 12(5) of
1996 Act on 23.02.2024. In this regard, he relied upon the letter of the
petitioner which reads as under:-
"23.02.2024
To
Dy. Chief Engineer/Construction/G-1
Office of the Chief Administrative
Officer/Construction
Northern Railway, Head Quarter
Kashmiri Gate, Delhi - 110006
Kind Att. Mr. Puneet Kumar Srivastava, CE/Con/G-1
Subject: ......
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Reference: 1.LOA No.-74-W/1/1/WA/Misc./LKO
dated 25.05.2016.
2. Agreement No. 47-A/CS/Dy. C.P./C-III/LKO dated
17.06.2016.
3. Your office letter No.
74-W/3/2/Misc./WA/LKO/T-44/Omni/Arb dated
20.02.2024.
Dear Sir,
We received your above (Ref-3) letter, vide which we
have been intimidated to submit copy of Annexure-XV
for switching over our Arbitration Case according to
the provision of Arbitration and Conciliation Act
2015.
We are enclosing the same and request you to kindly
proceed at your earliest.
Yours Sincerely
For M.V. Omni Projects (India) Limited
Authorized Signatory
Enclosure- Annexure XV
ANNEXURE- XV
Agreement towards Waiver under Section 12(5) and
Section 31-A(5) of Arbitration and
Conciliation(Amendment) Act
We M/s M.V. Omni Projects ( India) Limited with
reference to agreement no. 47-Acs/Dy. CE/C/III/LKO
dated 17.06.2016 dated 17.06.2016 raised disputes as
to the construction and operation of this Contract, or
the respective rights and liabilities, withholding of
certificate and demand arbitration in respect of
following claims:
List of claims:
Sl. Claims Amount in Rs/.
No.
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1 Claim-A On account of outstanding amount Rs. 40,37,847.45/-
(Last RA & Final
Bill)
2 Claim-B Payment under Price Variation Clause Rs. 34,58,373.16/-
with respect to the executed work
3 Claim C On account of additional tax burden Rs. 11,54,958.24/-
due to GST implications. (Against RA Bills 01
to 08) & Rs.
04,15,024.44/-
(Against Last RA &
Final Bill)
4 Claim-D On account of idle charges of Rs. 1,69,65,200/-
Machinery deployed.
5 Claim-E On account of illegal encashment of Rs. 30,87,910.00/-
B.G.
6 Claim-F On account of Refund of Security Rs. 29,10,725.61/-
Deposit with EMD (Against RA Bills) &
Rs. 4,52,370/-(EMD)
7 Claim-G(1) On account of delay in execution of Rs. 98,30,623.49/-
work-On account of Overhead for
prolonged period.
Claim-G(2) On account of delay in execution of Rs. 1,47,45,785.23/-
work- On account of Business Loss for
prolonged period.
8 Claim-H On account of Loss of Profit Rs. 43,99,305.65/-
9 Claim-I Payment of Interest Rs. 4,44,31,625.15/-
@ 18% from due date
till 31.12.2022
Total Rs. 10,58,89,648.42/-
& Interest @18%
from 01.01.2023 till
payment realization
I/We Mr. M.C. Pandey authorized representative of
M/s. M.V. Omni Projects (India) Limited with
reference to agreement no. 47-Acs/Dy. CE/C/III/LKO
dated 17.06.2016 dated 17.06.2016 hereby raise
dispute as to the construction and operation of this
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contract, or the respective rights and liabilities,
withholding of certificate and demand arbitration in
respect of the following claims:
We M.V. Omni Projects (India) Limited do agree to
waive off applicability of section 12(5) of Arbitration
and Conciliation (Amendment) Act.
Signature of Claimant......Signature of Respondent.....
