# M/S Bansal Construction, Muzaffarnagar v. Yamuna Expressway Industrial Development Authority, G.B. Nagar & Ors

- **Citation:** (2023) 8 ILRA 1221
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2023-08-04
- **Bench:** Ashwani Kumar Mishra
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-bansal-construction-muzaffarnagar-v-yamuna-expressway-industrial-50521
- **Pages:** 11

## Headnote

Civil Law - Arbitration and Conciliation
Act, 1996 - Sections 11(6) & 12(5) r/w
Seventh
Schedule
-
Request
for
appointment of arbitrator - Clause 33 of
agreement
restricting
arbitration
to
CEO/nominee of YEIDA - Such clause in
conflict with Section 12(5) rendering CEO
ineligible - Whether arbitration clause
survives? - Held, yes. Core intent to refer
dispute to arbitration remains - Procedural
invalidity of appointing authority (i.e.
CEO) can be severed - Neutrality of
arbitrator is the statutory mandate - Court
empowered
to
appoint
independent
arbitrator - Clause ousting arbitration in
absence
of
departmental
nominee
violative
of
public
policy
and
not
enforceable.

Held:
Clause in agreement restricting arbitration to
CEO of YEIDA or his nominee, and ousting
arbitration if such appointment is not possible,
cannot override statutory requirement under
1222 INDIAN LAW REPORTS ALLAHABAD SERIES
Section
12(5)
ensuring
independence
of
arbitrator. Arbitration agreement remains valid
despite
procedural
portion
becoming
unenforceable. Court, under Section 11(6), can
appoint arbitrator to uphold legislative intent of
promoting neutral arbitration.
Objections regarding non - maintainability based
on Clause 33 and alleged waiver affidavit are
questions of fact - can be raised before
arbitrator.
Justice P.K.S. Baghel (Former Judge) appointed
as arbitrator.

Application allowed.

Case Law discussed:

## Text

8 All. M/S Bansal Construction, Muzaffarnagar Vs. Yamuna Expressway Industrial Development
 Authority, G.B. Nagar & Ors.
1221
time after the issuance of the proclamation
under Section 82 of the Code.

19. So far as the submission made by
the learned counsel for the applicants
regarding the Magistrate having no right to
issue bailable warrants or non-bailable
warrants or proclamation/attachment U/s
82&83 Cr.P.C. without sufficient service,
the
Court
finds
that
initially,
the
summoning
order
was
passed
on
07.11.2019 against which criminal revision
has been filed by the applicants, which has
been rejected vide order dated 10.5.2022
and,
thereafter,
the
applicants
had
approached this Court by filing the writ
petition under Article 227 challenging the
revisional order dated 10.5.2022, therefore,
it cannot be said that the applicants have no
knowledge about the summoning order or
date fixed for appearance before the court
below.

20. In the present case, the
applicants were well aware of the
summoning
order
and
non-bailable
warrant issued against them, and clearly,
the
applicants
were
dishonestly
or
fraudulently avoiding appearance before
the court below. Therefore, the court
concerned has no other option but to
issue non-bailable warrants along with
the proceedings under sections 82&83
Cr.P.C. Hence, there is no illegality or
infirmity in the orders impugned.

21. For the reasons stated above, this
Court is of the opinion that this is not a fit
case to exercise jurisdiction of this Court
under Section 482 Cr.P.C., therefore,
prayer so made is refused.

22. With the aforesaid observations,
the present application under Section 482
Cr.P.C. is, accordingly, dismissed.
----------
(2023) 8 ILRA 1221
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 04.08.2023

BEFORE

THE HON'BLE ASHWANI KUMAR MISHRA, J.

Arbitration & Concili. Appl. U/S 11(4) No. 142 of
2019

M/S Bansal Construction, Muzaffarnagar
 ...Applicant
Versus
Yamuna
Expressway
Industrial
Development Authority, G.B. Nagar & Ors.
 ...Opposite Parties

Counsel for the Applicant:
Sri J.P. Pandey

Counsel for the Opposite Parties:
Sri Aditya Bhushan Singhal, Sri Priyansh
Shukla

Civil Law - Arbitration and Conciliation
Act, 1996 - Sections 11(6) & 12(5) r/w
Seventh
Schedule
-
Request
for
appointment of arbitrator - Clause 33 of
agreement
restricting
arbitration
to
CEO/nominee of YEIDA - Such clause in
conflict with Section 12(5) rendering CEO
ineligible - Whether arbitration clause
survives? - Held, yes. Core intent to refer
dispute to arbitration remains - Procedural
invalidity of appointing authority (i.e.
CEO) can be severed - Neutrality of
arbitrator is the statutory mandate - Court
empowered
to
appoint
independent
arbitrator - Clause ousting arbitration in
absence
of
departmental
nominee
violative
of
public
policy
and
not
enforceable.

