Arbitrator independence is crucial; unilateral appointments violate neutrality, invalidating any waiver of ineligibility not expressly agreed post-constitution of the tribunal.

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.

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. 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 arb