Telex Advertising Pvt Ltd v. Central Railway

16 Another contingency resulting into termination of the mandate of the Arbitrator, and his failure or impossibility to act is to be found in Section 14 of the Act, which provide for termination of the mandate and substitution of the Arbitrator, by another, if the Arbitrator becomes de jure or de facto unable to perform his functions or for other reasons, fail to act without undue delay and withdraw from his office or the parties agree to the termination of his mandate. A clarification is offered in sub-section (3) of Section 14 itself, by providing that if the Arbitrator withdraws from his office or a party agrees to the termination of the mandate of the Arbitrator, it shall not imply acceptance of the validity of any ground, referred to in sub-section (3) of Section 12. If, however, any controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1) unless otherwise agreed between the parties, a party may, apply to the Court, to decide on termination of the mandate.

17 It is in this existing statutory scheme, as provided in the Arbitration and Conciliation Act, 1996, the question of impartiality and neutrality of Arbitrator is to be determined and particularly, when the procedure for appointment of Arbitrator is adopted in the Standard Contract, fixed by the Agency like the Railways, and where the arbitration proceedings are intended to be driven by it, since it is a party who has awarded a contract employment etc, in favour of a party or a contract under the work order.

18 In case of N.P. Enterprises, the petitioner addressed a notice invoking the arbitration on 3/8/2023, and the notice specified the issues in dispute, in compliance with Clause 8.2.1.1. The respondent Railway admitted the invocation, however, resisted the appointment of the Arbitral Tribunal, by stating that same can only be done ‘when the claims are quantified in monetary terms’ and what is pressed into service it the following clause:- “8.[2] Demand for Arbitration 8.2.[1] In the event of any dispute or difference between the parties hereto as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such cases, but except in any of the ‘excepted matters’ referred to in Clause 63 of these conditions, the contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters shall demand in writing that the dispute or difference be referred to arbitration. 8.2.1.[1] (a) The demand for arbitration shall specify the matters which are in question, or subject of the dispute or difference as also the amount of claim, item-wise. Only such dispute or difference, in respect of which the demand hash been made, together with counter claims or set off, given by the Railways, shall be referred to arbitration and other matters shall not be included in the reference. (b) The parties may waive off the applicability of sub-section 12(5) of Arbitration and Conciliation (Amendment) Act 2015. If they agree for such waiver, in writing, after dispute having arisen between them, in the format given under Annexure XII of these conditions”. It is the case of Mr. Dhananjay Deshmukh representing the petitioner, that the amount being monetarily quantified is only relevant for appointment of Arbitrator, when the application of Section 12(5) if waived and even clause 8.4.[2] makes it clear that the Contractor shall specify the final claims in writing within period of 90 days from the Railways, is ready for payment and therefore, it is his argument that the quantification of the claim is only applicable for invoking clause 8.4.1, where the total claim does not exceed Rupees One Crore and the Tribunal shall consist of Sole Arbitrator, but if it does exceed Rupees One Crore, the panel shall consist of three Gazetted Railway Officers. According to him, the applicant has not waived the applicability of Section 12(5) and therefore it was incumbent upon the General Manager of the Railways to complete the exercise within 30 days. However, no panel was submitted to the petitioner and hence, according to him, the respondents have waived its right to appoint a panel in terms of the contract. It is sought to be argued that once the Railways have failed to even submit a panel of Arbitrators, the consequences must follow i.e. it is deemed to have waived its right and High Court can be approached, and the Sole Arbitrator shall be appointed by the High Court.

19 Yet another argument advanced on behalf of Mr. Deshmukh is, notwithstanding Clause 8.4.2, that the Railways could not have suggested restrictive panel of only four retired Officers and the panel ought to have been a broad based one, in order to have a choice available. Mr. Deshmukh has distinguished the judgment in CORE and he would place reliance upon the subsequent decision of the Apex Court in case of Union of India Vs. M/s.Tantia and Simplex Infrastructures Ltd Vs. Rail, as well as the decision of the Delhi High Court in case of SMS Limited VS. Rail Vikas Nigam Limited,[4] Consortium of AutoMeter Alliance Ltd, and Canny Elevators Co. Ltd Vs. Chief Electrical Engineer,[5] and PSP Projects Ltd Vs. Bhiwandi Nizampur City Municipal Corporation.[6] Mr.Godbole has placed before me the compilation of judgments spread over the lines, which has pronounced upon the unilateral appointment of Arbitrators, by an interested party.