Held:
Clause in agreement restricting arbitration to
CEO of YEIDA or his nominee, and ousting
arbitration if such appointment is not possible,
cannot override statutory requirement under
1222 INDIAN LAW REPORTS ALLAHABAD SERIES
Section
12(5)
ensuring
independence
of
arbitrator. Arbitration agreement remains valid
despite
procedural
portion
becoming
unenforceable. Court, under Section 11(6), can
appoint arbitrator to uphold legislative intent of
promoting neutral arbitration.
Objections regarding non - maintainability based
on Clause 33 and alleged waiver affidavit are
questions of fact - can be raised before
arbitrator.
Justice P.K.S. Baghel (Former Judge) appointed
as arbitrator.

Application allowed.

Case Law discussed:

1. Ellora Paper Mills Ltd. Vs St. of M.P., (2022) 3
SCC 1

2. Voestalpine Schienen GmbH Vs DMRC, (2017)
4 SCC 665

3. Bharat Broadband Network Ltd. Vs United
Telecoms Ltd., (2019) 5 SCC 755

4. TRF Ltd. Vs Energo Engg. Projects Ltd.,
(2017) 8 SCC 377

5. Chloro Controls India (P) Ltd. Vs Severn Trent
Water Purification Inc., (2013) 1 SCC 641

6. Ram Kripal Singh Construction Pvt. Ltd. Vs
NTPC, ARB.P 582/2020, Delhi High Court

7. M.J.S. Construction Vs U.O.I., 2023 (1) ADJ
497

(Delivered by Hon'ble Ashwani Kumar
Mishra, J.)

1. This petition has been filed under
Section 11(6) of the Arbitration and
Conciliation Act, 1996 (hereinafter referred
to as the 'Act of 1996') for appointment of
arbitrator, consequent upon accrual of
dispute
between
the
parties
to
the
arbitration agreement. Clause 33 of the
agreement, which contains the arbitration
clause is reproduced hereinafter:-

"Clause 33: ARBITRATOR

Except where otherwise provided
in the contract, all questions and disputes
relating
to
the
meaning
of
the
specifications,
designs,
drawings
and
instructions herein before mentioned and to
the quality of workmanship or materials
used on the work or as to any other
question claim right or rates for extra items
sanctioned and decided are not by the
competent authority under the conditions of
this
contact,
designs,
drawings,
specifications, estimates instructions or
order on these conditions or otherwise
concerning the work or the executive or
failure to execute the same whether arising
during the progress of the work or after the
person or person appointed by the Chief
Executive Officer, YEIDA. It will be no
objection to any such appointment that the
matter to which contract relates and that in
the course of his duties as YEIDA servant,
he had expressed views on all or any of the
matters in dispute or differences. The
arbitrator to whom the matter is originally
or
subsequently
referred
being
incapacitated to act. The Chief Executive
Officer of the YEIDA shall appoint another
person to act as arbitrator in accordance
with the term of contract. It is also a term
of his contract that no person other than a
person appointed by the Chief-Executed
Officer of the YEIDA as aforesaid/shall
act as arbitrator and if for any reason,
that is not possible, the matter is not to be
referred to the arbitration at all. The
arbitrator(s) may from time to time with
consent of the parties enlarge the time for
making and publishing the award.

Subject
as
aforesaid
the
provisions of the Arbitration Act 1940 or
any statutory modification or re-enactment
thereafter and the rules made thereunder
8 All. M/S Bansal Construction, Muzaffarnagar Vs. Yamuna Expressway Industrial Development
 Authority, G.B. Nagar & Ors.
1223
and for the time being in force shall apply
to the arbitration proceeding under this
clause."

2. Records reveal that the applicant
was awarded contract for construction of
12 meter and 24 meter roads in Sector-18
near village Usmanpur. The contracted
work
was
completed
on
30.6.2017.
Payments were released by the authority
against running bills from time to time.
Fourth and final bill was paid in March,
2019 wherein various deductions were
made. Dispute thus arose between the
parties.
The
applicant
requested
for
reference of dispute to the arbitrator vide
his letter dated 26.6.2019. Reminders were
also sent whereafter this application has
been filed.

3. Request for reference of dispute to
arbitration has since been declined on the
ground that Chief Executive Officer of the
Authority alone is competent to arbitrate in
the matter as per Clause 33 and as he has
now become ineligible by virtue of Section
12(5) of the Act of 1996, therefore, the
arbitration clause itself would cease to
exist.

