Delhi High Court
Daulat Ram Brake Mfg Co vs Union Of India (Through Ministry Of … on 31 July, 2025
Author: Jasmeet Singh
Bench: Jasmeet Singh
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 21.05.2025
Judgment pronounced on : 31.07.2025
+ O.M.P. (COMM) 151/2024, I.A. 7697/2024
DAULAT RAM BRAKE MFG CO .....Petitioner
Through: Mr. Siddhartha Nagpal, Ms. Kajal
Kakani, Advs.
versus
UNION OF INDIA (THROUGH MINISTRY OF RAILWAYS) FOR
NORTHERN RAILWAYS (NR) & ORS. .....Respondents
Through: Dr. B. Ramaswamy, CGSC
CORAM:
HON'BLE MR. JUSTICE JASMEET SINGH
JUDGMENT
: JASMEET SINGH, J
1. This is a petition filed by M/s Daulat Ram Brake Manufacturing Co.
(petitioner) under Section 34 of the Arbitration and Conciliation, Act,
1996 (“1996 Act”) seeking to challenge the Arbitral Award dated
16.11.2023 (“Impugned Award”), whereby the counter claims of the
respondent No. 1 were allowed and the petitioner was directed to pay
an amount of Rs. 1,37,53,824/- to the respondent No. 1 within 90
days from the date of the award, failing which the awarded amount
would carry a simple interest of 10% till the date of the actual
payment.
2. By way of the present petition, the petitioner also seeks appointment
of a fresh Arbitral Tribunal consisting of three independent arbitrators
eligible under Section 12 and the Seventh Schedule of the 1996 Act.
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By:MAYANK
Signing Date:31.07.2025
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FACTUAL MATRIX AS PER THE PETITIONER
3. The Petitioner, M/s Daulat Ram Brake Manufacturing Co., is a
proprietorship firm engaged in the business of manufacturing brake
blocks used in passenger coaches.
4. Respondent No.1 is Union of India for Northern Railways (NR)
represented through Dy. Chief Manager/Sig/NR, Baroda House,
Northern Railway, New Delhi, 110001. Respondent No. 2 is the
General Manager (Northern Railways), Baroda House, Northern
Railway, New Delhi, 110001. The Respondent no. 2 is the appointing
authority as per Railway Board Letter No.2018/TF/Civil/Arbitration
Policy dated 12.12.2018 and the Indian Railways Standard Conditions
of Contract, 2018 (“IRS”).
5. Respondent No.1 floated a tender dated 16.08.2018 for the supply of
“Non-Asbestos Based „K‟ Type High Friction Composite Brake Blocks
for coaches with bogie-mounted brake systems as per RDSO Drawing
No. RDSO/ISK-98066, Alt (6), and Specification No. C9809 (Rev.-4)
with Amendment-L” (“Contract agreement”). In response, the
petitioner submitted its bid, which was accepted by the respondent
no.1. Pursuant thereto, respondent No. 1 issued a Purchase Order
(PO) to the petitioner for the supply of 67,072 Composite Brake
Blocks (CBBs) to the CSD, ANVT, Anand Vihar Terminal. The
Contract agreement was governed by the IRS. The material supplied
by the petitioner was inspected by the Research Designs and
Standards Organization (RDSO), and due receipt notes were issued as
confirmation of acceptance. Upon satisfaction with the supplies,
respondent No.1 made payments to the petitioner.
6. Subsequently, a dispute arose between the petitioner and respondent
No.1 concerning the quality of the material supplied by the petitioner.
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Respondent No.1 in total, rejected 64,000 items supplied by the
petitioner, through two rejection memos, one dated 10.02.2022,
rejecting 31,531 items, and a final/second rejection memo dated
15.10.2022, rejecting the remaining 32,469 items.
7. Hence, in terms of the arbitration clause, the petitioner invoked
arbitration vide legal notice dated 26.03.2022. The arbitration clause
is contained as clause 2900 of the IRS. The relevant extract is
reproduced below:
“2900.