20 The counsel for Railway; the Central Railway and Western Railway respectively – would place heavy reliance upon the decision of the Apex Court in case of CORE and Mr.Bubna has also pressed into service, a decision of the Apex Court in case of Gregory Patrao and others Vs. Mangalore Refinery and Petrochemicals Limited and ors[7].

21 In the gamut of the decisions placed before me, and in order to ascertain, whether the decision of the Three Judges Bench of the Apex Court in CORE, has sealed the position in law on the aspect of appointment of Arbitrators, to be chosen from the panel maintained by the Railways, and particularly, when the panel include the retired Officers of the same Department, and whether it has conclusively held, that they do not incur any ineligibility on this ground, and are competent to be included in the panel of Arbitrators, I must refer to the authoritative pronouncements from the Apex Court in the past, and as to how the ratio flowing from these decisions, have received recognition when the Three Judges Bench decided CORE(supra).

22 In Voestalpine Schienen GMBH Vs. Delhi Metro a decision delivered after Section 12 of the Act of 1996, was amended, based on the recommendations of the Law Commission, which specifically dealt with the issue of ‘neutrality of Arbitrators, recognized that the independence and impartiality are two different concepts; an Arbitrator may be independent and yet lack impartiality or vice versa. The most pertinent observation from the Law Report read as below:- “22 Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi judicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstanding the same non-independence and non-impartiality of such arbitrator (though contractually agreed upon)would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Jivraj v. Hashwani in the following words:- “the dominant purpose of appointing an arbitrator is the impartial resolution of dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties.

23 The Apex Court in Voestalpine, was dealing with the contract with the Delhi Metro Rail Corporation Limited (DMRC) where the Arbitration Agreement between the parties was contained in clause 9.[2] of the General Conditions (GCC) read with clause 9.[2] of the Special Conditions of the Contract (SCC) and which provided as under:- “…… there shall be three arbitrators. For this purpose the purchaser will make out a panel of engineers with the requisite qualifications and professional experience. This panel will be of serving or retired engineers “government departments or of public sector undertakings; (b)

(c) For the disputes to be decided by three Arbitrators, the purchaser will make out a list of five engineers from the aforesaid panel. The supplier and purchaser shall choose one arbitrator each, and the two so chosen shall choose the third arbitrator from the said list, who shall act as the presiding arbitrator”. With this clause in the background, the respondent furnished the names of five persons to the petitioner with a request to nominate its Arbitrator from the panel. However, it was not acceptable to the petitioner, as it felt that the panel consisted of serving of retired engineers, either of the respondent or the Government Department or Public Sector Undertakings, who did not qualify as independent Arbitrators, and with the amendment in Section 12, such a panel had lost its validity, as it was contrary to the amended provision. It is in the wake of these contentions being advanced, on behalf of the petitioner, their Lordships adverted to various contingencies mentioned in the Seventh Schedule, which would render a person ineligible to act as an Arbitrator; Entry-1 being, “The Arbitrator is an employee, consultant, Advisor, or has any other past or present business relationship with a party. The objection of the petitioner was, the panel of the Arbitrators drawn by the respondents, consisting of those persons who are government employees or ex-government employees. Dealing with this contention, Their Lordships remarked that this by itself may not make such persons ineligible, as the panel included even persons who have worked in the Railways, under the Central Government or the Central Public Works Department, or Public Sector Undertakings, and they could not be treated as ‘employees’, or ‘consultant’ or ‘advisor’ of the DMRC. What was pertinently observed must be reproduced;