4. A counter affidavit has been filed
by the opposite party stating that the
applicant has submitted an affidavit before
the authority stating that additional works
were conducted by it on the spot on
account of various hindrances and demand
of additional compensation and for such
variation no claim would be raised before
the authority. This notarial affidavit is on a
Rs. 100/- stamp paper. This affidavit is on a
printed proforma and details are filled by
hand which contains no date. The affidavit
is referred to in para 16 of the counter
affidavit. A rejoinder affidavit has been
filed denying the averments made in para
16 of the counter affidavit stating that the
affidavit does not bear the signature of the
proprietor of the firm or its authorised
agent/signatory.

5. The respondents also contend that
the
arbitration
clause
specifically
contemplates that arbitrator could either be
the Chief Executive Officer or by the
person appointed by him and if for any
reason, it is not so possible, the dispute is
not to be referred to the arbitration, at all.

6. When the matter was heard
yesterday, an objection was raised to the
maintainability of the petition by Sri A.B.
Singhal, relying upon a judgment of this
Court in Arbitration Application No. 54 of
2017. This Court while examining a similar
provision contained in the arbitration
agreement to held as under:-

"The Arbitration Clause quoted in
the earlier part of the judgment contains a
recital to the effect "it is also a term of this
contract that no person other than a person
appointed as aforesaid should act as
Arbitrator.
..."
This
recital
in
the
Arbitration Clause clearly evinces the
agreed intent of the parties that no person
other than the Chief Engineer or any person
nominated by him should act as Arbitrator.
Now, this by itself would be hit by section
12(5) of the Act 1996 as amended in 2015
and would not come to the rescue of the
opposite parties, however, these words are
followed by the stipulation - "and if for
any reason this is not possible, the
matter
is
not
to
be
referred
to
Arbitration at all." These words clearly
evince the agreed intent of the parties not to
refer the dispute to Arbitration if such
Arbitration cannot be held by the Chief
Engineer or any person nominated by him.
The agreed intent not to refer the matter to
1224 INDIAN LAW REPORTS ALLAHABAD SERIES
arbitration in such an eventuality is evident
from the arbitration clause. This stipulation
in the Agreement is binding upon the
parties including the applicant. Under subSection 6-A of section 11 of the Act 1996
all that this Court is required to see is the
existence of an Arbitration Clause. I am of
the considered opinion that in view of the
aforesaid
recital
this
application
for
appointment of an Arbitrator other than the
Chief Engineer or any person nominated by
him is not maintainable in view of the
Agreement arrived at between the parties
that in such an eventuality when the
aforesaid Authorities cannot be appointed
as Arbitrator, the matter would not be
referred to Arbitration at all. In view of this
stipulation neither the Amending Act 2015
nor the un-amended Act 1996 come to the
rescue of the applicant. The application for
appointment
of
the
Arbitrator
is
accordingly rejected."

7. This Court has observed that where
it is not possible to act in terms of
arbitration agreement since the named
arbitrator is ineligible to act by virtue of
Section 12(5) of the Act, the arbitration
itself would not be available for resolution
of dispute as the terms of the agreement has
to be given effect to. Sri A.B. Singhal for
the respondent, therefore, submits that by
virtue of statutory interdict introduced vide
Section 12(5) of the Act, the arbitrator
cannot function and in view of the specific
clause in contract the consent of parties for
arbitration would cease to exist.

8. Counsel for the applicant has
placed
reliance
upon
the
Judgments
delivered by the Supreme Court and High
Courts to contend that arbitrator is liable to
be appointed by this Court in the facts of
the present case. Reference is made to the
judgments of Supreme Court in Ellora
Paper Mills Limited Vs. The State of
Madhya Pradesh, Civil Appeal No. 7697 of
2021, dated 4.1.2022; Durga Charan
Rautray Vs. State of Orissa and another,
2012 (1) AWC 404; United India Insurance
Company Limited Vs. Antique Art Exports
Private Limited, (2019) 5 SCC 362; Indian
Oil Corporation Limited Vs. NCC Limited,
(2023) 2 SCC 539; and the judgment of this
Court in M.J.S. Construction and others Vs.
Union of India and others, 2023 (1)ADJ
497; and the judgment of Delhi High Court
in Ram Kripal Singh Construction Pvt. Ltd.
Vs.
NTPC,
ARB.P
582/2020,
dated
9.11.2022 (Delhi), in order to submit that
the arbitration agreement is broadly in two
parts, firstly, agreement for reference of
dispute to arbitrator and secondly the
procedure to be followed in the matter on
such reference. It is urged that the
procedure
part
contemplating
party
autonomy is always subservient to the
statutory interdict contained in Section
12(5) of the Act of 1996 and cannot be
construed as obliterating the first part of the
agreement for reference of dispute to
arbitrator.

