[Cites 20, Cited by 0]
Delhi High Court
Titagarh Rail Systems Limited vs Railway Board, Ministry Of Railways, ... on 13 April, 2026
Author: C. Hari Shankar
Bench: C. Hari Shankar
$~75 & 76
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ FAO(OS) (COMM) 103/2026, CM APPLs.24033-34/2026
TITAGARH RAIL SYSTEMS LIMITED
.....Appellant
Through: Ms. Akanksha Mehra, Mr.
Tanay Agarwal, Mr. Shivam Bhimsaria, Mr.
Abhiraj Choudhary and Ms. Mili Tomar
versus
RAILWAY BOARD, MINISTRY OF RAILWAYS,
GOVERNMENT OF INDIA .....Respondent
Through: Mr. Sandeep Kumar Mahapatra,
CGSC, Ms. Mrinmayee Sahu, Mr. Amit
Acharya, GP, Mr. Tribhuvan, Mr.
Abhimanyu and Ms. Anushka Sarraf,
Advocates and Mr Vinay Kaushik
Government Pleader
+ FAO(OS) (COMM) 104/2026, CM APPL. 24043/2026
TITAGARH RAIL SYSTEMS LIMITED .....Appellant
Through: Mr. Rajshekhar Rao, Sr.
Advocate with Ms. Akanksha Mehra, Mr.
Tanay Agarwal, Mr. Shivam Bhimsaria, Mr.
Abhiraj Choudhary and Ms. Mili Tomar,
Advocates
versus
RAILWAY BOARD, MINISTRY OF
RAILWAYS .....Respondent
Through: Mr. Sandeep Kumar Mahapatra,
CGSC, Ms. Mrinmayee Sahu, Mr. Amit
Acharya, GP, Mr. Tribhuvan, Mr.
Abhimanyu and Ms. Anushka Sarraf,
Signature Not Verified
Digitally Signed By:AJIT
FAO(OS) (COMM) 103/2026 & connected matters Page 1 of 25
KUMAR
Signing Date:20.04.2026
12:39:26
Advocates and Mr Vinay Kaushik
Government Pleader
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
HON'BLE MR. JUSTICE OM PRAKASH SHUKLA
JUDGMENT (ORAL)
% 13.04.2026
C. HARI SHANKAR, J.
A. The lis
1. These appeals, under Section 37 of the Arbitration &
Conciliation Act, 19961 , assail a judgment and an order, both dated 26
February 2026, in OMP (Comm) 475/20242 and OMP (Comm)
503/20243 , rendered by a learned Single Judge of this Court. The
principal judgment stands rendered in OMP (Comm) 475/2024, with
the order in OMP (Comm) 503/2024 merely recording that the arbitral
award, which formed subject matter of challenge in both OMPs,
already stood set aside in OMP (Comm) 475/2025 and that, therefore,
no separate orders were called for. The impugned judgment and order
have, needless to say, been rendered under Section 34 of the 1996 Act.
2. The learned Single Judge has allowed the OMPs filed by the
Respondent-Railway Board on the ground that the learned arbitrator,
who had rendered the award forming subject matter of challenge,
having been a serving employee of the Railway Board, his very
1 "the 1996 Act" hereinafter
2 Railway Board v. Titagarh Rail Systems Ltd
3 Railway Board v. Titagarh Rail Systems Ltd
appointment as an arbitrator was in the teeth of Section 12(5)4 read
with the VII Schedule to the 1996 Act. Resultantly, the award
rendered by the learned arbitrator has been held to be unsustainable, as
the learned arbitrator was incompetent to arbitrate. In arriving at his
conclusion, the learned Single Judge has placed exhaustive reliance on
the recent decision of the Supreme Court in Bhadra International
(India) (P) Ltd. v. Airport Authority of India5.
3. Aggrieved by the decision of the learned Single Judge, Titagarh
Rail Systems Ltd6 has preferred the present appeals under Section 13
of the Commercial Courts Act, 2015 read with Section 37 of the 1996
Act.
4. We have heard Mr. Raj Shekhar Rao, learned Senior Counsel
for TRSL and Mr. Sandeep Kumar Mahapatra, learned CGSC, at
length.
B. The Issue
5. Mr. Raj Shekhar Rao does not dispute the fact that the learned
arbitrator was facially ineligible to be appointed as an arbitrator in
terms of the main body of Section 12(5) of the 1996 Act. His precise
contention is that the facts of the present case attract the proviso to
4 (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.
5 2026 SCC OnLine SC 7
6 "TRSL" hereinafter
Section 12(5), as the parties had, subsequent to the disputes arising
between them, expressly waived the applicability of Section 12(5). To
that extent, he submits that the decision in Bhadra International does
not operate against the arbitral award or its legality. The learned
Single Judge has, therefore, according to Mr. Rao, erred in setting
aside the arbitral award on the ground that the appointment of the
arbitrator was illegal in view of Section 12(5) of the 1996 Act read
with the judgment in Bhadra International.