24 It was emphatically held, that in a situation where the proposed Arbitrator is an employee, a consultant, an advisor or has any past or present business relationship with the party, then, he is rendered ineligible and incompetent, to act as an Arbitrator. This analogy was taken ahead, when it was held, that a person who is a Manager, Director, or part of the Management or has controlling influence in an affiliate of one of the parties, if the affiliate is directly involved in the matter in dispute, then even he is incapacitated. The ratio flowing from the instructive pronouncement is capitulated in para 26; where it is held that, simply because a person is a retired Officer, who retired from Government or other statutory Corporation, or Public Sector Undertakings and had no connection with DMRC, could not be treated as ineligible to act as an Arbitrator, and had this been the intention of the legislature, Seventh Schedule would have covered such persons as well. The rationale in including such persons in the panel with different backgrounds was also justified, in para 26, in following words:- “Bias or even real likelihood of bias cannot be attributed to such highly qualified and experienced persons, simply on the ground that they served the Central Government or PSUs, even when they had no connection with DMRC. The very reason for empaneling these persons is to ensure that technical aspects of the dispute are suitably resolved by utilising their expertise when they act as arbitrators. It may also be mentioned herein that the Law Commission had proposed the incorporation of the Schedule which was drawn from the red and orange list of IBA guidelines on conflict of interest in international arbitration with the observation that the same would be treated as the guide 'to determine whether circumstances exist which give rise to such justifiable doubts'. Such persons do not get covered by red or orange list of IBA guidelines either.”

25 Yet one glaring aspect was also focused upon in Voestalpine i.e. the discretion vested in DMRC, to pick up five persons from the panel and forwarding their names to the other side, to select one of these five, as its nominee, and nomination of its Arbitrator by DMRC from these five names. The above procedure was found to be suffering from two adverse consequences; in the first place, the choice given to the other party is limited, as it had to choose amongst one of the five names that are forwarded, and there is no free choice to nominate a person out of the entire panel and secondly, with the discretion given to DMRC to select these five persons, which give rise to a room of suspicion, in the mind of other side, that the Authority must have picked up its own favourites and such a situation deserve to be countenanced. To offer a solution, clauses (b) and (c) of 9.[2] of Special Conditions of Contract were directed to be deleted and instead, choice was to be given to the parties to nominate any person from the entire panel maintained by DMRC and similarly, the Arbitrators, nominated by each party was also given full freedom, to choose the third Arbitrator/the umpire.

26 The crux of the decision in Voestalpine Schienen GMBH (supra) can be highlighted, to the effect that keeping in mind the spirit of the amended provision, and in order to instil confidence in the mind of the other party, it is imperative that the Panel of Arbitrators maintained by any Authority should be broad based, and apart from serving or retired engineers of Government Departments, Public Undertaking, Engineers of prominence and high repute from private sector should be included. What was expected of DMRC was to prepare a broad based panel, which will afford enough choice for choosing an Arbitrator, with technical expertise.

27 Taking the jurisprudence involved in Section 12(5) of the Amended Act read with Schedule V and VII, forward once again, a Three Judges Bench in TRF Ltd Vs. Energo Engineering when the waiver of ineligibility of an Arbitrator was discussed, categorically held that the waiver must be by an express agreement in writing. Another take away from the said decision is, if in terms of the arbitration clause in the agreement, a dispute was referred to a Sole Arbitrator or its nominee, the Managing Director having become ineligible, to act as an Arbitrator by virtue of the Amendment, and becomes ineligible by operation of law, similarly, he cannot nominate another person as he would suffer from the same ineligibility. What is of significance in this decision, is paragraph no.54, which reads thus:-