(a) In the event of any question, dispute or difference
arising under these conditions or any special conditions of
contract, or in connection with this contract (except as to
any matters the decision of which is specially provided for
by these or the special conditions) the same shall be
referred to the sole arbitration of a Gazetted Railway
Officer appointed to be the arbitrator, by the General
Manager in the case of contracts entered into by the Zonal
Railways and Production Units; by any Member of the
Railway Board, in the case of contracts entered into by the
Railway Board and by the Head of the Organisation in
respect of contracts entered into by the other Organisations
under the Ministry of Railways. The Gazetted Railway
Officer to be appointed as arbitrator however will not be
one of those who had an opportunity to deal with the
matters to which the contract relates or who in the course of
their duties as railway servant have expressed views on all
or any of the matters under dispute or difference. The award
of the arbitrator shall be final and binding on the parties to
this contract.”
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8. The procedure for appointment of the arbitrator is contained under
Clause 2905 of the IRS. The operative portion reads as under:
“2905: Appointment of Arbitrator:
2905 (a): Appointment of Arbitrator where applicability of
section 12 (5) of Arbitration and Conciliation Act has been
waived off:
i…..
ii. In cases where the total value of all claims in question
added together exceeds Rs.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 VERSION 1.0
Railway which may also include the name(s) of retired
Railway Officer(s) empaneled 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 orDigitally Signed O.M.P. (COMM) 151/2024 Page 4 of 34
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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 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.
2905 (b): Appointment of Arbitrator where applicability of
Section 12 (5) of Arbitration and Conciliation Act has not
been waived off:
i……
ii. In cases where the total value of all claims in question
added together exceeds Rs.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 Officer(s) 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
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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.”
9. Clause 2905 of the IRS, provides for the appointment of
employees/ex-employees of Railways as Arbitrator(s), in both the
cases, where the applicability of Section 12(5) has been waived off,
and when the applicability of Section 12(5) has not been waived off.
Aggrieved, the petitioner raised an objection to the appointment of an
employee/ex-employee of the Railways as arbitrators and proposed
that an independent Arbitrator must be appointed in accordance with
the provisions of the 1996 Act. In this regard, various
communications took place between the parties. The petitioner vide
letter dated 02.05.2022 also denied the consent for waiving off the
applicability of Section 12(5) of 1996 Act. Since there was no
response from the respondent no. 1, the petitioner filed a petition
under Section 11 of the 1996 Act before the High Court of Madhya
Pradesh (Jabalpur), which was disposed of as infructuous vide order
dated 27.05.2024.
10. Meanwhile, a three-member Impugned Tribunal was appointed by the
respondent No. 1 and the Impugned Award came to be passed on
16.11.2023. As regards, the objection of the petitioner pertaining to
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the appointment of the Arbitral Tribunal is concerned, the Arbitral
Tribunal inter alia held as under:
“9. Discussion and decision of the AT
9.1. Regarding objection to the constitution of the AT, it is
noted that the Claimant took part in appointment of the AT
and have not raised this matter during the hearing and
pleadings. It is in the written arguments that they have
mentioned this. The objections on this ground should have
been made earlier by them in terms of Section 16 of the Act.
The AC noted that the AT was formed in accordance with
the provisions of the contract agreement and the IRS
conditions governing the contract. Hence the Claimant’s
objection do not have any merit.”
SUBMISSIONS
On behalf of the Petitioner
11. The petitioner has primarily challenged the Impugned Award on the
premise that the constitution of the Arbitral Tribunal was void ab
initio and that there exists justifiable doubts as to their impartiality
and independence. The appointed arbitrators were former employees
of respondent No.1 and were unilaterally appointed by its General
Manager, despite the petitioner‟s repeated objections and refusal to
waive the applicability of Section 12(5) of the 1996 Act.
12. It is stated that the petitioner consistently objected to the appointment
of employees or ex-employees of the respondent as arbitrators and
repeatedly sought the appointment of independent arbitrators, as also
noted in the notice invoking arbitration dated 26.03.2022. However,
without responding to this request, respondent no.1, vide letter dated
13.04.2022, sought the petitioner‟s consent to waive the applicability
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of Section 12(5) of the 1996 Act, which was expressly denied the
petitioner vide its reply dated 02.05.2022. It is well-settled that a
waiver under Section 12(5) must be express and in writing post the
appointment of the Arbitral Tribunal, and such rights cannot be
deemed waived by mere conduct.
13. It is further stated that in anticipation of the appointment of ex-
employees of the respondent No. 1 as arbitrator(s), the petitioner filed
a petition under Section 11 of the 1996 Act before the High Court of
Madhya Pradesh seeking appointment of an independent arbitrator.