6. The dispute, therefore, actually narrows down to the issue of
whether, in the facts of the present case, the proviso to Section 12(5)
of the 1996 applies.
C. Facts
7. Given the limited nature of the controversy, it is not necessary
to advert to the specifics of the controversy between the parties.
Suffice it, therefore, to state that the arbitral proceedings related to a
contract dated 30 September 2020, whereby the Railway Board had
contracted with TRSL for supply of railway wagons. Clause 18.0 of
the contract read as under:
"18.0 TERMS AND CONDITIONS : The contract shall be
governed by the General Conditions & Special Conditions of
Contract for manufacture of wagons as enclosed (Annexure - I &
IA) and Indian Railways Standard (IRS) Conditions of contract."
Thus, the contract between TRSL and the Railway Board was
governed by the Indian Railways General Conditions of Contract for
the Manufacture and Supply of Wagons7. Clause 18.0 of the GCC
envisaged settlement of disputes by arbitration, and read thus:
"18.0 Settlement of Disputes (Arbitration) : The contract will be
governed by the arbitration clause with amendments as specified in
the Railway Board's Letter No.2018/TF/Civil/Arbitration Policy
dated 12.12.2018."
The letter dated 12 December 2018 of the Railway Board, to which
Clause 18.0 of the GCC made reference, set out the arbitration policy
of the Railway Board. The relevant clauses thereof, which are
pertinent to the dispute before us, maybe reproduced as under:
"2903: Demand for Arbitration:
2903(i): In the event of any dispute or difference between the
parties hereto as to the construction or operation of this contract, or
the respective rights and liabilities of the parties on any matter in
question, dispute or difference on any account, or if the Railway
fails to make a decision within 120 days (as referred in 2902), then
and in any such case, but except in any of the "excepted matters"
referred to in Clause 2902 of these Conditions, parties to the
contract, after 120 days but within 180 days of their presenting
their final claim on disputed matters shall demand in writing that
the dispute or difference be referred to arbitration. Provided that
where the claim is raised by Railways para 2903(i) shall not apply.
2903(ii)(b): The parties may waive off the applicability of Sub-
Section 12(5) of Arbitration and Conciliation Act, 1996 (as
amended), if they agree for such waiver in writing, after dispute
having arisen between them.
2903(iii)(a): The Arbitration proceedings shall be assumed to
have commenced from the day, a written and valid demand for
arbitration is received by the Railway.
2905: Appointment of Arbitrator:
7 "the GCC" hereinafter
2905(a): Appointment of Arbitrator where applicability of
section 12(5) of Arbitration and Conciliation Act has been waived
off :
(i): In cases where the total value of all claims in question
added together does not exceed ₹1,00,00,000/- (Rupees One Crore
only), the Arbitral Tribunal shall consist of a Sole Arbitrator, who
shall be a Gazetted Officer of Railway not below Junior
Administrative Grade, nominated by the General Manager. The
sole arbitrator shall be appointed within 60 days from the day when
a written and valid demand for arbitration is received by General
Manager.
(ii): In cases where the total value of all claims in question
added together exceeds ₹1,00,00,000 (Rupees One Crore Only), the
Arbitral Tribunal shall consist of a panel of three Gazetted Railway
Officers not below Junior Administrative Grade or 2 Railway
Gazetted Officers not below Junior Administrative Grade and a
retired Railway Officer, retired not below the rank of Senior
Administrative Grade Officer, as the arbitrators. For this purpose,
the Railway will send a panel of at least four (4) 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 General Manager.
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. General Manager 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 in ensure that one of
them is from the Accounts Department. An officer of Selection
Grade of the Accounts Department may be considered of equal
status to the officers in Senior Administrative Grade of other
departments of the Railway for the purpose of appointment of
arbitrator
iii: The serving railway officer working in arbitral tribunal in
the ongoing arbitration cases as per clause 2905(a)(i) and clause
2905(a)(ii) above, can continue as arbitrator in the tribunal even
after his retirement.
2905(b): Appointment of Arbitrator where applicability of
Section 12 (5) of Arbitration and Conciliation Act has not been
waived off:
(i) In cases where the total value of all claims in question
added together does not exceed 50,00,000/- (Rupees Fifty Lakh
only), the Arbitral Tribunal shall consist of a Retired Railway
Officer, retired not below the rank of Senior Administrative Grade
Officer, as the arbitrator. For this purpose, the Railway will send a
panel of at least four (4) names of retired Railway Officer(s)
empanelled to work as Railway Arbitrator duly indicating their
retirement dates to the Contractor within 60 days from the day
when a written and valid demand for arbitration is received by the
General Manager
Contractor will be asked to suggest so General Manager at least 2
names out of the panel for appointment as arbitrator 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 arbitrator
(ii) In cases where the total value of all claims in question
added together exceeds 50,00,000/- (Rupees Fifty Lakh only), the
Arbitral Tribunal shall consist of three (3) retired Railway Officers,
retired not below the rank of Senior Administrative Grade Officer,
For this purpose, the Railway will send a panel of at least four (4)
names of retired Railway Officers) empanelled to work as Railway
Arbitrators duly indicating their retirement date to the Contractor
within 60 days from the day when a written and valid demand for
arbitration is received by the General Manager.