29 In Perkins Eastman Architect DPC & Anr Vs. HSCC (India) Ltd,11 a line of distinction in the two categories of cases was noticed (i) when the Managing Director himself is named as an Arbitrator, with an additional power to appoint any other person as an Arbitrator; and (ii) where the Managing Director is not to act as an Arbitrator himself, but he is empowered or authorized to appoint any other person of his choice or discretion as an Arbitrator. Holding that the first category to be governed by TRF Ltd (supra), applying the test to the second category, it was inferred that if the interest that the person concerned has, in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present, irrespective of whether the matter stands under the first or second category of cases and therefore, a party or an official or an authority having interest in the dispute, was also held to be disentitled to appoint an Arbitrator. The decision in TRF Ltd, however, received a further clarification in paragraph no.21, by recording that in TRF, the Court was concerned with the issue, “whether the Managing Director, after becoming ineligible by operation of law is, still eligible to nominate as an Arbitrator.” The ineligibility was a result of operation of law in that person, having interest in the dispute, or in the outcome or decision thereof, must not only be ineligible to act as an Arbitrator himself, but must also be ineligible to appoint anyone else, and that such person cannot and should not have any role in chartering the course of the dispute resolution. However, further observations in TRF, dealing with cases where both parties could nominate respective Arbitrators of their choice, was found to be a completely different situation and this found support from the fact that, whatever advantage a party may derive by nominating an Arbitrator of its choice, would get counter balanced by equal power with the other party, but in a case, where there has to be a Sole Arbitrator, its choice will have an element of exclusivity in determining or chartering the course of dispute resolution and naturally, the person who has an interest in the outcome or decision of the dispute, must not have the power to appoint a Sole Arbitrator, and this was clarified to be the essence of the amendments brought in by the Act of 2015 and recognized by the decision in TRF Limited. Once again, the imperatives of creating healthy arbitration environment, was the focus.

30 Then, comes the decision of the Three Judges Bench in case of Central Organisation of Railway Electrification (supra), which is pressed into service by the counsel representing the Railways, once again, in relation to Clause 64 of the General Conditions of Contract (GCC), which was modified after the Amendment Act, 2015, considering the possibility of waiver/nonwaiver of Section 12(5) and providing for constitution of Arbitral Tribunal consisting of three Arbitrators, either serving or retired Railway Officers. The background facts would divulge that, the respondent filed a Petition seeking appointment of Arbitrator in terms of Clause 64 of the GCC and the High Court appointed a Sole Arbitrator without resorting to the procedure for appointment, as prescribed in the contract and when the decision was subject to challenge before the Apex Court, it was ruled that when the agreement specifically provide for appointment of the Arbitral Tribunal, consisting of three Arbitrators from out of the panel, of serving or retired railway Officers, then the appointment should be in terms of the agreement, as agreed by the parties, in particular, and in the case in hand, when the appellant had not, by its alleged default in appointment of Arbitrator, waived its right to appoint the Arbitrator. The earlier decisions in case of Voestalpine Schienen GMBH, Perkins Eastman, TRF Ltd, were recounted before the Bench and Clause no.64 of the GCC, was dissected, with specific reference to the excepted matters, and a clause providing that the parties may waive off the applicability of Section 12(5) and if they agree of such waiver in writing, after disputes having arisen between them, in the formation under Annexure 12. What was thus before the Apex Court, was the identical clause, which is before me, and it is in this background the Three Judges Bench, speaking through Justice R. Banumathi, (as her Ladyship then was), ruled as under:-

31 Dealing with the contention that the retired railway officers are not eligible to be nominated as Arbitrator, and they are statutorily ineligible, the principle in Voestalpine Schienen GMBH was invoked to the effect that merely because the panel of Arbitrators drawn by DMRC, are government employees or exgovernment employees, that by itself may not make such person ineligible to act as Arbitrator and if they were the persons who had worked in the Railways, Central Government, etc. the ineligibility may not fall. By referring to the decision in State of Haryana Vs. G.F. Toll Road,12 a conclusion is drawn by the Apex Court, held that the appointment of a retired employee of a party to the agreement, cannot be assailed on the ground that he is retired/former employee of one of the parties to the agreement and there is no bar u/s.12(5) of the Arbitration and Conciliation Act, for appointment of a retired employee to act as an Arbitrator.