9. It is submitted that the authority of
the Chief Executive Officer to act as
arbitrator or to appoint an arbitrator forms
part of the procedure for appointment and
even if such authority ceases to exist by
virtue of Section 12(5) of the Act, the core
clause
contemplating
adjudication
of
dispute by arbitrator would continue to
subsist.

10. I have heard learned counsel for
the parties and have perused the materials
on record. It is no doubt true that the
arbitration clause in this case is couched in
such a manner that the arbitration itself
would not be possible in terms of Clause 33
as the Chief Executive Officer of the
8 All. M/S Bansal Construction, Muzaffarnagar Vs. Yamuna Expressway Industrial Development
 Authority, G.B. Nagar & Ors.
1225
Authority, being an officer would clearly
be denuded of jurisdiction to act as
arbitrator or to appoint an arbitrator by
virtue of 7th Schedule read with Section
12(5) of the Act. The clause, however, has
to be interpreted so as to cull-out the real
intent of the parties. The agreement
between the parties to refer all disputes
arising out of contract to arbitrator is the
core part of the agreement. The manner to
appoint the arbitrator would, at best, fall in
the realm of procedure. Merely because the
person, who could act as an arbitrator in
terms
of
arbitration
clause
becomes
ineligible to act as arbitrator by virtue of
Section 12(5) of the Act read with 7th
Schedule, it would not mean that the core part
of the agreement for referring the dispute for
adjudication to arbitrator would be rendered
nugatory. The interpretation, which is sought
to be culled out by the respondents, would
clearly defeat the object of neutrality of
arbitrator
or
reference
of
dispute
to
arbitration. Section 12(5) of the Act read with
7th Schedule has been introduced so as to
lend greater legitimacy to the process of
arbitration by providing for an independent
person to act as arbitrator and exclude the
other party from becoming a judge in their
own cause. This Court, therefore, would be
inclined to lean in favour of an interpretation
which effectuates the remedy of arbitration
consistent with the legislative intent i.e.
Section 12(5) of the Act of 1996 read with
the 7th Schedule.

11. This Court is also cognizant of the
observations made by the Supreme Court in
Para 96 of the judgment in Chloro Controls
India (P) Ltd. v. Severn Trent Water
Purification Inc., (2013) 1 SCC 641, which
is reproduced hereinafter:

"Examined from the point of
view of the legislative object and the intent
of the framers of the statute i.e. the
necessity to encourage arbitration, the court
is required to exercise its jurisdiction in a
pending action, to hold the parties to the
arbitration clause and not to permit them to
avoid their bargain of arbitration by
bringing civil action involving multifarious
causes of action, parties and prayers."

12. The object of introducing subsection (5) of Section 12 read with Seventh
Schedule came to be examined by the
Supreme Court in Ellora Paper Mills Ltd. v.
State of M.P., (2022) 3 SCC 1. Relying
upon earlier judgments of the Court it was
observed as under in para 8 of the report:-

"8. An identical question came to
be considered by this Court in Jaipur Zila
Dugdh Utpadak Sahkari Sangh [Jaipur
Zila Dugdh Utpadak Sahkari Sangh Ltd. v.
Ajay Sales & Suppliers, (2021) 17 SCC 248
: 2021 SCC OnLine SC 730] , and after
considering the decisions of this Court in
TRF [TRF Ltd. v. Energo Engg. Projects
Ltd., (2017) 8 SCC 377 : (2017) 4 SCC
(Civ) 72] and other decisions on the point,
it is observed and held as under : (Ajay
Sales & Suppliers case [Jaipur Zila Dugdh
Utpadak Sahkari Sangh Ltd. v. Ajay Sales
& Suppliers, (2021) 17 SCC 248 : 2021
SCC OnLine SC 730] , SCC paras 8.3 to
12)

"8.3. So far as the submission on
behalf of the petitioners that the agreement
was prior to the insertion of sub-section (5)
of Section 12 read with Seventh Schedule
to the Act and therefore the disqualification
under sub-section (5) of Section 12 read
with Seventh Schedule to the Act shall not
be applicable and that once an arbitrator -
Chairman
started
the
arbitration
proceedings thereafter the High Court is
not justified in appointing an arbitrator are
1226 INDIAN LAW REPORTS ALLAHABAD SERIES
concerned the aforesaid has no substance
and can to be accepted in view of the
decision of this Court in TRF Ltd. v.
Energo Engg. Projects Ltd. [TRF Ltd. v.
Energo Engg. Projects Ltd., (2017) 8 SCC
377 : (2017) 4 SCC (Civ) 72] ; Bharat
Broadband
Network
Ltd.
v.
United
Telecoms Ltd. [Bharat Broadband Network
Ltd. v. United Telecoms Ltd., (2019) 5 SCC
755 : (2019) 3 SCC (Civ) 1] ; Voestalpine
Schienen GmbH v. Delhi Metro Rail
Corpn. Ltd. [Voestalpine Schienen GmbH
v. Delhi Metro Rail Corpn. Ltd., (2017) 4
SCC 665 : (2017) 2 SCC (Civ) 607] In the
aforesaid decisions, this Court had an
occasion to consider in detail the object and
purpose of insertion of sub-section (5) of
Section 12 read with Seventh Schedule to
the Act.

