The Delhi High Court on Wednesday restored an arbitral award of over ₹40 lakh in favour of the Delhi Metro Rail Corporation (DMRC) even though the award was passed by a serving DMRC officer who had been appointed as sole arbitrator by the corporation itself. [DMRC Vs Pankaj]
A Division Bench of Justices Anil Kshetarpal and Bharat Parashar held that the appointment had been made before the 2015 amendments to the Arbitration and Conciliation Act introduced statutory ineligibility for certain categories of arbitrators.
Therefore, the appointment could not be invalidated by applying those provisions retrospectively, the Court said.
The dispute arose from a licence granted by DMRC to Pankaj Associates for operating parking sites at the Dwarka Sector 21 and Dwarka Sector 11 Metro stations.
Under the arbitration clause, disputes that could not be resolved through conciliation were to be referred to a sole arbitrator nominated by DMRC. The clause expressly stated that there would be no objection if the arbitrator appointed was an employee of DMRC.
Arbitration was invoked in June 2014. On March 24, 2015, DMRC appointed Ashu Sharma, its Senior Additional General Manager (Financial), as sole arbitrator.
Section 12(5) of the Arbitration Act and the seventh schedule, which introduced statutory disqualifications concerning the relationship of an arbitrator with the parties, came into force only on October 23, 2015.
The arbitrator eventually rejected the claims of Pankaj Associates and allowed DMRC's counterclaim for about ₹40.15 lakh along with interest.
A district judge subsequently set aside the award in October 2024 after accepting Pankaj's argument that the serving DMRC employee was ineligible to act as arbitrator under Section 12(5).
The High Court disagreed.
It held that the validity of the appointment had to be examined under the law applicable when the arbitration commenced and the tribunal was constituted.
“The appointment of the Sole Arbitrator on 24.03.2015 cannot be invalidated by retrospectively applying Section 12(5) read with the Seventh Schedule,” the Court said.
It noted that Section 26 of the 2015 Amendment Act excluded arbitral proceedings commenced before October 23, 2015 from the amended regime unless the parties had agreed otherwise.
The arbitration clause did state that proceedings would be governed by the Arbitration Act “as amended from time to time”. However, it also referred to the provisions “in force at the time the reference is made”.
The Court said the two expressions have to be read together.
“The clause can accordingly not be read as an unqualified agreement that every subsequent amendment to the A&C Act would automatically govern an arbitration which had already commenced,” the judgment said.
It also held that merely continuing the arbitration after the 2015 amendment came into force did not amount to an agreement to apply the amended regime
Significantly, the Court clarified that a serving employee of DMRC would face a statutory ineligibility objection in an arbitration governed by Section 12(5). However, the same appointment was not prohibited under the law prevailing in March 2015.
The mere fact that the arbitrator was a DMRC employee was not, by itself, a bar under the pre-2015 law, the Court concluded.
It accordingly set aside the district judge's order, rejected the challenge to the constitution of the arbitral tribunal and restored the award in DMRC's favour.
DMRC was represented by advocates Tarun Johri and Vishwajeet Tyagi.
The respondent was represented by advocates Shashwat Dixit, Amit Mishra, Sajal Dutt Dixit, Gauri Dixit and Kushagr Tyagi.
[Read Judgment]