Arbitral Tribunal With Serving/Retired Railway Officers Violates Section 12(5) Of Arbitration Act: Gauhati High Court

Section 12(5) deals with the grounds of ineligibility of an individual to act as an arbitrator. It states that a person shall be ineligible to be appointed as an arbitrator if he falls under any of the categories specified in the 7th Schedule.

Brief Facts:

PCM Cement Concrete (“Petitioner”) argued that a contract agreement was entered into with Northeast Frontier Railway to construct and operate a 25,000 MT Capacity godown with private Siding under the FCI's Private Entrepreneurship Godown Scheme. Disputes arose between the parties which prompted the Petitioner to seek arbitration as per Clause 64 of the contract agreement, which mandated the resolution of disputes through an Arbitral Tribunal appointed by the General Manager, Northeast Frontier Railway. The Petitioner approached the High Court and filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for the appointment of the arbitrator.

The Petitioner argued that despite the contract specifying the General Manager, N.F. Railway as the appointing authority for a 3-member Arbitral Tribunal, the appointment should be made by the High Court due to the General Manager's inherent interest in the dispute.

The Railways contended that the contract's arbitration clause specifically outlined the composition of the Arbitral Tribunal as retired or serving Railway Officers. It argued that the Petitioner did not suggest any names from a panel of potential arbitrators provided by the railways which led the Railways to appoint Arbitrators as per the contract terms.

Observations by the High Court:

The High Court referred to the decision of the Supreme Court in Perkins Eastmen Architects DPC v. HSCC (India) Ltd. and TRF Ltd. v. Energo Engg. Projects Ltd., and held that individuals falling under the categories listed in the Seventh Schedule of the Arbitration Act are ineligible to act as Arbitrators. Further, it held that such ineligible persons cannot nominate others to serve as Arbitrators, as per Section 12 of the Arbitration Act.

The High Court acknowledged a conflicting decision in Central Organization for Railway Electrification v. Ms. ECI-SPIC-SMO-MCML (JV), where the Supreme Court allowed the appointment of Arbitrators from a panel of Railway Officers as per contractual terms. However, given the conflicting interpretations and the pending resolution before a larger bench of the Supreme Court, the High Court leaned on the principle outlined in Union Territory of Ladakh v. Jammu and Kashmir National Conference, and emphasized the precedence of earlier judgments when faced with conflicting decisions of equal strength.

Applying this principle, the High Court held that the Railways acted incorrectly in appointing serving or retired Railway Officers as Arbitrators without the Petitioner's consent to waive Section 12(5). Therefore, the Arbitral Tribunal constituted by the Railways was set aside.

In lieu of the invalidated Tribunal, the High Court exercised its authority under Section 11(6) of the Arbitration Act to appoint an independent Arbitrator. It appointed Justice C. R. Sarma, a retired Judge of the High Court, to preside over the arbitration proceedings between the parties.

Case Title: Pcm Cement Concrete Pvt. Ltd. vs The Union Of India and Anr.

Citation: 2024 LiveLaw (Gau) 43

Case Number: Arb. P. 35/2023

Advocate for the Petitioner: S Sharma

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

Date of Judgment: 18.06.2024

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