Employee Of Railways Cannot Be Appointed As Arbitrator, Violates Section 12(1) A&C And Perkins Eastman: Gauhati High Court

Section 12(1) of the Arbitration and Conciliation Act, 1996 outlines provisions related to the impartiality and independence of arbitrators.

Brief Facts:

The matter pertained to a contract work designated as 'Manufacturing and Supplying of 50 mm Size Machine Crushed Ballast at Jorai Depot under Alipurduar Division”. The Petitioner asserted that it fulfilled its obligations under the contract, initiated in response to the Tender Notice. However, the Petitioner claimed that there was non-payment of the security deposit and price escalation for the supplied materials by the Respondents, leading it to invoke the Arbitration Clause. The Petitioner approached the Gauhati High Court (“High Court”) and filed an application under Section 11[6] of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for appointment of arbitrators. It argued for the appointment of an Arbitrator by the Court, expressing concern over the proposed Arbitrators by the Respondents, who were their own railway officials.

The Respondents countered that the earnest money and security deposit due to the Petitioner was already disbursed. It emphasized that according to Para 19 of the affidavit-in-opposition, any dispute between the parties must be resolved through arbitration as stipulated in the Arbitration Act.

Observations by the High Court:

Addressing the proposal made by the Respondents for the appointment of an Arbitrator from within the ranks of Indian Railways employees, the High Court held that the individuals proposed as Arbitrators cannot be considered disinterested parties, given the contractual relationship between the Railways and the petitioners.

The High Court referred to the Supreme Court's decision in Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd (2020) 20 SCC 760 and TRF Ltd. vs. Energo Engg. Projects Ltd. (2017) 8 SCC 377 to underscore the statutory ineligibility of certain individuals, such as Managing Directors, to act as Arbitrators. Notably, the amended Section 12(1) of the Arbitration Act delineates disclosures necessary for the selection of an impartial Arbitrator. Therefore, the High Court held that any person falling under the categories specified in the Seventh Schedule of the Act is ineligible for appointment as an Arbitrator. This extends to individuals who are statutorily barred from acting as Arbitrators or nominating others for the role.

The High Court noted that the application for appointment of an Arbitrator was made subsequent to the 2015 amendment and as such, the decision of the Hon'ble Supreme Court in the case of Perkins Eastman would be applicable to the facts of the case.

In light of the amendments introduced by the 2015 amendment to the Act, the High Court held that the decision in Perkins Eastman was applicable to the present case. Consequently, the High Court appointed Chaya Rani Goswami, Retd. District & Sessions Judge, as the Arbitrator.

Case Title: Bhartia Dooars (JV) And 2 Ors Vs Union Of India And 3 Ors.

Case Number: Arb.P./5/2023

Case Citation: 2024 LiveLaw (Gau) 20

Advocate for the Petitioner: Mr. R Hussain

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

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