“Counter-Balancing” Not Achieved When 2/3rd Members Of The Arbitral Tribunal To Be Appointed By One Party: Delhi High Court

The bench of Justice Sachin Datta made the observation while dealing with a petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act), seeking constitution of an independent arbitral tribunal to adjudicate the dispute between the parties. The dispute between the parties had arisen in the context of a ‘Request for Proposal’ (RFP) issued by RailTel Corporation of India Ltd (respondent) for certain work, which was later awarded to the petitioner, Margo Networks Pvt Ltd.

Noting that the petitioner was required to choose its nominee arbitrator from a panel of ten arbitrators, all of whom were ex-employees of the railways, the court concluded that the said panel was clearly restrictive and manifestly not “broadbased”. Therefore, it impinged upon the validity of the appointment procedure, the court held.

The court was dealing with the appointment procedure contemplated in the RFP, which required the bidder (petitioner) to appoint its nominee arbitrator from a panel maintained by the Indian Railways. Whereas the opposite party, RailTel, had the right to appoint the remaining 2 out of 3 arbitrators under the RFP.

The bench remarked that the “counter balancing”, as contemplated in Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd, 2019 SCC Online SC 1517, cannot be said to be achieved in a situation where one of the parties has a right to choose one arbitrator from a panel whereas 2/3rd of the members of the arbitral tribunal are appointed by the other party.

Allowing the petition, the court has appointed former Supreme Court Judges, Justice Dr. A. K. Sikri and Justice M.R. Shah as arbitrators. The two arbitrators will now have to concur to appoint the third /presiding arbitrator.

After certain disputes arose between the parties under the ‘Request for Proposal’ (RFP), the petitioner, Margo, in its notice invoking arbitration, raised certain claims upon RailTel. Margo also assailed the procedure for appointment of arbitrator contemplated in the RFP. Margo claimed that the said procedure was one sided, onerous, and contrary to the law laid down by the Supreme Court.

In its reply to the invocation notice, RailTel provided a list of the panel arbitrators maintained by the Indian Railways, asking the petitioner to choose its nominee arbitrator from the same.

Consequently, Margo filed a Section 11 petition before the Delhi High Court seeking constitution of an independent arbitral tribunal consisting of three arbitrators.

The relevant clause of the RFP, which contemplated a three-member Arbitral Tribunal, required the bidder (petitioner) to appoint its nominee arbitrator from a panel maintained by Indian Railways. The respondent, RailTel, on the other hand, could appoint the balance number of arbitrators, i.e., 2 (its nominee arbitrator as well as the ‘Presiding Arbitrator’) either from the panel or from outside the panel.

Margo argued that the relevant clause of the RFP enabled RailTel to unilaterally constitute the arbitral tribunal. It pleaded that the panel offered by RailTel was a restrictive panel and therefore, it was not in terms of the decision of the Apex Court in Voestalpine (2017).

Referring to the facts of the case, the court observed that RailTel shared a panel of ten arbitrators with the petitioner, all of whom were ex-employees of the Railways/RailTel. The court noted that apart from the ex-employees of the railways, no other person had been included in the panel.

The bench thus ruled, “Such a panel is clearly restrictive and is manifestly not “broadbased” and therefore, impinges upon the validity of the appointment procedure prescribed in clause 3.37 of the RFP.”

The court added that where a party is required to appoint an arbitrator from a panel made by the other contracting parties, it is mandatory for the panel to be sufficiently broad based, in conformity with the principle laid down by the top court in Voestalpine (2017). The bench remarked that failing this, the Court, while exercising jurisdiction under Section 11, would be required to constitute an independent and impartial Arbitral Tribunal as mandated in TRF Limited vs. Energo Engineering Projects Ltd, (2017) 8 SCC 377 and Perkins (2019).

While concluding that the panel offered by RailTel was restrictive and not broadbased, the bench said, “The same adversely impinges upon the validity of the appointment procedure contained in clause 3.37 (supra), and necessitates that an independent Arbitral Tribunal be constituted by this Court.”

The bench further remarked that the “counter balancing” as contemplated in Perkins (2019), cannot be said to have been achieved in a situation where one of the parties has a right to choose an arbitrator from a panel, whereas the remaining 2 out of 3 arbitrators are appointed by the other party.

The court thus allowed the petition, appointing the nominee arbitrator for both the parties.

“In the circumstances, the prayer of the Petitioner seeking appointment of an independent, impartial Arbitral Tribunal to adjudicate the disputes between the petitioner no.1 and the respondent, is allowed. The agreement between the parties contemplates a three member Arbitral Tribunal. Accordingly, Justice (Retd.) Dr. A. K. Sikri, Former Judge, Supreme Court of India, (Mobile No. 9818000300) is appointed as the Petitioner’s nominee Arbitrator; Mr. Justice (Retd.) M.R. Shah, Former Judge, Supreme Court of India (Mobile No. 9825049081) is appointed as the nominee Arbitrator of the Respondent. The two arbitrators shall now concur to appoint the third Arbitrator/ presiding Arbitrator within 30 days of the date of service of this order,” the court ruled.

Case Title: Margo Networks Pvt Ltd & Anr vs Railtel Corporation of India Ltd

Citation: 2023 LiveLaw (Del) 581

Dated: 10.07.2023

Counsel for the Petitioner: Mr. Kunal Tandon, Mr. Shashank Shekhar and Ms. Aanchal Khanna, Advs.

Counsel for the Respondent: Mr. Chetan Sharma, ASG along with Mr. Yamandeep Kumar, Ms. Sabah Iqbal Siddiqui, Mr. R.V. Prabhat, Mr.Vinay Yadav and Mr. Saurabh Tripathi, Advs.

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