Despite duly informing both the respondent and the arbitral tribunal
that the matter was sub judice before the High Court of Madhya
Pradesh, the petitioner was compelled to nominate arbitrators from
the respondent‟s panel and participate in the arbitral proceedings as
Clause 2905(c)(i) of IRS provided that if the contractor fails to
suggest his nominees for the arbitral tribunal within the prescribed
time frame, then the General manager has the power to proceed for
appointment of arbitral tribunal within 30 days of the expiry of such
time provided to contractor.
14. Vide letter dated 31.03.2023, the General Manager provided a
restricted panel of only 4 retired railway officers, to the petitioner to
nominate its arbitrator. Even from this limited panel, the petitioner
was not allowed to appoint an arbitrator of its choice but was to
suggest two names. The General Manager unilaterally appointed the
arbitrators. As a result, the entire tribunal was constituted solely at the
discretion of the General Manager, which is in violation of Section 18
of the 1996 Act and against the principles of party autonomy, natural
justice, neutrality, and the independence and impartiality of
arbitrators.
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By:MAYANK
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15. A party cannot be compelled to select its nominee arbitrator from a
panel unilaterally curated by the opposing party, particularly when
such panel is not „broad-based‟. This practice undermines the
principle of equal treatment of parties and disturbs the balance in the
arbitral process, as it deprives the petitioner of equal participation in
the constitution of the arbitral tribunal. Reliance is placed on the
judgment passed by a coordinate bench of this Court in Taleda
Square Private Limited v. Rail Land Development Authority2023
SCC OnLine Del 6321 (paras 5 and 7).
16. Further, out of the proposed 4 names, one was that of Shri Khichchu
Mal, which was rejected by the petitioner. However, the General
Manager vide appointment letter dated 12.05.2023 appointed Shri
Khichchu Mal as the „presiding arbitrator‟ in this matter.
17. It is stated that the General Manager, being himself ineligible to act as
an arbitrator, could not have appointed the arbitrator(s), as it is well-
settled in law that a person who is disqualified from acting as an
arbitrator is equally disqualified from appointing one.
18. Reliance is placed on the judgment passed by a Coordinate bench of
this Court in BW Business World Media Pvt. Ltd. v. IRCTC, 2022
SCC OnLine Del 226.
On behalf of the Respondent
19. Per Contra, it is stated that the constitution of the Arbitral Tribunal
was carried out strictly in accordance with the agreed contractual
terms set out in Clause 2900 of the IRS, which forms an integral part
of the binding arbitration agreement between the parties.
20. Clause 2900 of the IRS, provides for the appointment of a Gazetted
Railway Officer as the sole arbitrator, to be appointed by the General
Manager or other competent authority. The said clause excludes those
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officers who had “an opportunity to deal with the matters to which the
contract relates” or who “have expressed views” on the dispute,
thereby ensuring impartiality and neutrality. Reliance is placed on the
judgment passed by the Hon‟ble Supreme Court in Voestalpine
Schienen GmbH v. DMRC, (2017) 4 SCC 665.
21. It is stated that despite initial objections raised by the petitioner
regarding the constitution of the Arbitral Tribunal, the petitioner
actively engaged in the arbitral proceedings over an extended period
including nominating arbitrators, filing pleadings, and presenting
arguments on merits. Consequently, any challenge to the constitution
of the tribunal stands waived by the petitioner‟s conduct.
22. It is stated that the petitioner‟s argument that the General Manager is
ineligible to appoint arbitrators cannot be entertained as it is a settled
law that ineligibility under Seventh Schedule of 1996 Act applies to a
person acting as an arbitrator, not merely appointing one unless such
ineligibility is expressly extended through contractual interpretation
or statutory bar, which is not the case here.
23. Further, the petitioner‟s argument regarding lack of consent under
Section 12(5) is untenable. The record demonstrates that the petitioner
was issued a letter dated 13.04.2022 seeking waiver of Section 12(5),
to which no objection was raised at that stage. On the contrary, the
petitioner proceeded to nominate arbitrators from the panel, indicating
acquiescence to the process.
24. The mere pendency of a Section 11 petition does not, in itself,
preclude the continuation of arbitral proceedings, particularly where
the Arbitral Tribunal has already been constituted in accordance with
the terms of the contract. In the absence of any stay or judicial
injunction, which the Petitioner has failed to produce, the tribunal was
fully competent to proceed. In any event, the Arbitral Tribunal,
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exercising its powers under Section 16 of the Act, duly considered
and rejected the objections to its constitution. This determination,
being squarely within the Tribunal‟s jurisdictional mandate, is not
amenable to review under Section 34.
