Roshan Real Estates Pvt Ltd v. Government of NCT of Delhi

11. Further, it is submitted that the appointed arbitrator is a “regular” nominee of the respondent and has previously adjudicated several of its matters, creating a perception of bias that violates the rule against interested adjudicators and the principles of natural justice. Hence, the appointment of the appointed arbitrator is bad in law and is hit by Entry 1 to the Seventh Schedule of the Act. Under HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Limited (Formerly Gas Authority of India Limited), (2018) 12 SCC 471, an arbitrator who falls into the Seventh Schedule disqualification becomes de jure unable to act and the court, not the tribunal, must terminate the mandate under Sections 14 and 15 of the Act.

12. Hence, the above referred authorities establish that the impugned appointment lacks the neutrality, transparency and fairness that are the cornerstones of Indian arbitration law, rendering the mandate of the appointed arbitrator liable to termination.

SUBMISSIONS ON BEHALF OF THE RESPONDENT

13. Per contra, Mr. Sannu, learned counsel appearing for the respondent, opposes the present petitioner and draws my attention to paragraph Nos. 4 to 8 of the reply to the petition, which read as under: “Re: Lack of any ground showing justifiable ground to Ld. Arbitrator's independence & impartiality

4. It is submitted that the Petitioner in Para 18 of its Petition, has alleged that Ld. Sole arbitrator was “concerned Engineer in various works executed by the Petitioner” is factually incorrect and misleading. However, as per records available, the Petitioner herein has executed only one work/ project, that too about 17-18 years ago pertaining to the construction of Lawyers Chambers in Dwarka under one of three divisions then administratively under Mr. Dhar’s supervision.

5. It is pertinent to mention herein, at the time i.e. 17-18 years ago, Ld. Arbitrator/ Mr. Dhar held the post of Superintending Engineer (SE) CPWD, and said post does not involve any dayto-day execution or decision-making in project management since the same lies with the Junior Engineer, Assistant Engineer and Executive Engineer of said project. Therefore, the alleged allegation is baseless and lacks any merits.

6. It is submitted that the Ld. Arbitrator/ Mr. Dhar retired from Government Services in June 2015 i.e. approximately 10 years prior to his appointment as Sole Arbitrator. Further, it is correct to submit here that no work has been executed by the Petitioner herein, under his supervision except the Dwarka Chamber’s work and there is no ongoing professional relationship between parties and Ld. Arbitrator, as mandatorily required under the Seventh Schedule of the Arbitration and Conciliation Act, 1996, for establishing ineligibility and seeking termination of the mandate. Hence, the present petition is not maintainable and liable to be dismissed.

7. It is submitted that as per the mandate and direction of this Hon’ble Court, the Ld. Arbitrator has entered reference on 17.03.2025 and filed his declaration under Section 12 of the Arbitration & Conciliation Act, 1996 on 25.03.2025 and shared/ disclosed all the necessary information with both the parties. The declaration clearly affirms his independence and impartiality, wherein he has disclosed everything. A copy of declaration given by Ld. Arbitrator is annexed herewith as Annexure R-1.

8. It is most respectfully submitted that the present petition lacks any valid grounds for seeking termination of the mandate of the Ld. Sole Arbitrator under Sections 14 and 15 of the Arbitration and Conciliation Act, 1996, especially when the appointment was independently made by this Hon’ble Court. It is submitted and reiterated that no circumstances exist that give rise to justifiable doubts regarding the independence or impartiality of the Ld. Arbitrator. Furthermore, in catena of judgments by the Hon’ble Supreme Court and this Hon’ble Court, it has consistently held that there is no bar on the appointment of retired officers as arbitrators. In fact, it has been recognised that retired officers are well-equipped to appreciate and resolve technical aspects of disputes, owing to their domain expertise. Merely being a retired employee or officer of the department does not render an arbitrator ineligible or raise any presumption of bias. Furthermore, there is no disqualification attracted under either the Fifth Schedule or the Seventh Schedule of the Act. Accordingly, the mandate of the Ld. Arbitrator cannot be terminated under Section 14 nor can he be substituted under Section 15 of the Act.”