Agreement under Section 31(5)
I/We Mr. M.O. Pandey authorized representative of
M/s. M.V. Omni Projects (India) Limited with
reference to agreement no. 47-Acs/Dy. CE/C/III/LKO
dated 17.06.2016 hereby waive off the applicability of
sub section 31-A(4) of the Arbitration and
Conciliation (Amendment) Act. We further agree that
the cost of arbitration will be shared by the parties as
per Clause 64(6) of GCC.
Signature of Claimant....Signature of Respondent....."
11. He states that the petitioner was very well cognizant with the arbitration
clause and the right of the respondent to nominate three Arbitrators who
were to be the employees of the Railways. Being fully conscious of the
clause, the petitioner on its own accord waived in writing the
applicability of section 12(5) of 1996 Act and hence the petition is not
maintainable. In this regard, reliance is placed on Truly Pest Solution
(P) Ltd. v. Railway, 2024 SCC OnLine Bom 3528.
ANALYSIS AND FINDINGS
12. I have heard the submissions advanced by the learned counsel for the
parties.
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13. The question which needs consideration is whether the waiver
reproduced above is a waiver as contemplated under section 12(5) of
1996 Act.
14. As the legislature enacts the laws, the Courts interprets the same within
the contours or framework of the statute. The very object of
interpretation of a statute is to understand the intent of the legislature
and to achieve the purpose of enactment of the law. Interpretation
should not lead to any absurd/inconsistent or unreasonable
outcome/conclusions. Proviso to a section sometimes makes an
exception, impose conditions or restrict the scope and clarifies the
legislative intent. The Hon'ble Supreme Court in DMRC v. Tarun Pal
Singh, (2018) 14 SCC 161, after considering various judgments qua
the interpretation of the proviso, observed as under:-
"21. What follows from the aforesaid enunciation is that
effect of a proviso is to except all preceding portion of the
enactment. It is only occasionally that proviso is unrelated to
the subject-matter of the preceding section, it may have to be
interpreted as a substantive provision. Ordinarily, a proviso
is not interpreted as stating a general rule. Provisos are often
added as saving clauses. A proviso must be construed with
reference to the preceding parts of the clause to which it is
appended. The proviso is ordinarily subordinate to the main
section. A construction placed on proviso which brings
general harmony to the terms of the section should prevail. A
proviso may sometime contain substantive provision.
Ordinarily, proviso to a section is intended to take out a part
of the main section for special treatment. Normally, a proviso
does not travel beyond the main provision to which it is a
proviso. A proviso is not interpreted as stating a general rule,
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it is an exception to the main provision to which it is carved
out as a proviso. Proviso cannot be construed as enlarging
the scope of enactment when it can be fairly and properly
constructed without attributing that effect. It is not open to
read in the words of enactment which are not to be found
there and which would alter its operative effect."
15. A Constitution Bench of the Hon'ble Supreme Court in Central
Organisation for Railway Electrification v. ECI SPIC SMO MCML
(JV) A Joint Venture Co., 2024 SCC OnLine SC 3219 held as under:-
"161. By agreeing to arbitrate in a public-private contract,
the government or its companies agree to settle their disputes
with private contractors through arbitration. Since the
activities of the government have a public element, it is
incumbent upon the government to ensure that it enters into a
contract with the public without adopting any unfair or
unreasonable procedure. Every action of a public authority
or a person acting in the public interest or any act that gives
rise to a public element must be based on principles of
fairness and non-arbitrariness. Therefore, government
agencies have to consider the principles of equality and
non-arbitrariness when crafting arbitration procedures,
including the procedure for the appointment of arbitrators.
The terms of the arbitration agreement must meet the
minimum standards of equality and fairness. In a
public-private contract, the government and its
instrumentalities must ensure that the arbitral process
contemplated by the contract is also fair to the other party to
avoid arbitrariness.
162. The possibility of bias is real in situations where an
arbitration clause allows a government company to
unilaterally appoint a sole arbitrator or control the majority
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of the arbitrators. Since the government has control over the
arbitral tribunal, it can chart the course of the arbitration
proceedings to the prejudice of the other party. Resultantly,
unilateral appointment clauses fail to provide an effective
substitute for judicial proceedings in India. Further, a
unilateral appointment clause is inherently exclusionary and
violates the principle of equal treatment of parties and
procedural equality.