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. General Manager 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 has served in the Accounts Department.
2905(c)(ii)(a) Fast Track procedure: Parties to the
arbitration agreement may, at any stage either before or at the time
of appointment of the arbitral tribunal, agree in writing to have
their dispute resolved by fast track procedure specified in Section
29B8 of the Arbitration & Conciliation Act, 1996, as amended"
8. The Railway Board short-closed the contract on 20 March 2023,
cancelled the contract insofar as it related to the supply of the
remaining 390 wagons and forfeited the bank guarantee provided by
TRSL.
9. Disputes, thereby, arose between TRSL and the Railway Board.
10. On 29 May 2023, TRSL wrote to the Railway Board, seeking a
reference of the disputes which had arisen to arbitration in terms of
Clause 18.0 of the GCC read with letter dated 12 December 2018 of
the Railway Board. The notice also stated that TRSL was not waving
8 29-B. Fast track procedure. -
(1) Notwithstanding anything contained in this Act, the parties to an arbitration agreement,
may, at any stage either before or at the time of appointment of the arbitral tribunal, agree in
writing to have their dispute resolved by fast track procedure specified in sub-section (3).
(2) The parties to the arbitration agreement, while agreeing for resolution of dispute by fast
track procedure, may agree that the arbitral tribunal shall consist of a sole arbitrator who shall be
chosen by the parties.
(3) The arbitral tribunal shall follow the following procedure while conducting arbitration
proceedings under sub-section (1):
(a) The arbitral tribunal shall decide the dispute on the basis of written pleadings,
documents and submissions filed by the parties without any oral hearing;
(b) The arbitral tribunal shall have power to call for any further information or
clarification from the parties in addition to the pleadings and documents filed by them;
(c) An oral hearing may be held only, if, all the parties make a request or if the
arbitral tribunal considers it necessary to have oral hearing for clarifying certain issues;
(d) The arbitral tribunal may dispense with any technical formalities, if an oral
hearing is held, and adopt such procedure as deemed appropriate for expeditious disposal
of the case.
(4) The award under this section shall be made within a period of six months from the date
the arbitral tribunal enters upon the reference.
(5) If the award is not made within the period specified in sub-section (4), the provisions of
sub-sections (3) to (9) of Section 29-A shall apply to the proceedings.
(6) The fees payable to the arbitrator and the manner of payment of the fees shall be such as
may be agreed between the arbitrator and the parties.
the provisions of Section 12(5) of the 1996 Act. Paras 9 to 12 of the
notice dated 29 May 2023 may be reproduced as under:
"9. In light of the above facts and circumstances, it is evident
that disputes and differences have arisen and still subsist between
the parties out of and/or in relation to the contract.
10. As such, we, hereby invoke the arbitration clause in the
contract being clause 18 of the Indian Railways General Conditions
of Contract for the Manufacture and Supply of Wagons (read with
the Railway Board's letter no. 2018/TF/Civil/Arbitration Policy
dated 12th December 2018) and refer all and any disputes arising
out of and/or in relation to the contract to arbitration before an
arbitral tribunal consisting of 3 arbitrators. We reserve our right to
furnish particulars and make appropriate claims in respect of the
aforesaid disputes and differences before the arbitral tribunal, once
constituted.
11. Titagarh does not waive the provisions of Section 12 (5) of
the Arbitration and Conciliation Act, 1996 ('said Act').
12. We are in the process of nominating an arbitrator on our
behalf by a separate letter and will call upon you to nominate a
nominee on your behalf. The two arbitrators so nominated will
appoint a third arbitrator as the presiding arbitrator to adjudicate the
disputes and differences between ourselves."
11. Following this, TRSL wrote to the Railway Board on 11 August
2023, invoking the arbitration clause in the agreement between the
parties, again stating that it was not waving the provisions of Section
12(5) of the 1996 Act and proposing the name of a learned retired
Supreme Court judge as the nominee arbitrator of TRSL. The letter
may be reproduced, in extenso, thus:
To, Date: 11.08.2023
The Executive Director Railway Stores (S)
Railway Board,
Ministry of Railways,
Government of India,
New Delhi.