ANALYSIS
25. I have heard learned counsel for the parties and perused the material
and documents placed on record.
26. The gist of the arguments by the petitioner is that the respondent went
on to unilaterally appoint the Arbitral Tribunal, despite the petitioner‟s
continuous objection to its constitution vide its letter(s) dated
26.03.2022 and 02.05.2022. Even otherwise, the General Manager
provided a restricted panel of only 4 retired railway officers, which
cannot be said to be „broad based‟. Per Contra, the objection raised by
the respondent in a gist is that the constitution of the Arbitral Tribunal
was in accordance with Clause 2900 of the IRS.
27. A perusal of the Clause 2905 of the IRS as reproduced above indicates
two distinct scenarios: (i) where the applicability of Section 12(5) of
the 1996 Act has been expressly waived by the petitioner in
accordance with the proviso thereto, and (ii) where no such waiver has
been made. Therefore, the primary issue that arises before me is
whether, in the facts of the present case, there has been a valid waiver
by the petitioner of the ineligibility criteria of the Arbitral Tribunal
under Section 12(5) of the 1996 Act.
28. In this regard, the respondent No. 1 has contended that although the
petitioner initially objected to the constitution of the Arbitral Tribunal,
it thereafter proceeded to actively participate in the arbitral
proceedings, by nominating arbitrators, filing pleadings, and making
submissions on merits. Such conduct clearly signifies acquiescence
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and amounts to a waiver of any objection to the Arbitral Tribunal‟s
constitution.
29. Section 12 (5) of the 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.”
30. To my mind, the argument by the respondent is meritless. The essence
of Section 12 of the 1996 Act lies in ensuring the independence and
impartiality of the Arbitral Tribunal. The provision mandates that any
appointment made in violation of Section 12(5) read with the Fifth
and the Seventh Schedule of the 1996 Act renders the arbitrator de
jure ineligible. Such ineligibility goes to the very foundation of the
arbitral process. The Hon‟ble Supreme Court in Voestalpine (supra),
inter alia held as under:
“20. Independence and impartiality of the arbitrator are
the hallmarks of any arbitration proceedings. Rule against
bias is one of the fundamental principles of natural justice
which applied to all judicial and quasi-judicial
proceedings. It is for this reason that notwithstanding the
fact that relationship between the parties to the arbitration
and the arbitrators themselves are contractual in natureDigitally Signed O.M.P. (COMM) 151/2024 Page 12 of 34
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and the source of an arbitrator’s appointment is deduced
from the agreement entered into between the parties,
notwithstanding the same non-independence and non-
impartiality of such arbitrator (though contractually
agreed upon) would render him ineligible to conduct the
arbitration. The genesis behind this rational is that even
when an arbitrator is appointed in terms of contract and by
the parties to the contract, he is independent of the parties.
Functions and duties require him to rise above the partisan
interest of the parties and not to act in, or so as to further,
the particular interest of either parties. After all, the
arbitrator has adjudicatory role to perform and, therefore,
he must be independent of parties as well as impartial. The
United Kingdom Supreme Court has beautifully highlighted
this aspect in Hashwani v. Jivraj [Hashwani v. Jivraj, (2011)
1 WLR 1872 : 2011 UKSC 40] in the following words :
(WLR p. 1889, para 45)
“45. … the dominant purpose of appointing an
arbitrator or arbitrators is the impartial resolution of
the dispute between the parties in accordance with the
terms of the agreement and, although the contract
between the parties and the arbitrators would be a
contract for the provision of personal services, they
were not personal services under the direction of the
parties.”
……
22. Independence and impartiality are two different
concepts. An arbitrator may be independent and yet, lack
impartiality, or vice versa. Impartiality, as is well accepted,
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is a more subjective concept as compared to independence.
Independence, which is more an objective concept, may,
thus, be more straightforwardly ascertained by the parties at
the outset of the arbitration proceedings in light of the
circumstances disclosed by the arbitrator, while partiality
will more likely surface during the arbitration
proceedings.”