9. In Voestalpine Schienen GmbH
[Voestalpine Schienen GmbH v. Delhi
Metro Rail Corpn. Ltd., (2017) 4 SCC 665 :
(2017) 2 SCC (Civ) 607] it is observed and
held by this Court that the main purpose for
amending the provision was to provide for
"neutrality of arbitrators". It is further
observed that in order to achieve this, subsection (5) of Section 12 lays down that
notwithstanding any prior agreement to the
contrary, any person whose relationship
with the parties or counsel or the subjectmatter of the dispute falls under any of the
categories
specified
in
the
Seventh
Schedule, he shall be ineligible to be
appointed as an arbitrator. It is further
observed that in such an eventuality i.e.
when the arbitration clause finds foul with
the amended provisions [sub-section (5) of
Section 12 read with Seventh Schedule] the
appointment of an arbitrator would be
beyond pale of the arbitration agreement,
empowering the court to appoint such
arbitrator as may be permissible. It is
further observed that, that would be the
effect of non obstante clause contained in
sub-section (5) of Section 12 and the other
party cannot insist on appointment of the
arbitrator in terms of the arbitration
agreement.

10. It is further observed and held
by this Court in Voestalpine Schienen
GmbH [Voestalpine Schienen GmbH v.
Delhi Metro Rail Corpn. Ltd., (2017) 4
SCC 665 : (2017) 2 SCC (Civ) 607] that
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 apply to all judicial and
quasi-judicial proceedings. It is further
observed that 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
nonindependence and non-impartiality of such
arbitrator would render him ineligible to
conduct the arbitration. It is further
observed that the genesis behind this
rationale 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.

11. In paras 16 to 18 it is
observed and held as under : (Voestalpine
Schienen
GmbH
case
[Voestalpine
Schienen GmbH v. Delhi Metro Rail
Corpn. Ltd., (2017) 4 SCC 665 : (2017) 2
SCC (Civ) 607] , SCC pp. 679-83)

'16.
Apart
from
other
amendments, Section 12 was also amended
and the amended provision has already
been reproduced above. This amendment is
8 All. M/S Bansal Construction, Muzaffarnagar Vs. Yamuna Expressway Industrial Development
 Authority, G.B. Nagar & Ors.
1227
also based on the recommendation of the
Law Commission which specifically dealt
with the issue of "neutrality of arbitrators"
and a discussion in this behalf is contained
in paras 53 to 60 and we would like to
reproduce
the
entire
discussion
hereinbelow:

"Neutrality of arbitrators

53. It is universally accepted that
any quasi-judicial process, including the
arbitration process, must be in accordance
with principles of natural justice. In the
context
of
arbitration,
neutrality
of
arbitrators viz. their independence and
impartiality, is critical to the entire
process.

54. In the Act, the test for
neutrality is set out in Section 12(3) which
provides-

'12. (3) An arbitrator may be
challenged only if-

(a) circumstances exist that give
rise to justifiable doubts as to his
independence or impartiality....'

55. The Act does not lay down
any other conditions to identify the
"circumstances"
which
give
rise
to
"justifiable doubts", and it is clear that there
can be many such circumstances and
situations. The test is not whether, given
the circumstances, there is any actual bias
for that is setting the bar too high; but,
whether the circumstances in question give
rise to any justifiable apprehensions of
bias.

