2022 Supreme(Del) 2193

IN THE HIGH COURT OF DELHI AT NEW DELHI
MINI PUSHKARNA, J.
Gangotri Enterprises Ltd – Appellant
Versus
General Manager Northern Railaways - Respondent
Arb.P. 366 of 2020, ARB.P. 367 of 2020, ARB.P. 368 of 2020, ARB.P. 370 of 2020
Decided on : 31-10-2022

An employee of the respondent or even a retired employee would be ineligible to be appointed as an arbitrator. The panel of arbitrators should be broad-based and should include persons with diverse backgrounds, including retired judges, lawyers, and engineers from both the public and private sectors.

Headnote:

ARBITRATION - Appointment of Arbitrator - Railway Contract - Railway Arbitration Rules - Railway General Conditions of Contract (GCC) - Clause 63 and 64 - Dispute Resolution - Appointment of Arbitral Tribunal - Impartiality and Independence of Arbitrator - Seventh Schedule of Arbitration and Conciliation Act, 1996 - Amendment of Section 12(5) - Waiver of Applicability of Section 12(5) - Broad-based Panel of Arbitrators - Panel Comprising Retired Railway Officers - Ineligibility of Railway Employees or Ex-employees as Arbitrators - Appointment of Nominee Arbitrator by the Court.

Fact of the Case:

Petitioner, a contractor, entered into various contracts with the respondent, Northern Railways, for execution of works related to development of railway stations and other allied works. Disputes arose between the parties, and the petitioner invoked the arbitration clause in the contracts. The petitioner nominated its arbitrator, but the respondent failed to appoint its nominee arbitrator. The petitioner filed petitions under Section 11 of the Arbitration and Conciliation Act, 1996 (Act) seeking appointment of a nominee arbitrator for the respondent.

Finding of the Court:

The Court held that the respondent was required to provide a decision on the claims raised by the petitioner under Clause 63 of the GCC before invoking Clause 64 for appointment of an Arbitral Tribunal. The Court further held that the panel of arbitrators proposed by the respondent, comprising only retired Railway officers, was not broad-based and did not satisfy the concept of neutrality and impartiality of arbitrators as required under the amended Section 12(5) of the Act and the Seventh Schedule. The Court also noted that the Supreme Court had given a prima facie view with respect to the correctness of a judgment upholding a similar clause, and had passed a reference order for constituting a larger Bench to look into the correctness of the said judgment.

Issues: 1. Whether the respondent was required to provide a decision on the claims raised by the petitioner under Clause 63 of the GCC before invoking Clause 64 for appointment of an Arbitral Tribunal? 2. Whether the panel of arbitrators proposed by the respondent, comprising only retired Railway officers, was broad-based and satisfied the concept of neutrality and impartiality of arbitrators as required under the amended Section 12(5) of the Act and the Seventh Schedule?

Ratio Decidendi: 1. The Court held that the respondent was required to provide a decision on the claims raised by the petitioner under Clause 63 of the GCC before invoking Clause 64 for appointment of an Arbitral Tribunal. The Court relied on the provisions of Clause 63 and 64 of the GCC, which provided for a two-step process for dispute resolution. Under Clause 63, the General Manager of the respondent was required to decide on the claims raised by the petitioner within 120 days of receipt of the representation. Only if the General Manager failed to make a decision within 120 days, could the petitioner invoke Clause 64 and demand that the dispute be referred to arbitration. 2. The Court held that the panel of arbitrators proposed by the respondent, comprising only retired Railway officers, was not broad-based and did not satisfy the concept of neutrality and impartiality of arbitrators as required under the amended Section 12(5) of the Act and the Seventh Schedule. The Court relied on the judgment of the Supreme Court in Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665, which held that the panel of arbitrators should be broad-based and should include persons with diverse backgrounds, including retired judges, lawyers, and engineers from both the public and private sectors. The Court also noted that the Supreme Court had given a prima facie view with respect to the correctness of a judgment upholding a similar clause, and had passed a reference order for constituting a larger Bench to look into the correctness of the said judgment.

Final Decision: The Court allowed the petitions and appointed Justice (Retd.) Indira Banerjee, former Judge of Supreme Court, as the nominee arbitrator on behalf of the respondent. The two learned arbitrators in the respective cases were directed to appoint a Presiding Arbitrator. All rights and contentions of the parties were left open for consideration by the Arbitral Tribunal.