Sub: 2020/RS(I)/954/130/1863 DATED 30TH SEPTEMBER 2020
AND REFERENCE OF DISPUTES TO
ARBITRATION
Re: Our letter dated 29.05.2023
Sir,
This letter has reference to the subject contract and the disputes
arising out of it as well as our letter dated 29.05.2023. The details
of the disputes are omitted here for the sake of brevity as we
specifically refer to our letter dated 29.05.2023, (a copy of whereof
is enclosed herewith for your ready reference) where we accepted
your decision to short close the subject Contract No
2020/RS(1)/954/130/1863 dated 20.03.2023, by cancelling the
balance quantity of 390 BCNA wagons, and submitted that the
following penalties aggregating Rs. 14,68,98,663/- levied by you
are grossly unfair, unjust, and hence not legally tenable:
1. Forfeiture, of the Bank Guarantee submitted by us towards
the Security Deposit of Rs 5,00,00,000/-
2. Liquidated damages amounting to Rs 5,19,15,870/- and
3. Not allowing us the benefit of price variance resulting in
loss of Rs 4,49,82,793/- approx.
We have not received any reply from Indian Railway to the
abovementioned letter, and in view of the same we, hereby invoke
the arbitration clause in the contract being clause 18 of the Indian
Railways General Conditions of Contract for the Manufacture and
Supply of Wagons (read with the Railway Board's letter no.
2018/TF/Civil/Arbitration Policy dated 12th December 2018) and
refer all and any disputes arising out of and/or in relation to the
contract to arbitration before an arbitral tribunal consisting of 3
arbitrators.
Titagarh does not waive the provisions of Section 12 (5) of the
Arbitration and Conciliation Act, 1996 ('said Act'). In view thereof
we propose the appointment of Mr. Justice Deepak Gupta, (Retd.
Judge, Supreme Court of India) as our nominee Arbitrator for
adjudicating the disputes between us. We reserve our right to
furnish particulars and make appropriate claims in respect of the
aforesaid disputes and differences before the arbitral tribunal, once
constituted.
This letter is being issued without prejudice to our lawful rights and
contentions.
Yours faithfully,
For Titagarh Rail Systems Limited
(formerly Titagarh Wagons Limited)
(Dinesh Arya)
Company Secretary"
12. As the Railway Board did not respond to the above notice
issued by TRSL, TRSL filed Arb P 970/2023 before this Court under
Section 11(6) of the 1996 Act, praying that a sole arbitrator be
appointed by this Court to arbitrate on the disputes between TRSL and
the Railway Board. On 3 October 2023, the Railway Board submitted,
to this Court, that the arbitration would be decided by the Fast Track
procedure envisaged in the Railway Board Circular dated 12
December 2018. Accordingly, this Court disposed of Arb P 970/2023
as withdrawn.
13. Following this, on 17 October 2023, TRSL addressed the
following communication to the Railway Board:
"No.: BCNA/Arbit/23/01 17 October 2023
To, Director, RS(W)
Railway Board
New Delhi
Subject: Arbitration in the matter w.r.t. Contract No.
2020/RS(I)/954/130/1863 dated 30.09.2020 between M/s Titagarh
Wagons Limited, Kolkata and Ministry of Railways
Ref: Our letter dated 29.05.2023
Dear Sir,
With reference to the abovementioned letter the Claimant hereby
gives its consent for conduct of arbitration through the Fast Track
Procedure as per para 2905(c)(ii)(a) of the IRS Conditions of
Contract as revised by circular No.2018/TF/Civil/Arbitration
Policy dated 12.12.2018, r.w. Section 298 of the Arbitration and
Conciliation Act, 1996, (as amended).
Thanking You.
Yours Sincerely,
For Titagarh Rail Systems Limited
(formerly Titagarh Wagons Limited)
Sd/-
Dinesh Arya
Company Secretary & Chief Compliance Officer"
14. The Railway Board responded, on 16 November 2023, thus:
"No.2020/RS(1)/954/130/1863
New Delhi-110001, Dated: 16.11.2023
M/s. Titagarh Rail Systems Limited,
Titagarh Towers,
756, Anandapur,
E.M. Bypass,
Kolkata-700107.
Dear Sir,
Sub: Arbitration request in the Contract No.
2020/RS(I)/954/130/1863 dated 30.09.2020 between M/s. Titagarh
Wagons Limited, Kolkata (Now M/s. Titagarh Rail Systems Ltd.)
and Ministry of Railways.
Ref: Your Letter No. BCNA/Arbit/23/01 dated 17.10.2023.
Your above referred letter regarding conducting Arbitration
through Fast Track Procedure against the subject contract is under
consideration in Board's office.
In this regard, the names of 04 Railway Officers for appointment of
Sole Arbitrator in the subject contract are as under:
(a) Shri Ajeet Singh Yadav - EDRS/P, Railway Board
(b) Shri V. Appa Rao - EDRS/RS, Railway Board
(c) Shri Randhir Sahay - EDF/S, Railway Board
(d) Shri M.K. Gupta - EDRS/G, Railway Board
It is requested to suggest names of two Railway Officers indicated
above for the appointment of Sole Arbitrator in the subject
contract. Out of two Railway Officers, one Officer will be
appointed as Sole Arbitrator to resolve the dispute against the
subject contract.