163. Unilateral appointment clauses in a public-private
contract fail to provide the minimum level of integrity
required in authorities performing quasi-judicial functions
such as arbitral tribunals. Therefore, a unilateral
appointment clause is against the principle of arbitration,
that is, impartial resolution of disputes between parties. It
also violates the nemo judex rule which constitutes the public
policy of India in the context of arbitration. Therefore,
unilateral appointment clauses in public-private contracts
are violative of Article 14 of the Constitution for being
arbitrary in addition to being violative of the equality
principle under the Arbitration Act.
...............
J. Conclusion
169. In view of the above discussion, we conclude that:
a. The principle of equal treatment of parties applies at all
stages of arbitration proceedings, including the stage of
appointment of arbitrators;
b. 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;
c. A clause that allows one party to unilaterally appoint a
sole arbitrator gives rise to justifiable doubts as to the
independence and impartiality of the arbitrator. Further,
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such a unilateral clause is exclusive and hinders equal
participation of the other party in the appointment process of
arbitrators;
d. In the appointment of a three-member panel, mandating
the other party to select its arbitrator from a curated panel of
potential arbitrators is against the principle of equal
treatment of parties. In this situation, there is no effective
counterbalance because parties do not participate equally in
the process of appointing arbitrators. The process of
appointing arbitrators in CORE (supra) is unequal and
prejudiced in favour of the Railways;
e. Unilateral appointment clauses in public-private contracts
are violative of Article 14 of the Constitution;
f. The principle of express waiver contained under the
proviso to Section 12(5) also applies to situations where the
parties seek to waive the allegation of bias against an
arbitrator appointed unilaterally by one of the parties. After
the disputes have arisen, the parties can determine whether
there is a necessity to waive the nemo judex rule; and
g. The law laid down in the present reference will apply
prospectively to arbitrator appointments to be made after the
date of this judgment. This direction applies to three-member
tribunals.
170. The reference is answered in the above terms.
171. Pending application(s), if any, shall stand disposed of."
16. It has been categorically observed by the Hon'ble Supreme Court that
unilateral appointment clauses are against the principles of arbitration
and more particularly Article 14 of Constitution. In public private
contracts, there is a possibility of bias where a government company
unilaterally appoints Arbitrator/s as they have control (actual or
pervasive) over the Arbitrators. Hence, unilateral clauses do not
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effectively implementor further the objective of a neutral arbitral
process.
17. Section 12(5) of 1996 Act reads as under:-
"12. Grounds for challenge.
........
[(5) Notwithstanding any prior agreement to the contrary,
any person whose relationship, with the parties or counsel or
the subject-matter of the dispute, falls under any of the
categories specified in the Seventh Schedule shall be
ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having
arisen between them, waive the applicability of this
sub-section by an express agreement in writing.]"
18. The purpose of section 12(5) and proviso has been explained by the
Hon'ble Supreme Court in the judgment of Bharat Broadband vs.
United Telecom (2019) 5 SCC 755 and more particularly in paragraphs
15, 16 and 17 which read as under:-
"15. Section 12(5), on the other hand, is a new provision
which relates to the de jure inability of an arbitrator to act as
such. Under this provision, any prior agreement to the
contrary is wiped out by the non obstante clause in Section
12(5) the moment any person whose relationship with the
parties or the counsel or the subject-matter of the dispute
falls under the Seventh Schedule. The sub-section then
declares that such person shall be "ineligible" to be
appointed as arbitrator. The only way in which this
ineligibility can be removed is by the proviso, which again is
a special provision which states that parties may, subsequent
to disputes having arisen between them, waive the
applicability of Section 12(5) by an express agreement in
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writing. What is clear, therefore, is that where, under any
agreement between the parties, a person falls within any of
the categories set out in the Seventh Schedule, he is, as a
matter of law, ineligible to be appointed as an arbitrator. The
only way in which this ineligibility can be removed, again, in
law, is that parties may after disputes have arisen between
them, waive the applicability of this sub-section by an
"express agreement in writing". Obviously, the "express
agreement in writing" has reference to a person who is
interdicted by the Seventh Schedule, but who is stated by
parties (after the disputes have arisen between them) to be a
person in whom they have faith notwithstanding the fact that
such person is interdicted by the Seventh Schedule.