56. The limits of this provision
have been tested in the Indian Supreme
Court in the context of contracts with State
entities
naming
particular
persons/
designations (associated with that entity) as
a potential arbitrator. It appears to be
settled by a series of decisions of the
Supreme Court [see Executive Engineer,
Irrigation Division v. Gangaram Chhapolia
[Executive Engineer, Irrigation Division v.
Gangaram Chhapolia, (1984) 3 SCC 627] ;
State of T.N. v. Munuswamy Mudaliar
[State of T.N. v. Munuswamy Mudaliar,
1988 Supp SCC 651] ; International
Airports
Authority
v.
K.D.
Bali
[International Airports Authority v. K.D.
Bali, (1988) 2 SCC 360] ; S. Rajan v. State
of Kerala [S. Rajan v. State of Kerala,
(1992) 3 SCC 608] ; Indian Drugs &
Pharmaceuticals
Ltd.
v.
Indo
Swiss
Synthetics Gem Mfg. Co.Ltd. [Indian
Drugs & Pharmaceuticals Ltd. v. Indo
Swiss Synthetics Gem Mfg. Co. Ltd.,
(1996) 1 SCC 54] ; Union of India v. M.P.
Gupta [Union of India v. M.P. Gupta,
(2004) 10 SCC 504] ; ACE Pipeline
Contracts (P) Ltd. v. Bharat Petroleum
Corpn. Ltd. [ACE Pipeline Contracts (P)
Ltd. v. Bharat Petroleum Corpn. Ltd.,
(2007) 5 SCC 304] ] that arbitration
agreements in government contracts which
provide for arbitration by a serving
employee of the department, are valid and
enforceable. While the Supreme Court, in
Indian Oil Corpn. Ltd. v. Raja Transport
(P) Ltd. [Indian Oil Corpn. Ltd. v. Raja
Transport (P) Ltd., (2009) 8 SCC 520 :
(2009) 3 SCC (Civ) 460] carved out a
minor exception in situations when the
arbitrator

"was the controlling or dealing
authority in regard to the subject contract or
if he is a direct subordinate (as contrasted
from an officer of an inferior rank in some
other department) to the officer whose
decision is the subject-matter of the
dispute" (SCC p. 533, para 34)
1228 INDIAN LAW REPORTS ALLAHABAD SERIES

and this exception was used by
the Supreme Court in Denel (Pty) Ltd. v.
Ministry of Defence [Denel (Pty) Ltd. v.
Ministry of Defence, (2012) 2 SCC 759 :
(2012) 2 SCC (Civ) 37] and Bipromasz
Bipron Trading Sa v. Bharat Electronics
Ltd. [Bipromasz Bipron Trading Sa v.
Bharat Electronics Ltd., (2012) 6 SCC 384
: (2012) 3 SCC (Civ) 702] , to appoint an
independent arbitrator under Section 11,
this is not enough.

57.
The
balance
between
procedural fairness and binding nature of
these contracts, appears to have been tilted
in favour of the latter by the Supreme
Court, and the Commission believes the
present position of law is far from
satisfactory.
Since
the
principles
of
impartiality and independence cannot be
discarded at any stage of the proceedings,
specifically at the stage of constitution of
the
Arbitral
Tribunal,
it
would
be
incongruous to say that party autonomy can
be exercised in complete disregard of these
principles - even if the same has been
agreed prior to the disputes having arisen
between the parties. There are certain
minimum levels of independence and
impartiality that should be required of the
arbitral process regardless of the parties'
apparent agreement. A sensible law cannot,
for instance, permit appointment of an
arbitrator who is himself a party to the
dispute, or who is employed by (or
similarly dependent on) one party, even if
this is what the parties agreed. The
Commission hastens to add that Mr P.K.
Malhotra, the ex officio member of the
Law Commission suggested having an
exception for the State, and allow State
parties to appoint employee arbitrators. The
Commission is of the opinion that, on this
issue, there cannot be any distinction
between State and non-State parties. The
concept of party autonomy cannot be
stretched to a point where it negates the
very
basis
of having
impartial
and
independent adjudicators for resolution of
disputes. In fact, when the party appointing
an adjudicator is the State, the duty to
appoint an impartial and independent
adjudicator is that much more onerous -
and the right to natural justice cannot be
said to have been waived only on the basis
of a "prior" agreement between the parties
at the time of the contract and before
arising of the disputes.

58. Large-scale amendments have
been suggested to address this fundamental
issue of neutrality of arbitrators, which the
Commission believes is critical to the
functioning of the arbitration process in
India. In particular, amendments have been
proposed to Sections 11, 12 and 14 of the
Act.