32 The view in Voestalpine Schienen GMBH, (supra) which has focused upon a wide choice of arbitrators, by empanelling the retired railway officers with technical aspects, is also noted and it is held that merely because panel of Arbitrators are the retired employees, who have worked in the Railways, it would not make them ineligible, to act as Arbitrators. The finding recorded reads, to the following effect:-

33 Heavy reliance is placed upon the decision in CORE by the counsel representing the respondents, and it is submitted that the Three Judge Bench has now held that the appointment of the Arbitral Tribunal be from the panel maintained by the Railways, comprising of serving or retired officers is valid and merely because the panel comprise of Arbitrators who are the retired employees working in Railways, it do not make them ineligible to act as Arbitrators. The question that arise for determination is whether the distinct clauses in the three cases before me, two clauses in the original contract and clause in the lease agreement in the third case, where the appointment of the Arbitrator is to be made in the manner set out in the relevant clause, would be violative of Section 12(5) read with Schedule V and VII of the Arbitration and Conciliation Act, 1996.

34 My attention is invited by the counsel for the applicants that the Three Judge Bench decision delivered in case of CORE, has been now referred to a larger Bench in the wake of the order passed on 11/1/2021 by another Three Judge Bench in case of Union of India Vs. M/s. Tantia Construction Ltd, by recording as under:- “Having heard Mr.K.M. Nataraj, learned ASG for sometime, it is clear that on the facts of this case, the judgment of the High Court cannot be faulted with. Accordingly, the Special Leave Petition is dismissed. However, reliance has been placed upon a recent three- Judge Bench decision of this Court delivered on 17/12/2019 in Central Organisation for Railway Electrification Vs. M/s.ECI-SPIC- SMO-MCML (JV) A Joint Venture Company, 2019 SCC Online 1635. We have perused the aforesaid judgment and prima facie disagree with it for the basis reason that once the appointing authority itself is incapacitated from referring the matter to arbitration, it does not then follow that notwithstanding this yet appointments may be valid depending on the facts of the case.”

35 My attention is also invited to certain subsequent pronouncements of the Apex Court and the High Courts revolving around the same issue. In case of Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited and ors, Vs. Ajay Sales and Suppliers,13 once again the ratio in case of Voestalpine, TRF Ltd, Bharat Broadband Network Ltd, is reiterated and considering the object and purpose of insertion of sub-section (5) of Section 12 r/w Seventh Schedule of 1996 Act, a Two Judges Bench of the Supreme Court has declared the Chairman of the petitioner Sangh to ‘ineligible’, to continue as an arbitrator, though in the Seventh Schedule, the word ‘Chairman’ is not mentioned, but it is held that it would fall in the category of Clause 1, 2, 5 and 12 of Seventh Schedule. Paragraph nos.20 and 21 of the decision in case of Voestalpine is quoted with approval, and it is reiterated that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel, or the subject matter of the dispute falls under any of the categories specified in Seventh Schedule, he shall be ineligible to be appointed as an Arbitrator.

36 Further, in case of Ellora Paper Mills Ltd Vs. State of, another two Judges Bench of the Apex Court, once again reiterated that if a person falls within any of the categories set out in Seventh Schedule, he is as a matter of law is ineligible to be appointed as an arbitrator and the only way in which this ineligibility can be removed, again, in law, is that parties may after disputes being arisen between them, waive the applicability of the sub-section by an “express agreement in writing”. For this reason, the Arbitral Tribunal – Stationery Purchase Committee, consisting of the Officers of the respondent State, was held to suffer from ineligibility and it was held that in an eventuality when the arbitration clause is found to be foul with the amended provision, the appointment of the arbitrator would be pale of the arbitration agreement, empowering the Court to appoint an arbitrator. The Arbitral Tribunal in the case, comprised of various Officers of the State and relying upon Voestalpine, TRF Ltd, Bharat Broadband, the members of the Tribunal were held to be ineligible to act/continue as arbitrators in view of sub-section (5) of Section 12 and a former Judge of the Supreme Court was appointed as an Arbitrator to resolve the disputes.