16. The Law Commission Report, which has been extensively
referred to in some of our judgments, makes it clear that
there are certain minimum levels of independence and
impartiality that should be required of the arbitral process,
regardless of the parties' agreement. This being the case, the
Law Commission then found:
"59. The Commission has proposed the requirement of
having specific disclosures by the arbitrator, at the
stage of his possible appointment, regarding existence
of any relationship or interest of any kind which is likely
to give rise to justifiable doubts. The Commission has
proposed the incorporation of the Fourth Schedule,
which has drawn from the red and orange lists of the
IBA Guidelines on Conflicts of Interest in International
Arbitration, and which would be treated as a "guide" to
determine whether circumstances exist which give rise
to such justifiable doubts. On the other hand, in terms of
the proposed Section 12(5) of the Act and the Fifth
Schedule which incorporates the categories from the
red list of the IBA Guidelines (as above), the person
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proposed to be appointed as an arbitrator shall be
ineligible to be so appointed, notwithstanding any prior
agreement to the contrary. In the event such an
ineligible person is purported to be appointed as an
arbitrator, he shall be de jure deemed to be unable to
perform his functions, in terms of the proposed
Explanation to Section 14. Therefore, while the
disclosure is required with respect to a broader list of
categories (as set out in the Fourth Schedule, and as
based on the red and orange lists of the IBA
Guidelines), the ineligibility to be appointed as an
arbitrator (and the consequent de jure inability to so
act) follows from a smaller and more serious subset of
situations (as set out in the Fifth Schedule, and as based
on the red list of the IBA Guidelines).
................
Thus, it will be seen that party autonomy is to be respected
only in certain exceptional situations which could be
situations which arise in family arbitrations or other
arbitrations where a person subjectively commands blind
faith and trust of the parties to the dispute, despite the
existence of objective justifiable doubts regarding his
independence and impartiality.
17. The scheme of Sections 12, 13 and 14, therefore, is that
where an arbitrator makes a disclosure in writing which is
likely to give justifiable doubts as to his independence or
impartiality, the appointment of such arbitrator may be
challenged under Sections 12(1) to 12(4) read with Section
13. However, where such person becomes "ineligible" to be
appointed as an arbitrator, there is no question of challenge
to such arbitrator, before such arbitrator. In such a case i.e.
a case which falls under Section 12(5), Section 14(1)(a) of
the Act gets attracted inasmuch as the arbitrator becomes, as
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a matter of law (i.e. de jure), unable to perform his functions
under Section 12(5), being ineligible to be appointed as an
arbitrator. This being so, his mandate automatically
terminates, and he shall then be substituted by another
arbitrator under Section 14(1) itself. It is only if a
controversy occurs concerning whether he has become de
jure unable to perform his functions as such, that a party has
to apply to the Court to decide on the termination of the
mandate, unless otherwise agreed by the parties. Thus, in all
Section 12(5) cases, there is no challenge procedure to be
availed of. If an arbitrator continues as such, being de jure
unable to perform his functions, as he falls within any of the
categories mentioned in Section 12(5), read with the Seventh
Schedule, a party may apply to the Court, which will then
decide on whether his mandate has terminated. Questions
which may typically arise under Section 14 may be as to
whether such person falls within any of the categories
mentioned in the Seventh Schedule, or whether there is a
waiver as provided in the proviso to Section 12(5) of the Act.