Yours faithfully
Sd/-
(Vipul Kanaujia)
Director, Railway Stores (W)"
We may note, here, that it is one of Mr. Rao's principal submissions
that, by adopting the Fast Track Procedure envisaged by Clause
2905(c)(ii)(a) of the Circular dated 12 December 2018, the Railway
Board had effectively waived the applicability of Section 12(5), as the
Fast Track Procedure applied only in such a case.
15. TRSL, vide its reply dated 24 January 2024, shortlisted the
names of two of the Railway Board officers named in the afore-
extracted communication dated 16 November 2023 of the Railway
Board. This communication read as under:
"No.: BCNA/Arbit/23/03 24 January 2024
To,
Director, RS(W)
Railway Board
New Delhi
Subject: Arbitration in the matter w.r.t. Contract No.
2020/RS(I)/954/130/1863 dated 30.09.2020 between M/s Titagarh
Wagons Limited, Kolkata and Ministry of Railways
Ref: 1. Your letter dated 16.11.2023
2. Our letter dated 29.12.2024
Dear Sir,
With reference to the abovementioned letters, we would request
you to note our suggestion as follows:-
1. Shri Ajeet Singh Yadav
2. Shri Randhir Sahay
Please treat our letter dated 29.12.2023 as withdrawn.
We await your response on the nomination of the Sole Arbitrator
from the aforesaid proposed name,
Thanking You,
Yours Sincerely,
For Titagarh Rail Systems Limited
(formerly Titagarh Wagons Limited)
Sd/-
Dinesh Arya
Company Secretary & Chief Compliance Officer"
16. The Railway Board, vide its response data 30 January 2024,
appointed Shri Randhir Sahay, Executive Director, Finance(S) in the
Railway Board, as the sole arbitrator to arbitrate on the disputes
between TRSL and the Railway Board.
17. Thereafter, arbitral proceedings commenced before Shri
Randhir Sahay, as the learned Sole Arbitrator. These proceedings
culminated in arbitral award dated 5 August 2024, whereby the
learned arbitrator directed reinstatement of the contract, extended the
delivery period for the wagons by 4½ months from the date of the
award without liquidated damages for delivery of the remaining 390
wagons and also held TRSL to be entitled to refund of liquidated
damages to the extent of ₹ 5,19,15,870.
18. The arbitral award was challenged, before the learned Single
Judge, by TRSL as well as by the Railway Board.
19. TRSL, vide OMP (Comm) 503/2024, challenged the arbitral
award to the extent that it (i) did not grant interest on the amount
awarded in favour of TRSL, (ii) granted only 4 ½ months to TRSL for
supplying the remaining 390 wagons and (iii) did not direct refund of
the security deposit paid by TRSL with interest.
20. The Railway Board, vide OMP (Comm) 475/2024, also
challenged the arbitral award on the ground that the appointment of
the learned arbitrator was illegal in view of Section 12(5) of the 1996
Act.
D. The Impugned Judgment
21. The learned Single Judge has, in the judgment under challenge,
noted, at the outset, the fact that TRSL had, in its notices dated 29
May 2023 and 11 August 2023, specifically stated that it was not
waiving Section 12(5) of the 1996 Act. The learned Single Judge
notes that there was, in fact, no written waiver either by TRSL or by
the Railway Board, of the applicability of Section 12(5). The learned
Single Judge has found no substance in TRSL's contention that the
adoption of the Fast Track Procedure as envisaged in Clause
2905(c)(ii)(a) of the Railway Board Circular dated 12 December 2018,
the suggestion of four serving Railway Board employees by the
Railway Board to TRSL in order to enable TRSL to choose a name
therefrom, and the selection, by TRSL, of one name from the said
panel of four names as the arbitrator to arbitrate on the disputes
between the parties, constituted waiver of Section 12(5) as envisaged
in the proviso thereto. In this context, the learned Single Judge has
placed extensive reliance on the judgment of the Supreme Court in
Bhadra International.
22. Aggrieved by the said decision, TRSL has filed the present
appeal.
E. Submissions of Mr. Rajshekhar Rao
23. Appearing for TRSL, Mr. Rao submits that there is a stark
difference between the facts of the present case and those which
obtained in Bhadra International. He submits that the contract
between TRSL and the Railway Board specifically envisaged a
situation in which the parties waived the applicability of Section 12(5)
and where the parties did not do so. Different procedures were to be
followed, depending on whether Section 12(5) was, or was not,
waived. The question of selection of a sole Arbitrator out of a panel of
four arbitrators to be provided by the Railway Board, from its serving
employees was specifically contemplated, in Clause 2905(a)(ii), only
where there was waiver of Section 12(5) of the 1996 Act. As such,
Mr. Rao's contention is that, by calling upon the Railway Board to
suggest a panel of its officers, in response to which the Railway Board
suggested a panel of four of its serving officers, from which TRSL
selected one as the sole Arbitrator, the parties had consciously adopted
and followed the procedure envisaged in a case where Section 12(5)
was waived. He submits that, having done so, the Railway Board
could not seek to wish away an adverse arbitral award by attempting
to invoke Section 12(5) after the award had been rendered. The
impugned judgment of the learned Single Judge, he submits, has not
holistically taken into account all these factors and has mechanically
applied the ratio decidendi of Bhadra International, unmindful of the
factual and legal differences between this case and that. Ergo, submits
Mr. Rao, the impugned judgment cannot sustain in law or on facts.