14. It is submitted that the petition is unfounded as the appointed arbitrator was appointed not by either party but by this Court on 10.02.2025 under Section 11(6) of the Act, therefore, a challenge under Sections 14 and 15 of the Act is impermissible unless circumstances of actual ineligibility arise, which the petitioner has not shown.

15. It is further submitted that the allegations of bias are said to be factually incorrect. The appointed arbitrator’s only past contact with the petitioner was indirect supervision of a single project 17–18 years ago, when he was a Superintending Engineer with no day-to-day decision-making role. He retired from government service in June 2015, has had no professional relationship with the petitioner since, and thus does not fall within any disqualification listed in the Fifth or Seventh Schedule of the Act. Upon entering reference on 17.03.2025, he provided the declaration under Section 12 of the Act, affirming independence and impartiality.

16. In addition, reliance placed by the petitioner on the judgments of the Hon’ble Supreme Court judgments, such as, TRF Ltd. (supra) and Perkins Eastman (supra), concern unilateral appointments by an interested party. However, in the present case, the appointed arbitrator was appointed by this Court and not by the respondent, hence, the said precedents are inapplicable.

17. The respondent places reliance on the judgment passed by the Hon’ble Supreme Court in Government of Haryana PWD Haryana (B and R) Branch v. G.F. Toll Road Private Limited & Ors., (2019) 3 SCC 505, to urge that retired government officers may serve as arbitrators and that their former employment, by itself, does not create a presumption of bias.

18. Consequently, the respondent submits that the petition should be dismissed in limine.

ANALYSIS AND FINDINGS

19. I have heard learned counsel for the parties and perused the material available on record.

20. The present petition under Sections 14 and 15 of the Act seeks termination of the mandate of the sole arbitrator, Mr. B.B. Dhar, appointed by this Court vide order dated 10.02.2025 under Section 11(6) of the Act.

21. The primary ground urged is that the appointed arbitrator falls within the ineligibility criteria under Section 12(5) read with Entry 1 of the Seventh Schedule to the Act due to a past professional relationship with the petitioner and also being a regular nominee arbitrator of the respondent, thereby creating justifiable doubts as to his independence and impartiality.

22. Section 12(5) read with Seventh Schedule and Section 14(1)(a) of the Act provides that an arbitrator becomes de jure unable to act if any of the disqualifications listed in the Seventh Schedule are attracted. The said provisions are reproduced as under:

23. Importantly, Entry 1 of the Seventh Schedule disqualifies a person who has had past business relationships with a party or served in a managerial or supervisory capacity. Entry 1 reads as under: “1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.”

24. The said provisions were inserted vide the 2015 Amendment with the legislative intent to ensure an impartial and independent arbitral process and to safeguard the arbitral process from real or perceived bias, where arbitrators with any past or present relationship with the parties are disqualified, unless both parties waive such ineligibility by a post-dispute written agreement.

25. The Hon’ble Supreme Court in TRF Limited (supra) and Perkins Eastman (supra), categorically held that any person having an interest in the dispute or a past relationship that may impact independence is disqualified. The relevant paragraph of Perkins Eastman (supra) reads as under:

else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counterbalanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. 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. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377: (2017) 4 SCC (Civ) 72].” (Emphasis supplied)

26. In Voestalpine Schienen GMBH (supra), the Hon’ble Supreme Court emphasized the importance of appointing arbitrators who inspire confidence in their neutrality, even if their domain expertise is otherwise relevant and underlined the need for arbitral panels to be broad-based and composed of persons not drawn solely from the same institutional framework as one of the parties, in order to preserve the faith of parties in the neutrality of the proceedings. The relevant paragraphs read as under:

arbitrator rests with it. In the instant case also, though choice is given by DMRC to the opposite party but it is limited to choose an arbitrator from the panel prepared by DMRC. It, therefore, becomes imperative to have a much broadbased panel, so that there is no misapprehension that principle of impartiality and independence would be discarded at any stage of the proceedings, specially at the stage of constitution of the Arbitral Tribunal. We, therefore, direct that DMRC shall prepare a broadbased panel on the aforesaid lines, within a period of two months from today.”