As a matter of law, it is important to note that the proviso to
Section 12(5) must be contrasted with Section 4 of the Act.
Section 4 deals with cases of deemed waiver by conduct;
whereas the proviso to Section 12(5) deals with waiver by
express agreement in writing between the parties only if
made subsequent to disputes having arisen between them."
19. Section 12(5) of 1996 Act aims to bring an element of neutrality and
impartiality in the arbitral process. The aforesaid judgment
categorically states that any Arbitrator who falls within the seventh
schedule of 1996 Act becomes ineligible for appointment as an
Arbitrator. It is only in cases where a party categorically waives off the
applicability of section 12(5) of 1996 Act in writing that despite the
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person on account of being in one of the categories in the seventh
schedule, becomes eligible to proceed with the arbitration proceedings.
20. What is the stage when this waiver as contemplated under proviso of
section 12 (5) of 1996 Act is to be given so as to be considered as a
waiver?
21. I am unable to agree with the submissions advanced by the learned
counsel for the respondent as the waiver contemplated in the proviso
ofsection 12(5) of 1996 Act applies not to the manner or the mechanism
under which the Arbitral Tribunal is to be constituted but to the
constitution/individual members of the Arbitral Tribunal. As per
Bharat Broadband (supra), it has already been clarified that "express
agreement in writing" to waive refers to a "person" who is interdicted
by the seventh schedule. If an individual falls within any of the
categories as mentioned in seventh schedule, then the said person/sare
ineligible to be appointed as Arbitrator and only to remove the
ineligibility, the party may waive by an express agreement the said
ineligibility in writing qua the "person/s" who are ineligible to be
appointed.
22. It is possible that the parties to an arbitration agreement may agree to a
mechanism for appointment of an Arbitrator/Arbitral Tribunal under
which one of the parties to the arbitration agreement may appoint an
Arbitrator/Arbitral Tribunal. The opposing party may not have an
objection to the mechanism of appointment of an Arbitrator/Arbitral
Tribunaland may waive off its applicability of Section 12(5) of 1996
Act to the appointment process. However, once the Arbitrator is
appointed, the party which had given a no-objection under the proviso
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may have an objection to the Arbitrator or to the members of the
Arbitral Tribunal so appointed on the ground that the Arbitrator or
members of the Arbitral Tribunal fall within the 7th schedule. In that
scenario, "no objection" given to the applicability of section 12(5) of
1996 Act to the mechanism of appointment/formation of Arbitral
Tribunal cannot be held to be binding upon the party qua the members
of the Arbitral Tribunal. The waiver in writing has to be against the
Arbitrator/members of the Arbitral Tribunal.
23. Even assuming for the sake of argument that the petitioner has waived
off the applicability of section 12(5) of 1996 Act, in order to achieve the
purpose of impartiality, neutrality and independence, the no-objection
to the applicability of section 12(5) of 1996 Act has to be given after the
constitution of the Arbitral Tribunal. It is only after the appointment of
Arbitrator/Arbitral Tribunal, the party would know whether the
Arbitrator/members of the Arbitral Tribunal fall within the seventh
schedule and despite being ineligible under the seventh schedule, the
party wishes to waive off the ineligibility, then only the "express
agreement in writing" contemplated under the proviso to section 12(5)
would be meaningful and procedurally correct.
24. In the present case, the petitioner had waived off the applicability of
section 12(5) before the constitution of the Arbitral Tribunal and not to
the members of the Arbitral Tribunal. The Arbitral Tribunal was
constituted on 21.03.2024 and the petitioner had waived off the
applicability of section 12(5) on 23.02.2024 i.e. before the constitution
of the Arbitral Tribunal. The members of the Arbitral Tribunal were the
serving employees of the respondent and are clearly barred by under S.
