2015 arbitrator-ineligibility rule cannot invalidate a pre-amendment appointment absent parties’ agreement, Delhi High Court rules

The parties’ agreement provided for unresolved disputes to be referred to a sole arbitrator nominated by DMRC and stated that the conciliator or arbitrator could be a DMRC employee. It also provided that the arbitration would be governed by the Arbitration and Conciliation Act, 1996 (“A&C Act”), “as amended from time to time,” including provisions in force when the reference was made.

The respondent invoked arbitration on 3 June 2014, and DMRC appointed one of its employees as sole arbitrator on 24 March 2015. The arbitration continued after the Arbitration and Conciliation (Amendment) Act, 2015 came into force on 23 October 2015, and an award was made on 21 July 2017.

The District Judge set aside the award, principally holding that the arbitrator’s appointment was invalid under Section 12(5) read with the Seventh Schedule. DMRC appealed under Section 37 of the A&C Act.

Whether Section 12(5) and the Seventh Schedule, introduced by the 2015 Amendment, applied to invalidate an appointment made before that Amendment came into force, where the arbitration had commenced in 2014.

Whether the parties’ agreement to apply the A&C Act “as amended from time to time” constituted an agreement under Section 26 to apply the 2015 Amendment to the pending arbitration.

Whether the arbitrator’s appointment was otherwise invalid under the law applicable when the arbitration commenced and the appointment was made.

Section 26 of the 2015 Amendment provides that the amendments do not apply to arbitral proceedings commenced under Section 21 before the Amendment’s commencement, unless the parties otherwise agree.

Section 12(5), read with the Seventh Schedule, introduced a statutory ineligibility for specified relationships, subject to an express written post-dispute waiver.

BCCI v. Kochi Cricket Pvt. Ltd. and S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh establish that the applicability of the amended provisions to arbitral proceedings turns on Section 26 and the date those proceedings commenced; a general contractual reference to statutory amendments does not necessarily establish an agreement to apply the amended Act.

Under the pre-amendment law, Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd. holds that employment by a State instrumentality, without more, does not itself establish bias or disqualify an arbitrator, though the circumstances may give rise to justifiable doubts.

Dharma Prathishthanam v. Madhok Construction (P) Ltd. requires parties to follow the appointment procedure in their arbitration agreement.

The arbitration was invoked in June 2014 and the arbitrator was appointed in March 2015; the tribunal had entered upon the reference and the parties had filed pleadings before the 2015 Amendment commenced.

The Court therefore applied Section 26 and held that the amended disqualification could not retrospectively invalidate the appointment unless the parties had otherwise agreed.

Although Clause 45 referred to the Act “as amended from time to time,” it also specified that the applicable provisions were those in force when the reference was made. Read together, and in the absence of subsequent conduct showing adoption of the amended regime, the clause did not establish a sufficiently clear agreement under Section 26.

Under the pre-amendment law, Clause 45 expressly authorised DMRC to nominate the sole arbitrator and contemplated that the appointee could be a DMRC employee. The respondent showed no separate circumstance establishing actual bias or justifiable doubts about the arbitrator’s impartiality.

It set aside the District Judge’s judgment insofar as it set aside the arbitral award, rejected the challenge to the tribunal’s constitution, and allowed DMRC’s appeal; the pending application was closed.