# MIS. VOESTALPINE SCHIENEN GMBH v. DELHI METRO RAIL CORPORATION LTD

- **Citation:** [2017] 1 S.C.R. 798
- **Court:** Supreme Court of India
- **Decided:** 2017
- **Bench:** A. K. Sikri, R. K. Agrawal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-voestalpine-schienen-gmbh-v-delhi-metro-rail-corporation-ltd-31706
- **Pages:** 31

## Headnote

Arbitration and Conciliation Act, 1996 - ss. 12(as amended),
JI (6), (8) - Arbitration clause providing for appointment of
arbitrators from a panel of arbitrators prepared by public sector
company-Delhi Metro Rail Corporation (DMRC) - Challenge to,
on the ground that panel of arbitrator violates s. 12 - Held: Section
12 was amended with the objective to induce neutrality of arbitrators,
viz. their independence and impartiality - 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 - When arbitrator is appointed in terms of contract
and by the parties to the contract, he is independent of the parties
- Non-independence and non-impartiality of such arbitrator would
render him ineligible to conduct the arbitration - On facts, not a fit
case for exercising the jurisdiction to appoint and constitute the
arbitral tribunal - As per the amended provision, employees or exemployees or in any way related to the DMRC would be ineligible
to act as an arbitrators - No such case made out by the petitioner -
Though choice was given by DMRC to the opposite party to choose
an arbitrator but the choice is limited from the panel prepared by
DMRC - Thus, it is imperative to have a much broad based panel,
so that there is no misapprehension that principle of impartiality
and independence would be discarded - DMRC to prepare a broad
based panel.
Dismissing the arbitration petition, the Court
HELD: 1.1 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
H . the parties to the arbitration and the arbitrators themselves are
798
MIS. VOESTALPINE SCHIENEN GMBH v. DELHI METRO
RAIL CORPORATION LTD.
contractual iu 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. [Para 19)
[824-C-E)
1.2 Independence and impartiality are two different
concepts. An arbitrator may be independent and yet, lack
impartiality, or vice versa. Impartiality, as is well accepted, is a
more subjective concept as compared to independence.
Independence, which is more an objective concept, may, thus,
be more straightforwardly ascertained by the parties at the outset
of the arbitration proceedings in light of the circumstances
disclosed by the arbitrator, while partiality will more likely surface
during the arbitration proceedings. [Para 21) [825-B)
1.3 Various contingencies mentioned in the Seventh
Schedule render a person i1,1eligible to act as an arbitrator. Entry
No. 1 provides 'that where the arbitrator is an employee,
consultant, advisor or has any other past or present business
relationship with the party, would not act as an arbitrator. The
amended .provision puts an embargo on a person to act as an
arbitrator, who is the employee of the party to the dispute. It also
deprives a person to act as an arbitrator if he had been the
consultant or the advisor or had any past or present busine~.
relationship with DMRC. N<> such case is made out by the
petitioner. [Para 23) (825-E-P; 826-A)
1.4 Section 12 of the Arbitration

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[2017] 1 S.C.R. 798
MIS. VOESTALPINE SCHIENEN GMBH
V.
DELHI METRO RA!L CORPORATION LTD.
(Arbitration Petition (Civil) No. 50of2016)
FEBRUARY I 0, 2017
[A. K. SIKRI AND R. K. AGRAWAL, JJ.]
Arbitration and Conciliation Act, 1996 - ss. 12(as amended),
JI (6), (8) - Arbitration clause providing for appointment of
arbitrators from a panel of arbitrators prepared by public sector
company-Delhi Metro Rail Corporation (DMRC) - Challenge to,
on the ground that panel of arbitrator violates s. 12 - Held: Section
12 was amended with the objective to induce neutrality of arbitrators,
viz. their independence and impartiality - 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 - When arbitrator is appointed in terms of contract
and by the parties to the contract, he is independent of the parties
- Non-independence and non-impartiality of such arbitrator would
render him ineligible to conduct the arbitration - On facts, not a fit
case for exercising the jurisdiction to appoint and constitute the
arbitral tribunal - As per the amended provision, employees or exemployees or in any way related to the DMRC would be ineligible
to act as an arbitrators - No such case made out by the petitioner -
Though choice was given by DMRC to the opposite party to choose
an arbitrator but the choice is limited from the panel prepared by
DMRC - Thus, it is imperative to have a much broad based panel,
so that there is no misapprehension that principle of impartiality
and independence would be discarded - DMRC to prepare a broad
based panel.