F. Analysis
24. After Bhadra International, it is not possible for us to accept
the line of reasoning canvassed by Mr. Rao. Bhadra International,
we may note, arose out of a judgment rendered by one of us (C. Hari
Shankar, J.) sitting singly in Bhadra International (India) (P) Ltd. v.
Airport Authority of India9. In that case, the parties had, in fact,
openly stated before the learned Arbitrator that they were agreeable to
his arbitrating on the dispute between the parties and that consent had
been reduced to writing by the Arbitrator in one of the orders passed
in the arbitral proceedings. It was in these circumstances that this
9 2024 SCC OnLine Del 10223
Court adopted the view that there was, in effect, written agreement to
the arbitration of the dispute by the Arbitrator in that case.
25. Even in such a case, the Supreme Court has held, while
reversing the judgment of this Court, that Section 12(5) of the 1996
Act requires a written agreement in writing, waiving the applicability
of Section 12(5) and nothing less than that. There cannot be any
implied waiver of Section 12(5). We may reproduce, to advantage the
following passages from Bhadra International, which evocatively lay
down the law:
"75. The essentials of the proviso to Section 12(5) are:--
i. The parties can waive their right to object under sub-section
(5) of Section 12;
ii. The right to object under the sub-section can be waived
only subsequent to a dispute having arisen between the parties;
iii. The waiver must be in the form of an express agreement in
writing.
*****
77. Waiver means the intentional giving up of a right. It
involves a conscious decision to abandon an existing legal right,
benefit, claim, or privilege that a party would otherwise have been
entitled to. It amounts to an agreement not to enforce that right. A
waiver can occur only when the person making it is fully aware of
the right in question and, with complete knowledge, chooses to
give it up. [See: State of Punjab v. Davinder Pal Singh Bhullar10]
78. What flows from the aforesaid is when a right exists, i.e.,
the right to object to the appointment of an ineligible arbitrator in
terms of Section 12(5), such a right cannot be taken away by mere
implication. For a party to be deprived of this right by way of
waiver, there must be a conscious and unequivocal expression of
intent to relinquish it. Needless to say, for a waiver to be valid, it is
10 (2011) 14 SCC 770
necessary that the actor demonstrates the intention to act, and for an
act to be intentional, the actor must understand the act and its
consequences.
79. The expression "express agreement in writing"
demonstrates a deliberate and informed act that although a party is
fully aware of the arbitrator's ineligibility, yet it chooses to forego
the right to object against the appointment of such an arbitrator.
The requirement of an express agreement in writing has been
introduced as it reflects awareness and a conscious intention to
waive the right to object under sub-section (5) of Section 12. A
clear manifestation of the expression of waiver assumes greater
importance in light of the fact that the parties are overcoming a
restriction imposed by law.
*****
81. It is only through an express agreement in writing, waiving
the bar under sub-section (5) of Section 12, that the other party can
be said to have voluntarily consented to the unilateral appointment
of such an arbitrator. The proviso conveys that the arbitrator,
although ineligible to be appointed, yet can continue to perform his
functions, as it is oriented towards facilitating party autonomy.
Thus, the proviso reinforces party autonomy and equal treatment of
parties in arbitration.
82. In other words, even though the appointment had been
made by one of the parties, by the act of entering into an agreement
in writing, the other party expresses its consent. The manner of the
agreement prescribed by the statute demonstrates voluntariness by
the parties.
*****
84. Undoubtedly, the statute does not prescribe a format for the
agreement. However, the absence of a prescribed format cannot be
construed to mean that the waiver may be inferred impliedly or
through conduct. We say so because the legislature has consciously
prefaced the term "agreement" with the word "express" and
followed it with the phrase "in writing". This semantics denote the
intention of the legislature that the waiver under the proviso to
Section 12(5) must be made only through an express and written
manifestation of intention.
85. The conscious use of the prefatory expression also serves to
differentiate such waiver from 'deemed waiver' as stipulated under
Section 4 of the Act, 1996. We must be mindful of the fact that if
the legislature intended that waiver under Section 12(5) could
similarly arise by implication or conduct as mentioned under
Section 4, it would have refrained from introducing a heightened
and mandatory requirement, more particularly, in light of the
rigours of the Seventh Schedule. The statutory design therefore
makes it evident that the bar under Section 12(5) can be removed
only by a clear, unequivocal, and written agreement executed after
the dispute has arisen, and not by any form of tacit acceptance or
procedural participation.