27. The Coordinate Bench of this Court in Proddatur Cable TV DIGI Service (supra) and the Division Bench of this Court in Govind Singh (supra), held that past/present association can create a valid perception of bias and disqualify the arbitrator under Section 12(5). The relevant paragraph of Govind Singh (supra) reads as under:

Eastman Architects DPC & Ors. v. HSCC (India) Ltd. (supra). Such ineligibility would also extend to a person appointed by such officials who are otherwise ineligible to act as arbitrators.”

28. In the present case, it is not in dispute that the petitioner and the appointed arbitrator have had a past professional association, where the petitioner executed projects in the capacity of a contractor while the appointed arbitrator held the position of Superintending Engineer in CPWD, i.e. the client.

29. Although the respondent argues that the only work executed under the general supervision of the appointed arbitrator was over 17 years ago and that he was not involved in day-to-day decision-making, the fact remains that a business, professional and supervisory relationship existed between the petitioner and the appointed arbitrator.

30. It is well settled that independence and impartiality of the arbitrator are the bedrock of any arbitration proceeding and the rule against bias constitutes a fundamental principle of natural justice. In this context, the objective of the Fifth and Seventh Schedules of the Act is to codify circumstances which may give rise to justifiable doubts about the neutrality of the arbitrator. Entry 1 of the Seventh Schedule, in particular, is designed to insulate the arbitral process from both actual and perceived bias by disqualifying individuals who have had a past or present business relationship with a party to the dispute.

31. The legislative intent underlying Entry 1 is clear - it does not hinge upon the nature or the duration of such business relationship, but rather focuses on whether the existence of such association may reasonably create a perception of partiality. In the present case, it is not disputed that the appointed arbitrator served as the supervising authority in respect of works executed by the petitioner under a prior contract with the respondent. This prior professional association, in my considered view, gives rise to a reasonable apprehension of bias in the mind of the petitioner and undermines the appearance of neutrality that arbitration law seeks to ensure.

32. Accordingly, the invocation of Entry 1 of the Seventh Schedule by the petitioner cannot be characterized as whimsical, fanciful, or misconceived; rather, it raises a legitimate and legally sustainable objection to the continuation of the mandate of the appointed arbitrator.

33. In addition, in another dispute containing an arbitration clause involving the same parties, the appointed arbitrator was initially appointed as sole arbitrator by the respondent, but the respondent itself withdrew the said appointment vide the letter dated 17.08.2020 on the objection raised by the petitioner vide the letter dated 07.08.2020. This prior conduct demonstrates the respondent’s own recognition that the appointment of Mr. B.B. Dhar could give rise to an apprehension of bias. The said letters are reproduced as under:

34. While it is true that the appointment of the appointed arbitrator was made by this Court under Section 11(6) of the Act, it is pertinent to note that this Court was not aware of the letters dated 07.08.2020 and 17.08.2020, wherein the respondent had earlier withdrawn the appointment of the appointed arbitrator on the similar objections by the petitioner. Hence, this Court had no knowledge of the fact that there existed a prior business relationship between the petitioner and the appointed arbitrator that can cause prejudice to the arbitral proceeding and/or cause reasonable apprehension of bias in the mind of the petitioner. These facts have now been brought to light and, in my view, are sufficient to trigger disqualification under Entry 1 of the Seventh Schedule.