Dismissing the arbitration petition, the Court
HELD: 1.1 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
H . the parties to the arbitration and the arbitrators themselves are
798
MIS. VOESTALPINE SCHIENEN GMBH v. DELHI METRO
RAIL CORPORATION LTD.
contractual iu 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. [Para 19)
[824-C-E)
1.2 Independence and impartiality are two different
concepts. An arbitrator may be independent and yet, lack
impartiality, or vice versa. Impartiality, as is well accepted, is a
more subjective concept as compared to independence.
Independence, which is more an objective concept, may, thus,
be more straightforwardly ascertained by the parties at the outset
of the arbitration proceedings in light of the circumstances
disclosed by the arbitrator, while partiality will more likely surface
during the arbitration proceedings. [Para 21) [825-B)
1.3 Various contingencies mentioned in the Seventh
Schedule render a person i1,1eligible to act as an arbitrator. Entry
No. 1 provides 'that where the arbitrator is an employee,
consultant, advisor or has any other past or present business
relationship with the party, would not act as an arbitrator. The
amended .provision puts an embargo on a person to act as an
arbitrator, who is the employee of the party to the dispute. It also
deprives a person to act as an arbitrator if he had been the
consultant or the advisor or had any past or present busine~.
relationship with DMRC. N<> such case is made out by the
petitioner. [Para 23) (825-E-P; 826-A)
1.4 Section 12 of the Arbitration and Conciliation Act, 1996
has been amended by the Amendmcni Act, 2015 with the objective
to induce neutrality of arbitrators, viz., their independence and
impartiality. The amended provision is enacted to identify the
'circumstances' which give rise to 'justifiable doubts' about the
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independence or impartiality of the arbitrator. If any of those
circumstances as mentioned therein exists, it would give rise to
justifiable apprehension of bias. The Fifth Schedule to the Act
enumerates the grounds which may give rise to justifiable doubts
of this nature. Likewise, Seventh Schedule mentions those
circumstances which would attract the provisions of sub section
(5) of Section 12 and nullify any prior agreement to the contrary.
It is relevant to mention that only if an arbitrator is an employee,
a consultant, an advisor or has any past or present business
relationship with a party, he is rendered ineligible to act as an
arbitrator. Likewise, that person is treated as incompetent to
perform the role of arbitrator, who is a manager, dkector or part
of the management or has a single controlling i.nfluence in an
affiliate of one of the parties if the affiliate is directly involved in
the matters in dispute in the arbitration. A comprehensive list is
enumerated in Schedule 5 and Schedule 7 and admittedly the
persons empanelled by the respondent are not covered by any of
the items in the said list. [Para 24) [826-B-E]
1.5 It cannot be said that simply because the person is
retired officer from the government or other statutory corporation
or public sector undertaking and had no connection with DMRC
(party in dispute), he would be treated as ineligible to act as an
E · ·arbitrator. Had this been the intention of the· 1egislature, the
Si;vent~ Schedule would have covered such persons as well. Bias .
or even- real likelihood of bias cannot be attributed to such highly
qualified and experienced persons, simply on the ground that
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they served the Central Government or PSUs, even when they
had no connection with DMRC. The very reason for empanelling·
these persons is to ensure that technical aspects of the dispute
are suitably resolved by utilising their expertise when they act
as arbitrators. 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
arbitrl!tion with the observation that the same would. be treated
as the· guide 'to determine whether circumstances exist which
give rise to such justifiable d<;rnbts'. Such persons do not get
covered by red or orange list of IBA guidelines either. [Para 25)
J8.26-F-H; 827-AJ
M/S. VOESTALPINE SCHIENEN GMBH v. DELHI METRO
RAIL CORPORATION LTD.
1.6 DMRC forwarded the list of all 31 persons on its panel
thereby giving a very wide choice to the petitioner to nominate
its arbitrator. They are not the employees or ex-employees or in
any way related to the DMRC. In any case, the persons who are
nltimately picked np as arbitrators will have to disclose their
interest in terms of amended provisions of Section 12 of the Act.