(emphasis supplied)
31. The legal position with respect to Section 12(5) of the 1996 Act, read
with the Seventh Schedule, is no longer res integra. It stands
conclusively settled by a catena of judgments. It has time and again
been held that any person having an ineligible relationship under the
Seventh Schedule of the 1996 Act is disqualified from being
appointed as an arbitrator, and such ineligibility cannot be cured
except through an express written waiver in terms of the proviso to
Section 12(5). The Hon‟ble Supreme Court in Bharat Broadband
Network Limited v. United Telecoms Limited (2019) 5 SCC 755 has
explained the same. (For reference see para nos.15 and 17)
32. Now coming to the issue at hand, that whether a party waives its right
under Section 12(5) of the 1996 Act through conduct, is now well
settled. Any waiver of the disqualification contemplated under Section
12(5) of the 1996 Act, must be made expressly in writing. The statute
does not permit an implied waiver through conduct or participation in
arbitral proceedings. The requirement of a written waiver ensures that
the party unequivocally agrees to proceed with the appointment,
despite the disqualification, and avoids any ambiguity in this regard.
In this regard, the Hon‟ble Supreme Court in Bharat Broadband
(supra) inter alia held as under:
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“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 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
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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……”
(emphasis supplied)
33. Following the law laid down in Bharat Broadband (supra) several
other judgment(s) have been passed by this Court, on similar lines.
Reliance is placed on Govind Singh vs Satya Group Pvt. Limited and
Another2023 SCC OnLine Del 37 and A K Builders vs Delhi State
Industrial Infrastructure Development Corporation Ltd O.M.P. (T)
(COMM.) 12/2022.
34. In the present case, the facts are not in dispute. The petitioner invoked
arbitration vide letter dated 26.03.2022, whereby the petitioner
indicated that an independent arbitrator be appointed. Letter dated
26.03.2022 is reproduced below:
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35. Pursuant thereto, the respondent no. 1 vide letter dated 13.04.2022
asked for the petitioner‟s consent to waive off the applicability of
Section 12(5) of the 1996 Act as Clause 2905 of the IRS provides for
the appointment of employees/ex-employees of Railways as
arbitrator(s). Letter dated 13.04.2022 is reproduced below:
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36. In response, the petitioner denied the waiver vide letter dated
02.05.2022 which is as under:
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37. On 31.03.2023, the General Manager provided a panel of 4 names, all
ex-employees of the respondent No. 1, out of which the petitioner was
to suggest 2 names. Letter dated 31.03.2023 is reproduced below:
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38. Out of the 4 names provided by the General Manager on 31.03.2023,
the petitioner suggested the names of Mr. Vijendra Kumar Jain and
Mr. Ajay Kumar Lal vide its letter dated 10.04.2023 which is as
under:
Digitally Signed O.M.P. (COMM) 151/2024 Page 22 of 34
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39. Thereafter, the Arbitral Tribunal came to be constituted on 12.05.2023.
Letter dated 12.05.2023 is as under:
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40. A perusal of the appointment letter dated 12.05.2023 issued by the
respondent No.1 reveals that the General Manager has sought to
justify the constitution of the Arbitral Tribunal by placing reliance on
the petitioner‟s letters dated 26.03.2022 and 02.05.2022.
41. A plain reading of the letter(s) dated 26.03.2022 and 02.05.2022
makes it clear that at no point did the petitioner consent to the
appointment of the respondent‟s nominees as members of the Arbitral
Tribunal. In fact, the petitioner had categorically communicated its
objection to such a constitution and vide letter dated 26.03.2022 had
specifically requested that an independent arbitrator be appointed.
Further, vide letter dated 02.05.2022, the petitioner while refusing to
give consent to waive off the applicability of Section 12(5), had
communicated that a Retd. District Judge be appointed as an arbitrator
for the adjudication of disputes.
42. The appointment letter dated 12.05.2023 though refers to the letter(s)
dated 26.03.2022 and 02.05.2022, but fails to give any reasons as to
why the request of the petitioner, was ignored. The letter of
10.04.2023 is a letter giving consent for appointment of Mr. Vijendra
Kumar Jain and Mr. Ajay Kumar Lal is a letter prior to the constitution
of the Arbitral Tribunal.
43. Admittedly, in terms of clause 2905 of the IRS, all the members so
appointed of the Arbitral Tribunal are to be ex-employees of
respondent no. 1. Hence, the members of the Arbitral Tribunal are
clearly barred under Serial No. 1 of the Seventh Schedule that states
that any person is ineligible to act as an arbitrator if the arbitrator is an
employee, consultant, advisor or has any other past or present business
relationship with a party. There is no written waiver in terms of the
proviso to Section 12(5) by the petitioner after the Arbitral Tribunal
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was constituted. Merely participating in the arbitral proceedings or
raising no immediate objection cannot be treated as a waiver.