35. In addition, the Hon’ble Supreme Court in HRD Corporation (supra) clarified that the mandate of an arbitrator can be terminated under Section 14 of the Act, if facts indicating ineligibility or bias come to light subsequently. The Court further emphasized that such ineligibility under the Seventh Schedule is de jure and renders the arbitrator legally incapable of continuing. Hence, the court appointment under Section 11 of the Act does not override the statutory safeguards of independence or disqualify a party from seeking redress under Section 14 of the Act. The relevant paragraph reads as under:

Seventh Schedule, he becomes “ineligible” to act as arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as “ineligible”. In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground. …”

36. The respondent has relied upon the decision of the Hon’ble Supreme Court in Government of Haryana PWD (B&R) Branch (supra), to urge that the word “other” in Entry 1 of the Seventh Schedule of the Act cannot be used to widen the scope of the entry to include past/former employees. The relevant paragraphs read as under:

relationship with a party.” Entry 1 of the Fifth Schedule and the Seventh Schedule are identical. The entry indicates that a person, who is related to a party as an employee, consultant, or an advisor, is disqualified to act as an arbitrator. The words “is an” indicate that the person so nominated is only disqualified if he/she is a present/current employee, consultant, or advisor of one of the parties.

23. An arbitrator who has “any other” past or present “business relationship” with the party is also disqualified. The word “other” used in Entry 1, would indicate a relationship other than an employee, consultant or an advisor. The word “other” cannot be used to widen the scope of the entry to include past/former employees.

24. ICA made only a bald assertion that the nominee arbitrator Mr M.K. Aggarwal would not be independent and impartial. The objection of reasonable apprehension of bias raised was wholly unjustified and unsubstantiated, particularly since the nominee arbitrator was a former employee of the State over 10 years ago. This would not disqualify him from acting as an arbitrator. Mere allegations of bias are not a ground for removal of an arbitrator. It is also relevant to state that the appointment had been made prior to the 2015 Amendment Act when the Fifth Schedule was not inserted. Hence, the objection raised by ICA was untenable on that ground also.”

37. The reliance by the respondent on the judgment in Government of Haryana PWD (B&R) Branch (supra) is distinguishable, as the said judgment was rendered in the context of the pre-amendment regime and concerned a former employee without any business/professional relationship, unlike the present case.

38. The fact that weighs with me is that the appointed arbitrator is not a mere past/former employee, rather, he had a prior supervisory and business/professional relationship with the petitioner and his prior appointment as arbitrator has been withdrawn by the respondent itself on the similar objection by the petitioner.

39. In addition, the fact that the appointed arbitrator submitted a declaration under Section 12(1) of the Act is not determinative. Where statutory ineligibility is attracted under Section 12(5) of the Act, a declaration does not cure the disqualification.

40. It is also undisputed that no express post-dispute written waiver has been executed by the petitioner, as required by the proviso to Section 12(5) of the Act. Therefore, the ineligibility under the Seventh Schedule cannot be cured by acquiescence or mere silence and hence, the mandate of the appointed arbitrator is legally untenable.

41. Further, the Order dated 10.02.2025 passed by this Court appointing Mr. B.B. Dhar does not reflect any of the aforesaid facts and thus, was passed in the absence of the aforesaid facts being brought to the notice of the Court.

42. Hence, I am of the considered opinion that the appointment of Mr. B.B. Dhar as the sole arbitrator falls squarely within the scope of statutory ineligibility contemplated under Section 12(5) read with Seventh Schedule of the Act.

CONCLUSION

43. In view of the foregoing analysis, the petition is allowed and the mandate of Mr. B.B. Dhar hereby stands terminated under Section 14(1)(a) of the Act.

44. This Court hereby appoints Ms. Justice Rekha Palli (Retired Judge Delhi High Court) (Mobile No. 9810012120) as the Sole Arbitrator to adjudicate the disputes between the parties, with the following directions:

Delhi International Arbitration Centre, Delhi High Court, Sher Shah Road, New Delhi (hereinafter, referred to as the “DIAC”).

45. The petition is disposed of accordingly.