Therefore, it is not a fit case for exercising the jnrisdiction to
appoint and constitute the arbitral tribunal. [Para 26] [827-B-C]
1.7 Even when there .are number of persons empanelled,
discretion is with the DMRC to pick five persons therefrom and
forward their names to the other side which is to select one of
these five persons as its nominee (though in this case, it is now
done away with). Not only this, the DMRC is also to nominate its
arbitrator from the said list. Above all, the two arbitrators have
also limited choice of picking upon the third arbitrator from the
very same list, i.e., from remaining three persons. This procedure
has two adverse consequences. In the first place, the choice given
to the opposite party .is limited as it has to choose one out of the
five names that are forwarded by the other side. There is no free
choice to nominate a person out of the entire panel prepared by
the DMRC. Secondly, with the discretion given to the DMRC to
choose five persons, a room for suspicion is created in the mind
of the other side. that the DMRC may ·have picked· up its own
favourites. Such a situation has to be countenanced. Therefore,
Sub-clauses (b) & (c) of Clause 9.2 of SCC need to be deleted
and instead choice should be given to the parties to nominate
any person from the entire panel of arbitrators. Likewise, the
two arbitrators nominated by the parties should be given full
freedom to choose third arbitrator from the whole panel. [Para
2 7] [827-D-G]
1.8 As per Clause 9.2(<1) uf the GCC/SCC, the DMRC
prepares the panel of 'serving or retired engineers of government .
departments or public secto; umiertakings'. It is not nnderstood
as to why the panel has to be limited to the said category of
persons. Keeping in view the sl';rit of the amended provision
and in order to instill confidence in the mind of the oth~r party, it
is imperative that panel should be broad based. Apart from serving
or retired engineers of government departments and public sector
undertakings, engineers of prominence and high repute from
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private sector should also be included. Likewise panel should
comprise of persons with legal background like judges and lawyers
of repute as it is not necessary that all disputes that arise, would
be of technical nature. There can be disputes involving purely or
substantially legal issues, that too, complicated in nature.
Likewise, some disputes may have the dimension of accountancy
etc. Therefore, it would also be appropriate to include persons
from this field as well. [Para 28] [827-H; 828-A-C]
1.9 Time has come to send positive signals to international
business community, in order to create healthy arbitration
environment and conducive arbitration culture in this country.
Further, as highlighted by the Law Commission also in its report,
duty becomes more onerous in Government contracts, where one
of the parties to dispute is the Government or public sector
undertaking itself and the authority to appoint the 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 the DMRC. It, therefore, becomes
imperative to have a much broad based 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. DMRC is directed
to prepare a broad based panel on the said lines, within the
stipulated period. [Para 29] [828-D-E)
Datar Swittchgears Ltd. v. Tata Finance Ltd. & Anr.
(2008) 8 SCC 151; Punj Lloyd Ltd. v. Petrone! MHC
Ltd. (2006) 2 SCC 638; Union of India v. Bharat
Battery Manufacturing Co. (P) Ltd. (2007) 7 SCC 684
: [2007) 8 SCR 993; Deep Trading Co. v. Indian Oil
Corporation (2013) 4 SCC 35 : [2013) 2 SCR 470;
Union of India v. Singh Builders Syndicate (2009) 4
SCC 523 : [2009] 3 SCR 563; Northern Eastern
Railway v. Tripple Engineering Works (2014) 9 SCC
288 : [2014] 6 SCR 1143; Union of India v. Uttar
Pradesh State Bridge Corporation Ltd. (2015) 2 SCC
52 - ref erred to.
Jivraj v. Hashwani (2011) UK SC 40 - referred to.
MIS. VOESTALPINE SCHIENEN GMBH v. DELHI METRO
803
RAIL CORPORATION LTD.
Fouchard, Gaillard, Goldman on International
A
Commercial Arbitration 575 Emmanuel Gaillard &
John Savage eds., 1999 - referred to.
Case Law Reference
(2008) 8 sec 151
referred to
Para 18
(2006) 2 sec 638
referred to
Para 18
[2007] 8 SCR 993
referred to
Para 18
[2013] 2 SCR 470
referred to
Para 18
[2009] 3 SCR 563
referred to
Para 18
[2014] 6 SCR 1143
referred to
Para 18
(2015) 2 sec 52
referred to
Para 18
CIVIL ORIGINAL JURISDICTION: Arbitration Petition (Civil)
No. 50 of2016.
