Appointment Of Arbitrators From Panel Of Serving/Retired Railway Officials Contravenes Section 12(5) & 7th Schedule: Gauhati High Court

“When the General Manager, N.F. Railway himself cannot be made an Arbitrator in view of Section 12(5) and the 7th Schedule to the 1996 Act, the panel/appointment of serving/retired officials of the Railways as Arbitrators cannot be made by the said official.”

Brief Facts:

The Petitioner approached the Gauhati High Court (“High Court) seeking appointment of an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The Petitioner contended that it entered into a contract agreement with the Respondents to construct and operate a 25,000 MT Capacity godown with a private Siding under the Private Entrepreneurship Godown Scheme of the FCI. As a result, a contract agreement dated 02.07.2018 was executed between the parties. Disputes arose between the parties, leading the Petitioner to file the application under section 11(6) for the appointment of an Arbitrator. Clause 34 of the contract agreement stipulates the resolution of disputes through arbitration by constituting an Arbitral Tribunal, whose members are to be appointed by the General Manager, Northeast Frontier Railway.

The Petitioner argued that although Clause 34 of the contract agreement mandates that disputes be referred to a three-member Arbitral Tribunal to be constituted by the General Manager, N.F. Railway, the appointment of the Arbitrator falls within the purview of the High Court, not the General Manager, N.F. Railway. This assertion was grounded in the belief that the General Manager, N.F. Railway cannot serve as an Arbitrator due to their vested interest in the dispute.

On the other hand, the Respondents, countered this by pointing out that as per the terms of Clause 34 of the contract agreement, an Arbitral Tribunal comprising three members is to be constituted, with these members appointed by the General Manager, N.F. Railway. It argued that since the contract agreement explicitly dictates the appointment of Arbitrators by the General Manager, N.F. Railway, the Respondents have adhered to this provision by appointing Arbitrators accordingly.

Observations by the High Court:

The High Court noted that Clause 34 of the contract agreement stipulated that any dispute between the parties is to be resolved by an Arbitral Tribunal, consisting of three members appointed by the General Manager, N.F. Railway. It further observed that Section 12(5) of the Arbitration Act, along with the 7th Schedule, enumerates individuals who are ineligible to serve as Arbitrators.

Drawing upon the Supreme Court's rulings in the cases of Perkins Eastman and TRF Ltd., the High Court emphasized the statutory ineligibility of individuals falling under the categories listed in the 7th Schedule to be appointed as Arbitrators. Additionally, it highlighted the principle that an individual who is statutorily ineligible to be an Arbitrator cannot nominate another person as an Arbitrator.

In light of the conflicting decisions within the Supreme Court's jurisprudence regarding the appointment of Arbitrators, particularly concerning the interpretation of Section 12(5) and the 7th Schedule of the Arbitration Act, 1996, the High Court held it necessary to follow the earlier judgment when confronted with such divergence. Citing the precedent set forth in Union Territory of Ladakh v. Jammu and Kashmir National Conference, the High Court reasoned that adherence to the earlier judgment aligns with the hierarchical structure of legal authority established by the Supreme Court.

Considering the specific circumstances of the case, including the refusal of the Petitioner to waive the applicability of Section 12(5) of the 1996 Act and the subsequent appointment of Arbitrators by the Managing Director, N.F. Railway, the High Court held that the appointment of Arbitrators from the panel of serving or retired railway officials contravenes the provisions of Section 12(5) and the 7th Schedule. Consequently, the High Court set aside the appointment of Arbitrators made by the Respondents.

In exercise of its authority under Section 11(6) of the Arbitration Act, the High Court appointed Mrinmoy Kumar Bhattacharjee, a retired District & Sessions Judge, as the Arbitrator to adjudicate the disputes between the parties.

Case Title: M/s Barpeta Agro Infra vs The Union Of India And 2 Others

Case Number: Arb.P./51/2023

Advocate for the Petitioner: A Banerjee

Advocate for the Respondent: DY.S.G.I.