86. The mandate of an express agreement in writing in the
present case may looked at from one another angle. The unilateral
appointment of an arbitrator is assessed from the viewpoint of the
parties. However, when the parties later execute an express written
agreement waiving the ineligibility of the proposed arbitrator, the
position gets altered. Such written waiver supplies the very consent
that was previously missing, thereby placing the appointment on
the same footing as a mutually agreed appointment and addresses
concerns regarding neutrality and fairness.
87. In Bharat Broadband (supra)11, this Court categorically
held that the expression "express agreement in writing" refers to an
agreement made in words and cannot be inferred by conduct. The
word "express" denotes that the agreement must be entered into
with complete knowledge that although the proposed arbitrator is
ineligible to be appointed as an arbitrator, yet they express their
confidence in him to continue as the arbitrator. The relevant
observations read thus:--
"20. This then brings us to the applicability of the
proviso to Section 12(5) on the facts of this case. Unlike
Section 4 of the Act which deals with deemed waiver of the
right to object by conduct, the proviso to Section 12(5) will
only apply if subsequent to disputes having arisen between
the parties, the parties waive the applicability of sub-section
(5) of Section 12 by an express agreement in writing. For
this reason, the argument based on the analogy of Section 7
of the Act must also be rejected. Section 7 deals with
arbitration agreements that must be in writing, and then
explains that such agreements may be contained in
documents which provide a record of such agreements. On
the other hand, Section 12(5) refers to an "express
agreement in writing". The expression "express agreement
in writing" refers to an agreement made in words as
opposed to an agreement which is to be inferred by
11 Bharat Broadband Network Ltd v. United Telecons Ltd, (2019) 5 SCC 755
conduct. Here, Section 9 of the Contract Act, 1872 becomes
important. It states:
"9. Promises, express and implied.--Insofar as
the proposal or acceptance of any promise is made in
words, the promise is said to be express. Insofar as
such proposal or acceptance is made otherwise than
in words, the promise is said to be implied."
It is thus necessary that there be an "express" agreement in
writing. This agreement must be an agreement by which
both parties, with full knowledge of the fact that Shri Khan
is ineligible to be appointed as an arbitrator, still go ahead
and say that they have full faith and confidence in him to
continue as such. The facts of the present case disclose no
such express agreement. The appointment letter which is
relied upon by the High Court as indicating an express
agreement on the facts of the case is dated 17-1-2017. On
this date, the Managing Director of the appellant was
certainly not aware that Shri Khan could not be appointed
by him as Section 12(5) read with the Seventh Schedule only
went to the invalidity of the appointment of the Managing
Director himself as an arbitrator. Shri Khan's invalid
appointment only became clear after the declaration of the
law by the Supreme Court in TRF Ltd. [TRF
Ltd. v. Energo Engg. Projects Ltd.12] which, as we have
seen hereinabove, was only on 3-7-2017. After this date, far
from there being an express agreement between the parties
as to the validity of Shri Khan's appointment, the appellant
filed an application on 7-10-2017 before the sole arbitrator,
bringing the arbitrator's attention to the judgment in TRF
Ltd. and asking him to declare that he has become de jure
incapable of acting as an arbitrator. Equally, the fact that a
statement of claim may have been filed before the
arbitrator, would not mean that there is an express
agreement in words which would make it clear that both
parties wish Shri Khan to continue as arbitrator despite
being ineligible to act as such. This being the case, the
impugned judgment is not correct when it applies Section 4,
Section 7, Section 12(4), Section 13(2) and Section 16(2) of
the Act to the facts of the present case, and goes on to state
that the appellant cannot be allowed to raise the issue of
eligibility of an arbitrator, having itself appointed the
arbitrator. The judgment under appeal is also incorrect in
stating that there is an express waiver in writing from the
12 (2017) 8 SCC 377
fact that an appointment letter has been issued by the
appellant, and a statement of claim has been filed by the
respondent before the arbitrator. The moment the appellant
came to know that Shri Khan's appointment itself would be
invalid, it filed an application before the sole arbitrator for
termination of his mandate."
(Emphasis supplied)
88. In CORE II (supra)13, this Court underscored the rationale
behind the first two essentials of the proviso. It reads thus:--
"121. An objection to the bias of an adjudicator can be
waived. [Supreme Court Advocates-on-Record
Assn. v. Union of India14] A waiver is an intentional
relinquishment of a right by a party or an agreement not to
assert a right. [State of Punjab v. Davinder Pal Singh
Bhullar15] The Arbitration Act allows parties to waive the
application of Section 12(5) by an express agreement after
the disputes have arisen. However, the waiver is subject to
two factors. First, the parties can only waive the
applicability of Section 12(5) after the dispute has arisen.