Gopal Jain, Sr. Adv., Ajay Bhargava, Ms. Vanita Bhargava,
Jeevan B. Panda, Kudrat Dev, Mis. Khaitan & Co., Advs. for the
Petitioner.
Mukul Rohtagi, AG, Ms. Shashi Kiran, Dr. Salish Chandra, Advs.
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for the Respondent.
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The Judgment of the Court was delivered by
A. K. SIKRI, J. l. The petitioner, which is a Company
incorporated under the laws of Austria, with its registered office in that
country, has its branch office in DLF City, Gurgaon, Phase-II, India as
well. It is engaged, inter alia, in the business of steel production with the
use of advance technology, like Rolling Technology and Heat Treatment
Technology, as well as manufacturing, producing and supplying rails and
related products. It claims to be a European market leader and innovation
pioneer with a worldwide reputation which has played a decisive role in
the development of modern railway rails. The respondent, Delhi Metro
Rail Corporation Ltd .. (DMRC) awarded the contract dated 12'h August,
2013 to the petitioner for supply of rails. Certain disputes have arisen
between the parties with regard to the said contract inasmuch as the
petitioner feels that respondent has wrongfully withheld a sum of euro
5,31,276/- (Euro Five Lakhs Thirty One Thousand Two Hundred and
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Seventy Six only) towards invoices raised for supply oflast lot of3000
MT of rails and has also illegally encashed performance bank guarantees
amounting to EURO 7,83,200/- (Euro Seven Lakhs Eighty Three
Thousand Two Hundred only). Respondent has also imposed liquidated
damages amounting to EURO 4,00, 129.397/- (Euro Four Hundred
Thousand One Hundred Twenty Nine and Cent Three Hundred Ninety
Seven Only) and invoked price variation clause to claim a deposit of
EURO 4,87,830/- (Euro Four Lakhs Eighty Seven Thousand Eight
Hundred Thirty). Not satisfied with the performance of the petitioner,
the respondent has suspended the business dealings with the petitioner
for the period of six months. The petitioner feels aggrieved by all the
aforesaid actions and wants its claims to be adjudicated upon by an
Arbitral Tribunal, having regard to the arbitration agreement between
the parties as contained in Clause 9.2 of General Conditions of Contract
(GCC) read with Clause 9.2 of Special Conditions of Contract (SCC).
2. It may be pointed out, at the outset, that arbitration agreement
between the parties, as contained in the aforesaid clause of the contract
is not in dispute. It may also be pointed out that Clause 9.2(A) of the
SCC prescribes a particular procedure for constitution of the Arbitral
Tribunal which, inter alia, stipulates that the-respondent shall forward
names of five persons from the panel maintained by the respondent and
the petitioner will have to choose his nominee arbitrator from the said
panel. As per the events mentioned in detail hereinafter, the respondent
had, in fact, furnished the names of five such persons to the petitioner
with a request to nominate its arbitrator from the said panel. However, it
is not acceptable to the petitioner as the petitioner feels that the panel
prepared by the respondent consists of serving or retired engineers either
of respondent or of Government Department or Public Sector
Undertakings who do not qualify as independent arbitrators. According
to the petitioner, with the amendment of Section 12 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred tu as the 'Act') such a
panel, by Amendment Act, 2015, as prepared by the respondent, has lost
its validity, as it is contrary to the amended provisions of Section 12 of
the Act.For thisTeason, the petitioner has preferred the instant petition
under Section 11 (6) read with Section 11 (8) of the Act for appointment
of sole arbitrator/arbitral tribunal under Clause 9.2 of GCC read with
Clause 9 .2 of SCC of the Contract dated August 12, 2013.
3. With the aforesaid preliminary introduction reflecting the nature
MIS. VOESTALPINE SCHIENEN GMBH v. DELHI METRO
RAIL CORPORATION LTD. [A. K. SIKRI, J.]
of these proceedings, we may take note of the relevant and material
facts in some detail. Around January, 2013, the respondent had floated a
tender for the procurement of8000 Metric Tons (MT) "Head Hardened
Rails of certain specifications for Delhi Metro, Phase-III projects and
invited bids from the eligible bidders. The petitioner was one such bidder
whose bid was ultimately accepted after tender evaluation process
undertaken by the respondent. It resulted in the signing of contract
agreement dated August 12, 2013 between the parties for the supply of
the aforesaid material. As per the petitioner, it has duly delivered the
rails in three lots of 3000MT, 3000MT and 2000MT rails on January n,
2014, January 19, 2014 and August 03, 2014 respectively at sea port at
Mumbai, which delivery, according to the petitioner, was well within the
agreed time limits. However, after the delivery of the aforesaid rails at
Mumbai, inland transport thereof from Mumbai to Respondent's depots
at Delhi was delayed due to various reasons. As per the petitioner, these
reasons are not attributed to it and it cannot be faulted for the same.