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No. 1 of seventh schedule of 1996 Act. The judgment of Central
Organisation for Railway Electrification (supra) clearly states that the
clauses appointing unilateral Arbitrators raises doubt to the
independent and impartiality of the Arbitrators and is unequal. To my
mind, such clauses strike at the core of the neutrality contemplated
under the1996 Act. Further and most importantly, even if a party agrees
to waive off the applicability of section 12(5) of 1996 Act, the same has
to be done once the Arbitrator are appointed with the names and details.
Any waiver under proviso of section 12(5) of 1996 Act before the
details of the Arbitrators/Arbitral Tribunal is known to the party
waiving the applicability of section 12(5) of 1996 Act is no waiver in
the eyes of law. Hence, for the reasons noted above, the members of the
Arbitral Tribunal are clearly ineligible to act as the Arbitrators by virtue
of S. No. 1 of seventh schedule of 1996 Act and the waiver was to the
constitution of the Arbitral Tribunal not to the members of the Arbitral
Tribunal.
25. Learned counsel for the respondent placed reliance on Truly Pest
Solution (P) Ltd. (supra) passed by the Bombay High Court. Relevant
paragraphs of the said judgment are extracted below:-
"16. It is the case of the petitioner/claimant that the Arbitral
Tribunal consisting of sole arbitrator who was an employee
of the respondent (Railways), hence, he could not have being
adjudicating the issue between the claimant and the
respondent. It is the case of the claimant that after the
amendment to the Arbitration Act, in the year 2015, there
were major changes made in Section 12 of the said Act.
Section 12 of the Arbitration Act mentions about the grounds
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for challenge. One of such ground of challenge is sub-clause
(5) which mentions that any person whose relationship with
the parties or the subject-matter of the dispute which falls
under the Seventh Schedule shall not be eligible to be
appointed as an arbitrator. The Seventh Schedule refers to
about 19 sub-clauses under which, if the arbitrator has
relationship with the parties or the counsel, he would be
ineligible to be appointed as an arbitrator. The first of such
clause mentions about an arbitrator being an employee,
consultant or advisor in past or present with one of the
parties, then he would be ineligible to be appointed as an
arbitrator.
17. In the present proceedings, the petitioner/claimant
invoked the Arbitration clause by its Letter dated 7-12-2020.
....................
Therefore, the claimants have themselves invoked arbitration
clause, wherein it is specifically mentioned that the sole
arbitrator, would be employee of Railways. Being aware of
this fact they have chose to go ahead with the arbitration. The
claimant had invoked the arbitration clause by their Letter
dated 7-12-2020. The said letter was addressed by the
claimant through their advocates hence, the claimant cannot
now take a defence that they were not aware about the legal
implications while they issued the letter of invocation of
arbitration.
In my opinion, even at that stage, if the claimant desired to
appoint sole arbitrator by mutual consent, the claimant could
have filed an application under Section 11 of the Arbitration
Act, whereby they could have sought for appointment of the
sole arbitrator to decide the dispute between the parties.
Admittedly, the claimants have not taken any such steps.
....................
18.3. Though Section 12(5) specifically mentions that the
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arbitrator should disclose his relationship with the parties,
however, proviso to Section 12(5) mentions about waiver in
writing. In the present proceedings, the claimant by express
agreement in writing had waived the applicability of
sub-section (5) of Section 12. Therefore, according to me, the
claimant at the stage of Section 34 is bared from taking up a
ground under Section 12(5) for challenging the award.
....................
20. Subsequently, when the arbitration proceedings
commenced, the claimant had an option to file an application
before the Arbitral Tribunal under Section 16 read with
Section 13(2) of the Arbitration Act. However, the claimant
has not taken up any such steps as contemplated under
Section 16 of the said Act. Section 16 of the Arbitration Act,
envisages the jurisdiction of the Arbitral Tribunal wherein if
a party has to take an objection about the jurisdiction of the
Arbitral Tribunal, the same can be made before the Arbitral
Tribunal, and the Arbitral Tribunal can decide the same. If
the said application is allowed, the Arbitral Tribunal
proceedings come to an end. However, if such an application
is not allowed, the same can be taken as a ground along with
the other grounds while challenging to the arbitral award, if
it is against the said party. In the present proceeding, no such
steps were taken up by the claimant, as contemplated under
Section 13(2).