44. Having said that it is also apposite to note that the petitioner had
denied the waiver vide letter dated 02.05.2022 i.e. before the Arbitral
Tribunal was constituted on 12.05.2023.
45. I have already taken a view in M.V. Omni Projects (India) Ltd vs
Union of India Through dy Chief Engg Northern Railway and
Another 2025 SCC OnLine Del 3379 that even if a party intends to
waive the bar under Section 12(5) of the 1996 Act, such waiver must
be made only after the constitution of the Arbitral Tribunal is known,
that is, when the names and particulars of the proposed arbitrators are
disclosed. A waiver without knowledge of who the arbitrators will be,
is not a valid waiver. The whole purpose of the proviso is to allow
parties to consciously waive the disqualification, knowing fully well
the identity and background of the arbitrator being appointed. The
operative portion of the judgment reads as under:
“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. 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
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Arbitrators and is unequal. To my mind, such clauses strike
at the core of the neutrality contemplated under the 1996
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.
(emphasis supplied)
46. For the said reasons, the letter dated 02.05.2022 and 10.04.2023
cannot be termed as a waiver much less a valid waiver in the eyes of
law. The waiver under proviso to Section 12(5) has not been made, in
the present case. The appointment and constitution of the entire
Arbitral Tribunal is barred under Serial No. 1 of the Seventh Schedule
of the 1996 Act.
47. In addition, I am of the view that Clause 2905 and letter dated
31.03.2023, not only restricts the choice of the petitioner to appoint
retired Railway Officers empanelled by the Railways, but also limits
the petitioner‟s ability to freely nominate its arbitrator. On 31.03.2023,
the petitioner was asked to suggest two names out of a panel of 4
retired Railway Officers forwarded by the General Manager, from
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which even the petitioner‟s nominee was ultimately appointed by the
General Manager of the respondent No.1. The power to appoint the
remaining arbitrators, including the presiding arbitrator, also rests
entirely with the General Manager. Such a mechanism vests unilateral
control over the constitution of the Arbitral Tribunal with one party to
the dispute, which is not in consonance with the principles laid down
in Voestalpine (supra) wherein the Hon‟ble Supreme Court
emphasized the importance of a „broad based‟ panel. The operative
portion of the judgment reads as under:
“28. Before we part with, we deem it necessary to make
certain comments on the procedure contained in the
arbitration agreement for constituting the Arbitral Tribunal.
Even when there are a number of persons empanelled,
discretion is with DMRC to pick five persons therefrom and
forward their names to the other side which is to select one
of these five persons as its nominee (though in this case, it is
now done away with). Not only this, DMRC is also to
nominate its arbitrator from the said list. Above all, the two
arbitrators have also limited choice of picking upon the
third arbitrator from the very same list i.e. from remaining
three persons. This procedure has two adverse
consequences. In the first place, the choice given to the
opposite party is limited as it has to choose one out of the
five names that are forwarded by the other side. There is
no free choice to nominate a person out of the entire panel
prepared by DMRC. Secondly, with the discretion given to
DMRC to choose five persons, a room for suspicion is
created in the mind of the other side that DMRC may haveDigitally Signed O.M.P. (COMM) 151/2024 Page 27 of 34
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picked up its own favourites. Such a situation has to be
countenanced. We are, therefore, of the opinion that sub-
clauses (b) & (c) of Clause 9.2 of SCC need to be deleted
and instead choice should be given to the parties to
nominate any person from the entire panel of arbitrators.
Likewise, the two arbitrators nominated by the parties
should be given full freedom to choose the third arbitrator
from the whole panel.
29. Some comments are also needed on Clause 9.2(a) of
GCC/SCC, as per which DMRC prepares the panel of
“serving or retired engineers of government departments or
public sector undertakings”. It is not understood as to why
the panel has to be limited to the aforesaid category of
persons. Keeping in view the spirit of the amended provision
and in order to instil confidence in the mind of the other
party, it is imperative that panel should be broad-based.