37 A Three Judges Bench in Lombardi Engineering Ltd, Vs. Uttarakhand Jal Vidyut Nigam Ltd,15 framed an issue; “Whether the arbitration Clause No. 55 of the Contract empowering the Principal Secretary/Secretary (Irrigation) State of Uttarakhand, to appoint an arbitrator of his choice”, find foul with the amended provisions of the Arbitration and Conciliation Act,

1996. Once again, by relying upon paragraph nos.20 to 25 of Voestalpine, issue no.(iv) was answered with reference to Section 12 and the recommendation of the Law Commission on the issue of “neutrality of arbitrators”, on an exhaustive reference being made to the foreign judgments on an arbitration agreement which is unconscionable, by invoking the unconscionability doctrine that is used to set aside, ‘unfair agreements resulting from inequality of bargaining power’. By relying upon 9 Judges Bench of Supreme Court of Canada in case of Uber Technologies Inc.

Vs. Heller, the Apex Courts did not approve of the power in the agreement, empowering the Principal Secretary, Government of Uttarakhand, to appoint a Sole Arbitrator and instead, appointed an arbitrator itself to continue the arbitral proceedings.

38 From reading of the pronouncements subsequent to the decision in CORE, it is evidently clear that the principle laid down in Voestalpine has been consistently followed and the amendment introduced in the Act of 1996, in the wake of the recommendation of Law Commission, has been given a widest interpretation, focusing upon the ‘neutrality of arbitrators’. Keeping in mind the spirit with which Section 12 has been amended, by the Amending Act of 2015, it is manifest that the main object in introducing the provision was to assure neutrality of the arbitrators and any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under any of the categories specified in Seventh Schedule, he becomes ineligible to be appointed as an Arbitrator and any clause in an agreement between the parties which provide for such an eventuality, finds foul with the amended provision and an arbitrator appointed in violation of sub-section (5) of Section 12 and which is in derogation of Seventh Schedule, cannot be said to be an independent arbitrator. If he loses his independence, he definitely becomes ineligible to act as an arbitrator, as independence is the hallmark to arbitration proceedings. The only way in which this ineligibility can be removed, is by waiving the applicability of sub-section (5) of Section 12, but which should be again expressly by an agreement in writing. The Three Judges Bench in Core has relied upon a decision in case of State of Haryana Vs. G.F. Toll Road Pvt. Ltd (supra), and by referring to Voestalpine, it is recorded that the very reason for empaneling the retired Railway Officers is to ensure the technical aspects of the disputes are suitably resolved by utilizing their expertise, when they act as arbitrators and merely because panel of arbitrators are of retired employees, it do not make them ineligible to act as arbitrators.

39 In Voestalpine, the Apex Court was dealing with a panel of Arbitrators prepared by DMRC, which also comprised of Officers working in Central Government or other autonomous or public sector undertakings and the arguments advanced on behalf of the petitioner that the panel of arbitrators of DMRC included the Government employee or ex-government employees, was not accepted, by holding that the persons who have worked in Railways or under the Central Government or CPWD or Public Sector Undertakings, cannot be treated as employee or consultant or advisor of DMRC. The nub of the issue was clearly noted by, holding that the amended provision puts an embargo on a person to act as an arbitrator who is the employee of the party to the dispute and it deprives the person to act as an arbitrator, if he had been the consultant or the advisor or had any past or present relationship with DMRC. In case of Voestalpine, panel was broad based as it included even the employees or ex-employees who were, in no way, related to DMRC, and it was held that it is open to pick up such an arbitrator, who is no way related to DMRC. This being the crux of the issue on how independence and impartiality of an arbitrator can be attained, and which has been consistently followed, one has to be kept in mind, when a clause contained in an agreement is to be tested, being juxta posed against Section 12(5) and Schedule V and VII of the Arbitration and Conciliation Act. In the clause before me, which is to be found in the Railways contracts, in cases where total value of claims does not exceed Rs. One crore, the Arbitral Tribunal shall be of a Sole Arbitrator, and the clause provide that the Arbitrator shall be a Gazetted Officer of Railway, not below JA Grade, nominated by the General Manager, who shall be appointed within 60 days from the date when a return and valid demand of arbitration is received by General Manager. In all other cases, the Arbitral Tribunal shall consist three gazette railway officers not below JA Grade or two Railway gazette officers not below JA Grade and a retired Railway Officer, not below the rank of SAG Officers, as arbitrator. For this purpose, the Railway shall send a panel of at least four names of the gazette Railway Officers of one or more departments of the Railway, which may also include the name/s of retired Railway Officer/s empaneled to work as Railway Arbitrator to the contractor within 60 days from the receipt of valid demand for arbitration. The other party shall then be asked to suggest to the General Manager atleast two names out of the panel of appointment as its nominee and the General Manager then shall appoint atleast one of them as the contractor’s/licensees nominee and simultaneously appoint balance number of arbitrators from the panel or outside the panel duly indicating the presiding Officer amongst the three arbitrators so appointed.

