2017 Supreme(SC) 140
A.K.SIKRI, R.K.AGRAWAL
VOESTALPINE SCHIENEN GMBH – Appellant
Versus
DELHI METRO RAIL CORPORATION LTD. – Respondent
Advocates Appeared:
For the Appellants :- Gopal Jain, Sr. Adv., Ms. Vanita Bhargava, Ajay Bhargava, Jeevan B. Panda, Ms. Kudarat Dev, (For M/s. Khaitan & Co.), Advs.
For the Respondents:- Mukul Rohtagi, AG, Ms. Shashi Kiran, Abhiuday Chandra, Advs.
Judgement Key Points
- Independence and impartiality of an arbitrator are hallmarks of arbitration proceedings, and the rule against bias is a fundamental principle of natural justice applicable to all judicial and quasi-judicial proceedings. (!)
- Even when an arbitrator is appointed in terms of the contract and by the parties to the contract, the arbitrator is independent of the parties; functions and duties require rising above partisan interests and not acting to further the particular interest of either party. (!) [1000590150019]
- The arbitrator has an adjudicatory role and must be independent of the parties as well as impartial. (!)
- Independence and impartiality are distinct concepts: an arbitrator may be independent yet lack impartiality, or vice versa; independence is an objective concept ascertainable at the outset, while impartiality is more subjective and may surface during proceedings. [1000590150020]
- Under Section 11(6), when appointing an arbitrator, regard must be had to qualifications required by the agreement and provisions likely to secure an independent and impartial arbitrator. (!)
- Amended Section 12(5) renders ineligible any person whose relationship with parties, counsel, or subject-matter falls under categories in the Seventh Schedule, notwithstanding prior agreement to the contrary, unless waived post-dispute by express written agreement. (!) (!)
- Persons in the Seventh Schedule, such as employees, consultants, advisors, or those with past/present business relationships with a party, are ineligible to act as arbitrators. (!) (!)
- Retired government or PSU engineers without direct connection to the party (e.g., DMRC) are not ineligible merely due to prior service, as they do not fall under Seventh Schedule categories. [1000590150022][1000590150023][1000590150024]
- Arbitration panels prepared by parties like PSUs should be broad-based to instill confidence, including prominent private sector engineers, judges, lawyers, and accountants, not limited to serving/retired government/PSU engineers. [1000590150027][1000590150028]
- In government/PSU contracts, the duty to ensure impartiality and independence is onerous, especially when the PSU controls panel preparation and nominations. (!) [1000590150028]
- Procedure limiting choice to a shortlist from the panel (e.g., five names) creates apprehension of bias; parties should nominate from the entire broad panel, and co-arbitrators should select the presiding arbitrator from the whole panel. [1000590150026]
- Courts under Section 11 may deviate from agreed procedure if it compromises independence/impartiality, to ensure fair proceedings. (!) (!) (!)
- Time-bound broad panel preparation is directed to foster a healthy arbitration culture, especially in international/Government contracts. [1000590150028]
JUDGMENT
A.K. Sikri, J.
The petitioner, which is a Company incorporated under the laws of Austria, with its registered office in that country, has its branch office in DLF City, Gurgaon, Phase-II, India as well. It is engaged, inter alia, in the business of steel production with the use of advance technology, like Rolling Technology and Heat Treatment Technology, as well as manufacturing, producing and supplying rails and related products. It claims to be a European market leader and innovation pioneer with a worldwide reputation which has played a decisive role in the development of modern railway rails. The respondent, Delhi Metro Rail Corporation Ltd. (DMRC) awarded the contract dated 12th August, 2013 to the petitioner for supply of rails. Certain disputes have arisen between the parties with regard to the said contract inasmuch as the petitioner feels that respondent has wrongfully withheld a sum of euro 5,31,276/- (Euro Five Lakhs Thirty One Thousand Two Hundred and Seventy Six only) towards invoices raised for supply of last lot of 3000 MT of rails and has also illegally encashed performance bank guarantees amounting to EURO 7,83,200/- (Euro Seven Lakhs Eighty Three Thousand T
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