A Party Cannot Be Made To Nominate Its Arbitrator From A Narrow Panel Of 4 Arbitrators Consisting Of Retired Officers Of The Other Party: Delhi High Court

The bench of Justice Mini Pushkarna held that the contractor cannot be made to choose its nominee arbitrator from a panel of only four names and that too when the final choice of appointing its nominee arbitrator is vested on the Employer.

The Court held that an arbitrator clause, whereby the contractor is made to choose two names from a panel of four arbitrators and the final authority of choosing the nominee arbitrator from the two names given is vested on the employer, is invalid in law. It further held that the names on the panel should not be the employees or ex-employees of one of the parties.

Facts

The parties entered into four contracts for carrying out construction work. The process of invocation and appointment of Arbitral Tribunal in all the four cases is provided under Clauses 63 and 64 of the General Conditions of Contract (GCC). Clause 63 of GCC provides for settlement of disputes by referring the disputes to GM, Railways, who has to decide the same within 120 days of receipt of the same. This process is required to be followed before appointment of any Arbitral Tribunal. Clause 64 provides for the process of appointment of arbitrator. It provided that the employer would give the contractor a panel consisting of 4 names out of which the petitioner will have to choose at least 2 names and the respondent then would appoint an arbitrator from the 2 names given.

Certain disputes arose and the petitioner invoked the arbitration clause and nominated its arbitrator and requested the respondent to nominate its arbitrator. The respondent in its reply sent the names of 4 people and requested the petitioner to choose 2 names from it. Thereafter, the petitioner filed the petitions under Section 11 of the A&C Act for appointing the nominee arbitrator for the respondent.

Contention of the Parties

The petitioner sought the appointment of respondent's nominee arbitrator on the following grounds:

• The procedure for the appointment of the arbitrator is against the law, as the General Manager who is an interest party has been given the power to appoint an arbitrator for the petitioner.
• Moreover, the people in the panel are ineligible to be appointed as arbitrator by virtue of Section 12(5) of the A&C Act.

The respondent countered the above submissions by raising the following arguments:

• There parties had agreed on an appointment procedure and they were bound to follow it. It relied on the decision of the Hon'ble Supreme Court in Central Organisation for Railway Electrification vs. ECI – SPIC –SMO-MCML, (2020) 14 SCC 712 wherein the SC had upheld a similarly worded clause.
• It further relied on the decision of the SC in Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665 to contend that ex-employees of a party would not become ineligible for their appointment as arbitrator.

Analysis by the Court

The Court reiterated that a party interested in the outcome of the arbitrator cannot appoint or be appointed as an arbitrator by virtue of Section 12(5) r/w Schedule 7 of the Act and the decision of the SC in Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd. 2019 SCC OnLine SC 1517.

The Court held that decision of the SC in CORE(Supra) has been referred to a larger bench to look into the its correctness after a three-judge benches in Union of India vs. M/s Tantia Constructions Ltd., SLP (Civil) No. 12670/2020 has doubted its correctness. Similarly, the SC in and Steel Ltd. vs. South Western Railway and Anr., Special Leave to Appeal (C)No. 9462/2022 stayed an award wherein the arbitrator was appointed after following the judgment in CORE, therefore, it would be of no aid to the respondent.

The Court also distinguished the decision of the SC in Voestalpine Schienen on the ground that in that case there was a broad panel of 31 arbitrators to choose from, moreover, the arbitrators were not the employees or ex-employees or in anyway related to the Employer. However, in the present case it was a very narrow panel of four arbitrator and all of them were past employees of the employer.

The Court held that the contractor cannot be made to choose its nominee arbitrator from a panel of only four names and that too when the final choice of appointing the its nominee arbitrator is vested on the Employer.

The Court held that an arbitrator clause, whereby the contractor is made to choose two names from a panel of four arbitrators and the final authority of choosing the nominee arbitrator from the two names given is vested on the employer, is invalid in law. It further held that the names on the panel should not be the employees or ex-employees of one of the parties.

Accordingly, the Court allowed the petition and appointed the respondent's nominee arbitrator.

Case Title: Gangotri Enterprises Ltd. v. General Manager Northern Railways

Citation: 2022 LiveLaw (Del) 1032

Date: 14.10.2022

Counsel for the Petitioner: Mr. Sarthak Chiller and Mr. Sanjeev Mahajan, Advocates

Counsel for the Respondent: Ms. Pratima N. Lakra, CGSC with Ms. Vrinda Baheti, Advocates

Click Here To Read/Download Order