59.
The
Commission
has
proposed
the
requirement
of
having
specific disclosures by the arbitrator, at the
stage
of
his
possible
appointment,
regarding existence of any relationship or
interest of any kind which is likely to give
rise to justifiable doubts. The Commission
has proposed the incorporation of the
Fourth Schedule, which has drawn from the
red and orange lists of the IBA Guidelines
on Conflicts of Interest in International
Arbitration, and which would be treated as
a
"guide"
to
determine
whether
circumstances exist which give rise to such
justifiable doubts. On the other hand, in
terms of the proposed Section 12(5) of the
Act
and
the
Fifth
Schedule
which
incorporates the categories from the red
list of the IBA Guidelines (as above), the
person proposed to be appointed as an
arbitrator shall be ineligible to be so
appointed,
notwithstanding
any
prior
8 All. M/S Bansal Construction, Muzaffarnagar Vs. Yamuna Expressway Industrial Development
 Authority, G.B. Nagar & Ors.
1229
agreement to the contrary. In the event
such an ineligible person is purported to be
appointed as an arbitrator, he shall be de
jure deemed to be unable to perform his
functions, in terms of the proposed
Explanation to Section 14. Therefore, while
the disclosure is required with respect to a
broader list of categories (as set out in the
Fourth Schedule, and as based on the red
and orange lists of the IBA Guidelines), the
ineligibility to be appointed as an arbitrator
(and the consequent de jure inability to so
act) follows from a smaller and more
serious subset of situations (as set out in the
Fifth Schedule, and as based on the red list
of the IBA Guidelines).

60. The Commission, however,
feels that real and genuine party autonomy
must
be
respected,
and,
in
certain
situations, parties should be allowed to
waive even the categories of ineligibility as
set in the proposed Fifth Schedule. This
could be in situations of family arbitrations
or other arbitrations where a person
commands the blind faith and trust of the
parties to the dispute, despite the existence
of objective "justifiable doubts" regarding
his independence and impartiality. To deal
with such situations, the Commission has
proposed the proviso to Section 12(5),
where parties may, subsequent to disputes
having arisen between them, waive the
applicability of the proposed Section 12(5)
by an express agreement in writing. In all
other cases, the general rule in the proposed
Section 12(5) must be followed. In the
event the High Court is approached in
connection
with
appointment
of
an
arbitrator, the Commission has proposed
seeking the disclosure in terms of Section
12(1) and in which context the High Court
or the designate is to have "due regard" to
the
contents
of
such
disclosure
in
appointing the arbitrator."

17. We may put a note of
clarification
here.
Though,
the
Law
Commission discussed the aforesaid aspect
under
the
heading
"Neutrality
of
Arbitrators", the focus of discussion was on
impartiality and independence of the
arbitrators which has relation to or bias
towards one of the parties. In the field of
international
arbitration,
neutrality
is
generally related to the nationality of the
arbitrator. In international sphere, the
"appearance of neutrality" is considered
equally important, which means that an
arbitrator is neutral if his nationality is
different from that of the parties. However,
that is not the aspect which is being
considered and the term "neutrality" used is
relatable to impartiality and independence
of the arbitrators, without any bias towards
any of the parties. In fact, the term
"neutrality of arbitrators" is commonly
used in this context as well.

18.
Keeping
in
mind
the
aforequoted recommendation of the Law
Commission, with which spirit, Section 12
has been amended by the Amendment Act,
2015, it is manifest that the main purpose
for amending the provision was to provide
for neutrality of arbitrators. In order to
achieve this, sub-section (5) of Section 12
lays down 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 the Seventh Schedule, he shall be
ineligible to be appointed as an arbitrator.
In such an eventuality i.e. when the
arbitration clause finds foul with the
amended provisions extracted above, the
appointment of an arbitrator would be
beyond pale of the arbitration agreement,
empowering the court to appoint such
arbitrator(s) as may be permissible. That
1230 INDIAN LAW REPORTS ALLAHABAD SERIES
would be the effect of non obstante clause
contained in sub-section (5) of Section 12
and the other party cannot insist on
appointment of the arbitrator in terms of
arbitration agreement.'

12. In Bharat Broadband Network
[Bharat Broadband Network Ltd. v. United
Telecoms Ltd., (2019) 5 SCC 755 : (2019)
3 SCC (Civ) 1] , it is observed that subsection (5) of Section 12 read with Seventh
Schedule made it clear that if the arbitrator
falls in any one of the categories specified
in the Seventh Schedule, he becomes
"ineligible" to act as an arbitrator. It is
further observed that once he becomes
"ineligible", it is clear that he then become
de jure unable to perform his functions
inasmuch as in law, he is regarded as
"ineligible". It further is observed in the
said decision that where a person becomes
ineligible to be appointed as an arbitrator
there is no question of challenge to such
arbitrator before such arbitrator in such a
case i.e. a case which falls under Section
14(1)(a) of the Act gets attracted inasmuch
as the arbitrator becomes, as a matter of
law (i.e. de jure), unable to perform his
functions under Section 12(5), being
ineligible to be appointed as an arbitrator
and
this
being
so,
his
mandate
automatically terminates, and he shall then
be substituted by another arbitrator."