40 The learned counsel Mr.Dhananjay Deshmukh and Mohammed Zain Khan are right in submitting that such a clause clearly is in teeth of Section 12(5) read with Schedule VII. As far as the mode in which the names of the proposed arbitrators shall be forwarded, also run contrary to the observation in Voestalpine and in particular, paragraph no.28, where it was held that when particular number of persons are to be picked from the panel, there is always a scope for restricting the free choice available and it was also held that by choosing these five persons, it would always give rise to a suspicion that they are favourites and will act in their favour. For this reason, it was directed that choice should be given to the party to nominate any person from the entire panel of arbitrators. In this case, Clause 8.4.[2] of the GCC gives the General Manager the power to appoint an arbitrator not only on its behalf but also on behalf of the petitioner and this is clearly in violation of the decision of the Apex Court in case of Perkins Eastman Architects DPC (supra), and also in case of TRF Ltd (supra). Any person who is interested in the outcome or the decision in respect of the dispute, cannot himself act as an arbitrator, nor shall he exercise the power to appoint another person as an arbitrator. The power to appoint the arbitrators in the Railway Contract vest in the General Manager and it is he who will nominate the sole arbitrator. In case where a panel of three arbitrators, the clause contemplate three gazette railway officers or two railway gazette officers and the retired railway officers and for this purpose, a panel of atleast four names shall be forwarded to the contractor, out of which two names are to be picked up by the contractor/licensee and amongst whom, the General Manager will select one and also nominate the balance number of arbitrators. The vesting of the power in the General Manager, who is very much interested in the outcome of the proceedings, itself runs contrary to the principle of impartiality and independence of the arbitration process as the General Manager is obviously interested in the outcome of the proceedings between a contractor/ licensee/third party and the railways on the other. The General Manager is an employee of the Railways and is expected to protect the interest of its employer and hence, no mater he may demonstrate that he has acted in best interest of the parties, the apprehended bias on his part, cannot be ignored.

41 The learned Senior counsel Mr.Godbole and the learned counsel appearing for the applicants in the two applications have placed before me the decision of Delhi High Court in case of M/s. Ganesh Engineering Works Vs. Northern Railways and anr, 2023 DHC 8497. Perusal of the decision would disclose that the Delhi High Court was dealing with the issue whether the proposed names of four retired railway officers from the panel maintained by railways is valid in view of the decision of the Apex Court in case of Perkins Eastman (supra) where emphasis was laid down on party autonomy and the likelihood of bias of the appointing authority having interest in the outcome a result of the dispute. Relying upon the decision of the co-ordinate benches of the Court in case of Margo Networks (Pvt) Ltd. and Anr Versus Railtel Corporation of India Ltd,16 and in case of Steelman Telecom Ltd. Versus Power Grid Corporation17, the decision in case of CORE was discussed threadbare, and in the wake of the law laid down in Voestalpine, TRF Limited and Perkins Eastman Architects DPS, the following observation is pertinently recorded:

42 In an appointment, procedure involving appointment from a panel prepared by one of the contracting parties, it is mandatory for the panel to be sufficiently broad based in conformity with the principle laid down in Voestalpine, failing which it would be incumbent on the Court while exercising jurisdiction under Section 11 to constitute an independent and arbitral tribunal as mandated in TRF Ltd (supra) and Perkins Eastman (supra).