20.1. The Supreme Court in HRD Corpn. v. GAIL (India)
Ltd.7 has held that if the arbitrator fails to file disclosure in
terms of Section 12(1) read with Fifth Schedule of the
Arbitration and Conciliation Act, 1996, the remedy of the
party in that event would be to apply under Section 14(2) of
the Arbitration and Conciliation Act, 1996 to the court to
decide about the termination of the mandate of the Arbitral
Tribunal on that ground.
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20.2. Under Section 16, the Arbitral Tribunal is empowered
to rule on its own jurisdiction including ruling on any
objection with respect to the existence or validity of
arbitration agreement. Such plea shall be raised not later
than the submission of the statement of defence. If such plea
is rejected by the Arbitral Tribunal, it has to proceed with the
arbitral proceedings and declare an award. If plea of
jurisdiction is accepted by the Arbitral Tribunal, the
respondent may file an appeal under Section 37. If plea of
jurisdiction is not accepted, the respondent may challenge
such ruling along with award under Section 34.
21. For the first time in the present proceedings which is filed
under Section 34, the claimants have raised an issue about
sub-section (5) of Section 12. According to me, as discussed
in earlier paragraphs, the claimants at least had three
occasions before challenging the award under Section 34, to
raise the issue of arbitrator not been qualified/eligible to
conduct the proceedings. The petitioner claimant chose not
to take any such steps. Again, I would like to mention here
that the claimants themselves had invoked arbitration clause,
knowing fully well that as per Clause 64(3)(a)(i) the sole
arbitrator would be a railway employee. Only after the
award is passed, in the present proceedings such an issue has
been raised by the claimant. According to me, the same is a
complete afterthought, hence is rejected."
26. The Bombay High Court, in similar arbitration clause, upheld the
waiver given by the claimant therein. The said judgment is
distinguishable as the petitioner therein challenge the jurisdiction of the
Arbitrator at section 34 stage and did not file any application under
section 11 seeking appointment of Arbitrator, section 14 seeking
termination of the mandate of the Arbitrator or section 16 before the
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Arbitrator stating that the Arbitrator was ineligible. Hence, the High
Court therein dismissed the petition. The same is not in the present case.
Soon after the Arbitral Tribunal was constituted, the petitioner has filed
the present petition seeking termination of mandate of the Arbitral
Tribunal. Additionally, the AT also has asked the petitioner to submit
waiver in writing in the 7th and 9th hearing dated 19.10.2024 and
02.12.2024 respectively which the petitioner has refused to give.
27. A Co-ordinate bench in M/s M.V. Omni Projects (India) Ltd. v. Union
of India, through Dy. Chief Engineer/Const.II/Northern Railway,
2024:DHC:7874, in a similar arbitration clause, appointed the Sole
Arbitrator and observed that the appointment procedure is invalid, any
proceedings before the same are non-est. Also in Arb. P. 1715/2024
and connected matters, in a similar arbitration clause, this Court
appointed Sole Arbitrator.
28. For the reasons noted above, the petition is allowed and the letter dated
23.02.2024 is no waiver in the eyes of law. Consequently, the Arbitral
Tribunal appointed by the respondent is set aside.
29. Learned counsels for the petitioner and respondent are granted one
week to agree to a name of a Sole Arbitrator or nominate their
respective Arbitrators. In case, the parties are unable to nominate their
arbitrator or agree to a Sole Arbitrator, this Court will be constrained to
appoint the Sole Arbitrator/ Arbitral Tribunal.
30. List for further hearing on 22.05.2025.
JASMEET SINGH, J
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MAY 15th, 2025/(MSQ)
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