13. Clause 33 in the present
agreement while contemplating reference
of dispute to arbitration essentially restricts
its applicability to an adjudication by the
departmental officer i.e. Chief Executive
Officer or his nominee. The further
stipulation in Clause 33 that where
reference to such officer is not possible the
arbitration itself would not be available.
This stipulation clearly manifests the intent
of employer i.e. YEIDA to retain the power
of adjudication, which goes against the
spirit of neutrality of arbitrator for which
alone Section 12(5) of the Act of 1996 is
introduced.
The
observation
of
the
Supreme Court in Ellora Paper Mills
(supra) while referring to the discussions
made by the Law Commission assumes
significance. Principles of impartiality or
independence has to be respected in the
matter of appointment of arbitrator and it
would be incongruous to hold that party
autonomy can be exercised in complete
disregard of these principles.

14. Once the statute has stepped in to
enforce neutrality of arbitrator in an
arbitration agreement, by virtue of Section
12(5) of the Act, the Court would not be
justified in literally interpreting the clause
in the agreement to keep the power of
adjudication or the party autonomy with the
employer at the cost of abondoning the
arbitration
itself.
Clause
33
of
the
agreement ousting arbitration in case of
neutrality of arbitrator has thus to be
necessarily construed as being subservient
to Section 12(5) of the Act of 1996. In any
case, the intent of parties to refer their
dispute to arbitration cannot be nullified in
the anxiety to retain power of adjudication
by the employer i.e. YEIDA.

15. This Court is in respectful
agreement with the view expressed by
Delhi High Court in Ram Kripal Singh
(supra), wherein the Court observed as
under:-

"17.4.
The
procedure
for
appointment of an arbitrator is clearly
distinct and separable from the agreement
to refer disputes to arbitration, even if these
are contained in the same arbitration clause.
If therefore, by reason of amendment, restatement or re- interpretation of the law, as
8 All. Vijay Pal Prajapati Vs. State of U.P.
1231
has happened in the present case by
insertion of section 12(5) in the A&C Act
and the verdicts of the Supreme Court in
TRF Ltd. and Perkins Eastman (supra), the
procedure for appointment of arbitrator at
the hands of one of the parties becomes
legally invalid, void and unenforceable,
that does not mean that the core agreement
between the parties to refer their inter-se
disputes to arbitration itself perishes. In the
opinion of this court - this "my way or the
highway" approach - is not tenable in law;
and in such circumstances, that part of the
arbitration agreement which has been
rendered invalid, void and enforceable is to
be severed or excised from the arbitration
clause, while preserving the rest of the
arbitration agreement;

17.5. Accordingly, this court is of the
view, that there is a valid and subsisting
arbitration agreement between the parties,
though the procedure for appointment of
the arbitrator at the hands of the CMD,
NTPC is no longer valid, and must
therefore be severed from the remaining
arbitration clause;"

16. The judgment of this Court in
Nandini Constructions, relied upon by
YEIDA will thus not hold the field in view
of subsequent judgments of the Supreme
Court, referred to above, and the objection
of Sri Singhal, therefore, cannot be
accepted.

17. So far as the objection of Sri
Singhal that scope of work is not covered
under the agreement would also be an
aspect open to be raised and examined
during the course of the arbitration and no
definite opinion in that regard is required to
be expressed by this Court while deciding
the application under Section 11 of the Act.
Issue with regard to filing of alleged
affidavit by the applicant, for not raising
any such claim, is also left open for
adjudication
by
the
arbitrator
after
evidence, etc., is adduced in that regard.

18. For the reasons recorded above,
this application succeeds and is allowed.

19. Accordingly, Hon'ble Mr. Justice
P.K.S. Baghel (Former Judge), R/o 8-B/6A
Parthsarthi House, Mayo Road, Near Mayo
Hall Sports Complex, Allahabad, Mobile
No. 9936931931, is appointed as an
Arbitrator to enter upon the reference and
adjudicate the dispute in accordance with
provisions of Arbitration and Conciliation
Act, 1996, subject to his consent in terms
of section 11-A of the Arbitration and
Conciliation Act.

20. The Arbitrator shall be entitled to
fees, in accordance with the provisions of
fourth schedule inserted by Act No.3 of
2016. The expenses shall be borne equally
by the parties.
----------
(2023) 8 ILRA 1231
APPELLATE JURISDICTION
CRIMINAL SIDE
DATED: LUCKNOW 31.07.2023

BEFORE

THE HON'BLE SUBHASH VIDYARTHI, J.

Crl. Misc. Anticipatory Bail Application (U/S 438
Cr.P.C.) No. 57 of 2023

Vijay Pal Prajapati ...Applicant
Versus
State of U.P. ...Opposite Party

Counsel for the Applicant:
Sri Purnendu Chakravarty, Sri Pranjal Jain

Counsel for the Opposite Party:
G.A., Sri Digvijay Nath Dubey