Apart from serving or retired engineers of government
departments and public sector undertakings, engineers of
prominence and high repute from private sector should also
be included. Likewise panel should comprise of persons
with legal background like Judges and lawyers of repute as
it is not necessary that all disputes that arise, would be of
technical nature. There can be disputes involving purely or
substantially legal issues, that too, complicated in nature.
Likewise, some disputes may have the dimension of
accountancy, etc. Therefore, it would also be appropriate to
include persons from this field as well.
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30. Time has come to send positive signals to the
international business community, in order to create healthy
arbitration environment and conducive arbitration culture
in this country. Further, as highlighted by the Law
Commission also in its report, duty becomes more onerous
in government contracts, where one of the parties to the
dispute is the Government or public sector undertaking
itself and the authority to appoint the arbitrator rests with it.
In the instant case also, though choice is given by DMRC to
the opposite party but it is limited to choose an arbitrator
from the panel prepared by DMRC It, therefore, becomes
imperative to have a much broad-based panel, so that there
is no misapprehension that principle of impartiality and
independence would be discarded at any stage of the
proceedings, specially at the stage of constitution of the
Arbitral Tribunal. We, therefore, direct that DMRC shall
prepare a broad-based panel on the aforesaid lines, within a
period of two months from today.”
(emphasis supplied)
48. Further, I find force in the submission of the petitioner that the
General Manager being himself ineligible to act as an arbitrator under
the Seventh Schedule, cannot appoint the Arbitral tribunal. In this
regard, the respondent No. 1 has contended that the ineligibility under
Seventh Schedule of 1996 Act applies to a person acting as an
arbitrator not merely appointing one.
49. The fact of the matter is that the Arbitral Tribunal was appointed by
the General Manager of the respondent vide appointment letter dated
12.05.2023. The General Manager is an officer of the respondent No.
1 itself, which is a party to the dispute and thus an interested party in
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the outcome of the arbitration. It has time and again been held that an
interested party cannot be permitted to unilaterally appoint an
arbitrator, as it undermines the fundamental requirement of neutrality
in arbitral proceedings. The independence and impartiality of the
arbitral tribunal is the cornerstone of the arbitration process, and any
appointment made by a person who has a vested interest in the dispute
is impermissible. The Hon‟ble Supreme Court in Perkins Eastman
Architects DPC v. HSCC (India) Ltd.(2020) 20 SCC 760, following
its earlier decision in TRF Ltd. v. Energo Engg. Projects Ltd.,(2017)
8 SCC 377 has clarified the law in para 21 of the judgment.
50. The issue in question has further been settled by the Hon‟ble Supreme
Court in Central Organisation for Railway Electrification vs ECI
SPIC SMO MCML (JV) A Joint Venture Company 2024 SCC
OnLine SC 3219 wherein it was inter alia held as under:
“……
72. The defining characteristic of arbitration law
(particularly ad hoc arbitration) is that it allows freedom to
the parties to select their arbitrators. This is unlike domestic
courts or tribunals where the parties have to litigate their
claims before a pre-selected and randomly allocated Bench
of judges. Section 11(2) of the Arbitration Act allows parties
to agree on a procedure for appointing the arbitrators. The
“procedure” contemplated under Section 11(2) is a set of
actions which parties undertake in their endeavour to
appoint arbitrators to adjudicate their dispute
independently and impartially. Without formal equality at
the stage of appointment of arbitrators, a party may not
have an equal say in facilitating the appointment of an
unbiased arbitral tribunal. In a quasi-judicial process such
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as arbitration, the appointment of an independent and
impartial arbitrator ensures procedural equality between
parties during the arbitral proceedings. This is also
recognised under Section 11(8) which requires the
appointing authority to appoint independent and impartial
arbitrators.
…..
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
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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 India245 and
Lombardi Engg Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd.
……
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;
…….
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, 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.
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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.”
(emphasis supplied)
51. Even though it has been mandated that the judgment of Central
Organisation (supra) is to have prospective effect, the said judgment
has further crystallized the law of neutrality as laid down in Perkins
(supra) and Voestalpine (supra). The fact of the matter remains that in
the present case, there was no waiver, no consent and the respondent
unilaterally appointed the Arbitral Tribunal.
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52. For the reasons noted above, the present petition is allowed and the
Impugned Award is hereby set aside.
53. The petition along with pending applications, if any are disposed of.
54. The Counter Affidavit along with documents handed over in Court are
taken on record.
JASMEET SINGH, J
JULY 31, 2025/ P
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