43 In Gangotri Enterprises Ltd Vs General Manager,, in the context of identical procedure for appointment, in the context of Railway contracts, taking note of the judgment in CORE, Voestalpine, SMS LTd Vs. Rail Vikas Nigam Ltd (supra), it was observed as under:-

44 In the wake of the aforesaid position emerging in law and when applied to the facts placed before me, involving Clause 8.4.[1] of the GCC, in case of Railways and Clause 30 in case of licence agreement, of Airport Authority of India, Pune, since the appointment of Arbitrator would fall within the teeth of the decision in case of Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation, (2017) 4 SCC 665, TRF Ltd Vs. Energo Engineering Projects Limited, (2017) 8 SCC 377 and Perkins Eastman Architect DPC & Anr Vs. HSCC (India) Ltd, 2020) 20 SCC 760, the Arbitrator cannot be nominated in this fashion, which is an unilateral appointment. Similarly, the argument advanced in case of N.P. Enterprises, that there is no quantification of the claim and therefore, the applicant is not justified in invoking arbitration also fails to impress me, as the notice invoking arbitration has clearly set out the dispute and since the respondent railway has failed to act, it has waived it’s right, which entitled the applicants to seek reference to a sole arbitrator, however, not in the manner suggested in the relevant Clause i.e. Clause no.8.4.[1] of GCC, in N.P. Enterprises and Clause No.19 in Telex, and also as per Clause 30 in the licence agreement in case of Mr.Godbole. Since the respective clauses making unilateral appointments cannot be acted upon and a case is made out for reference of disputes arising between the parties to the arbitration of a sole arbitrator, with the appointment of the Arbitrator by this Court, the Arbitration Petition and two Arbitration Applications stand disposed off. In the wake of the above, the following Arbitrators are appointed in each matters:- ARBITRATION APPLICATION (L) NO. 6984 OF 2023 Mr. Hormaz C. Daruwalla, Senior Advocate, having his office at Behramji Mansion, 3rd floor, Sir Pherozshaw Mehta Road, Mumbai 400001, is appointed as Sole Arbitrator in ARBAP(L) 6984/2023, to adjudicate the disputes and differences that have arisen between the applicant and the respondent. COMM.

ARBITRATION APPLICATION (L) NO. 30940 OF 2023 Mr. Hormaz C. Daruwalla, Senior Advocate, having his office at Behramji Mansion, 3rd floor, Sir Pherozshaw Mehta Road, Mumbai 400001, is appointed as Sole Arbitrator in CARAP(L) 30940/2023, to adjudicate the disputes and differences that have arisen between the applicant and the respondent.

ARBITRATION PETITION NO. 44 OF 2024 Advocate Shanay Shah, is appointed as Sole Arbitrator in ARP No.44/2024 to adjudicate the disputes and differences that have arisen between the petitioner and the respondent. The Arbitrators shall, within a period of 15 days before entering the arbitration reference forward a statement of disclosure as contemplated u/s. Section 12(1) of the Arbitration and Conciliation Act, 1996, to the Prothonotary and Senior Master of this Court to be placed on record. The nominated Arbitrators, shall after entering the reference fix the date of first hearing and issue further directions, as are necessary. The nominated Arbitrators in each matter, shall be entitled for the fees as per Bombay High Court (Fee Payable to Arbitrators) Rules, 2018 and the arbitral costs and fees of the Arbitrators shall be borne by the parties in equal portion and shall be subject to the final Award that may be passed by the Tribunal. All rights and contentions of the parties are kept open in the respective proceedings. ( SMT.

BHARATI DANGRE, J.)