This allows parties to determine whether they will be
required or necessitated to draw upon the services of
specific individuals as arbitrators to decide upon specific
issues. To this effect, Explanation 3 to the Seventh Schedule
recognises that certain kinds of arbitration such as
maritime or commodities arbitration may require the
parties to draw upon a small, specialised pool. The second
requirement of the proviso to Section 12(5) is that parties
must consciously abandon their existing legal right through
an express agreement. Thus, the Arbitration Act reinforces
the autonomy of parties by allowing them to override the
limitations of independence and impartiality by an express
agreement in that regard."
(Emphasis supplied)
89. What can be discerned from the above discussion is that the
ineligibility of an arbitrator can be waived only by an express
agreement in writing. In the present case, there is no agreement in
writing, after the disputes arose, waiving the ineligibility of the sole
arbitrator or the right to object under Section 12(5) of the Act,
1996.
13 Central Organization for Railway Electrification v. ECI SPIR SMO MCML (JV) A Joint Venture
Company, (2025) 4 SCC 641
14 (2016) 5 SCC 808
15 (2011) 14 SCC 770
90. The conduct of the parties is inconsequential and does not
constitute a valid waiver under the proviso. The requirement of the
waiver to be made expressly in the form of agreement in writing
ensures that parties are not divested of their right to object
inadvertently or by procedural happenstance.
******
96. The net effect of the aforesaid is that a notice invoking the
arbitration clause under Section 21 of the Act, 1996, a procedural
order, submission of statement of claim by the appellants, the filing
an application seeking interim relief, or a reply to an application
under Section 33 of the Act, 1996, cannot be countenanced to mean
"an express agreement in writing" within the meaning of
the proviso to sub-section (5) of Section 12 of the Act, 1996.
97. One could argue that a miscreant party may participate in
the arbitral proceedings up to the passing of the award, despite
having full knowledge of the arbitrator's ineligibility. While after
an adverse award is rendered, such a party may then seek to
challenge it with a view to having it set aside. Such an
apprehension is reasonable, however, to obviate the possibility of
such misuse, the party making unilateral appointment must
endeavour to enter into an express written agreement as stipulated
in the proviso to Section 12(5), so as to safeguard the proceedings
from being rendered futile.
98. Thus, all the High Court decisions taking a contrary view to
the present judgment would stand overruled."
(Emphasis in the original)
26. There is no contest even by Mr. Rao to the finding of the
learned Single Judge that in the present case, there is, in fact no
written communication much less a written agreement, inter parties to
that effect, by either side waiving the applicability of Section 12(5).
27. While it may be true that the procedure followed by the parties
was that which was envisaged, in the contract between them, as
applying where there was waiver of Section 12(5), following of the
procedure cannot by itself result in such waiver. The argument
effectively puts the cart before the horse. There must, in the first
instance, be waiver of the applicability of Section 12(5) by written
agreement in writing as required by the proviso to the said clause read
with the decision in Bhadra International, and, only thereafter, if
there exists such express waiver in writing, would the arbitral
procedure envisaged in that situation as contained in Clause
2905(a)(ii) apply. The situation cannot be read in reverse. We cannot
accept the argument that by invoking the procedure applicable in a
case of waiver of Section 12(5), Section 12(5) stands waived, despite
the absence of any written agreement in writing to that effect.
28. In fact, the situation which exists in the present case is that the
very invocation of the procedure, envisaged in the contract between
the parties as being applicable in a case in which Section 12(5) stood
waived, was itself illegal. That procedure applies only where there is
waiver of the applicability of Section 12(5). Inasmuch as there was no
such waiver in the present case, the procedure itself would not apply.
By erroneously invoking the procedure which applies where Section
12(5) has been waived, waiver of Section 12(5) cannot be implied.
29. Besides, we find this argument, emerging from TRSL,
surprising, as TRSL had initially, in its communication dated 29 May
2023 and 11 August 2023, expressly stated that it was not waiving
Section 12(5) of the 1996 Act. We have not been shown any
communication thereafter by which this earlier communication was
revoked. Nor have we been shown any communication by which
TRSL - or the Railway Board - stated that it was waiving the
applicability of Section 12(5) of the 1996 Act.
30. Mr. Rao's submission that the selection of the learned
Arbitrator was from a panel which was discussed between the parties
cannot aid his case. Bhadra International has specifically held that
consensual appointment of the arbitrator, absent any written waiver of
Section 12(5), would be insufficient to render the proviso to Section
12(5) applicable.
31. In that view of the matter, the learned Single Judge is correct in
his view that Section 12(5) of the Act never stood waived between the
parties by express agreement in writing as required by the proviso
thereto and the law as it stands declared in Bhadra International. The
learned Single Judge was also, therefore, right in setting aside the
arbitral award on that ground.
32. There is, therefore, no cause for us to interfere in the present
appeals which are accordingly dismissed in limine with no orders as to
costs.
C. HARI SHANKAR, J.
OM PRAKASH SHUKLA, J.
APRIL 13, 2026/yg/aky
