O.M.P. (COMM) 151/2024 Page 1 of 34

$~J

* 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.

O.M.P. (COMM) 151/2024 Page 2 of 34

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.

O.M.P. (COMM) 151/2024 Page 3 of 34

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.”

O.M.P. (COMM) 151/2024 Page 4 of 34

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 or

O.M.P. (COMM) 151/2024 Page 5 of 34

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

O.M.P. (COMM) 151/2024 Page 6 of 34

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

O.M.P. (COMM) 151/2024 Page 7 of 34

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

O.M.P. (COMM) 151/2024 Page 8 of 34

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.

O.M.P. (COMM) 151/2024 Page 9 of 34

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

O.M.P. (COMM) 151/2024 Page 10 of 34

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,

O.M.P. (COMM) 151/2024 Page 11 of 34

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

O.M.P. (COMM) 151/2024 Page 12 of 34

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 nature

O.M.P. (COMM) 151/2024 Page 13 of 34

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,

O.M.P. (COMM) 151/2024 Page 14 of 34

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:

O.M.P. (COMM) 151/2024 Page 15 of 34

“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

O.M.P. (COMM) 151/2024 Page 16 of 34

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:

O.M.P. (COMM) 151/2024 Page 17 of 34

O.M.P. (COMM) 151/2024 Page 18 of 34

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:

O.M.P. (COMM) 151/2024 Page 19 of 34

O.M.P. (COMM) 151/2024 Page 20 of 34

36. In response, the petitioner denied the waiver vide letter dated

02.05.2022 which is as under:

O.M.P. (COMM) 151/2024 Page 21 of 34

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:

O.M.P. (COMM) 151/2024 Page 22 of 34

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:

O.M.P. (COMM) 151/2024 Page 23 of 34

39. Thereafter, the Arbitral Tribunal came to be constituted on 12.05.2023.

Letter dated 12.05.2023 is as under:

O.M.P. (COMM) 151/2024 Page 24 of 34

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

O.M.P. (COMM) 151/2024 Page 25 of 34

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

O.M.P. (COMM) 151/2024 Page 26 of 34

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

O.M.P. (COMM) 151/2024 Page 27 of 34

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 have

O.M.P. (COMM) 151/2024 Page 28 of 34

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.

O.M.P. (COMM) 151/2024 Page 29 of 34

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

O.M.P. (COMM) 151/2024 Page 30 of 34

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

O.M.P. (COMM) 151/2024 Page 31 of 34

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

O.M.P. (COMM) 151/2024 Page 32 of 34

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.

O.M.P. (COMM) 151/2024 Page 33 of 34

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.

O.M.P. (COMM) 151/2024 Page 34 of 34

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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