However, the respondent treated it as default on the part of the petitioner
and imposed liquidated damages vide its letter dated September 21, 2015.
The respondent als.o called upon the petitioner to submit its final bill so
that the liquidated damages could' be set off against the said bill. This
was the starting point of dispute 'between the parties, as the petitioner
refuted the allegations of the respondent and questiohed the imposition
of liquidated damages as well as calculations thereof. Correspondence
ensued and exchanged between the parties but it may not be necessary
to state the same in detail here as that would be the subject matter of
adjudication before the arbitral tribunal. Suffice it to state that respondents
also encashed the bank guarantee and raised claims against the petitioner
as balance amount due from the petitioner. On the other hand, the
petitioner states that it is the respondent which has to pay substantial
amounts to the petitioner and a glimpse of the claims of the petitioner
has already been indicated above.
4. One thing is clear, there are disputes.between the parties giving
rise to claims and·counter claims against each other and these pertain to
and arise out ofcontract dated August 12, 2013. In view of these disputes
and after receipt of communication dated April· 28, 2016 whereby
respondent had taken a decision to suspend business dealings with the
petitioner for a period of six months, and feeling aggrieved thereby, the
petitioner issued a legal notice dated May 11, 2016 through his advocates
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calling upon the respondent to withdraw the suspension orders with a
threat to resort to legal proceedings ifthe same was not done within a
period of seven days. The respondent did not succumb to the said demand
and this inaction provoked the petitioner to approach the High Court by
filing Writ Petition no. 5439of2016 challenging respondent's action of
suspending business with the petitioner . In this petition, order dated
June 03, 2016 has been passed by the Delhi High Court thereby directing
the respondent to keep its decision of suspension with the petitioner, in
abeyance.
5. The petitioner states that thereafter it invoked the dispute
resolution clause and made efforts to amicably resolve the dispute.
However, the said attempt failed and on June 14, 2016, the petitioner
invoked the arbitration clause.
6. At this juncture, we would like to reproduce Clause 9.2 of
GCC as well as Clause 9.2 of SCC.
"9.2. If, after twenty-eight (28) days from the commencement
of such informal negotiations, the parties have failed to resolve
thefr dispute or difference by such mutual consultation, then either
the Purchaser or the Supplier may give notice to the other party
of its intention to commence arbitration, as hereinafter provided,
as to the matter in dispute, and no arbitration , as hereinafter
provided, as to the matter in dispute, and no arbitration in respect
of this matter may be commenced unless such notice is given.
Any dispute or difference in respect of which a notice ofintention,
to commence arbitration has been given in accordance with this
Clause shall be finally settled by arbitration. Arbitration may be
commenced with this Clause shall be finally settled by arbitration.
Arbitration may be commenced prior to or after delivery of the
Goods under the Contract Arbitration proceedings shall be
conducted in accordance 'with the rules of procedure specified
in the SCC"
9 .2. The rules of procedure for arbitration proceedings pursuant
to GCC Clause 9.2 shall be as follows:
ARBITRATION & RESOLUTION OF DISPUTES:
The Arbitration and Conciliation Act- 1996 of India shall beapplicable. Purchaser and the supplier shall make every necessary
effort to resolve amicably by direct and informal negotiation any
1 !
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MIS. VOESTALPINE SCHIENEN GMBH v. DELHI METRO
RAIL CORPORATION LTD. [A. K. SIKRI, J.]
disagreement or dispute arising between them under or in
connection with contract.
Arbitration: If the efforts to resolve all or any of the disputes
through conciliation fails, then such, disputes or differences,
whatsoever arising between the parties, arising but of touching
or relating to supply/manufacture, measuring operation or effect
of the Contract or the breach thereof shall be referred to
Arbitration, in accordance with the following provisions:
(a) Matters to be arbitrated upon shall be referred to a sole
Arbitrator where the total value of claims does not exceed Rs.
1.5 million. Beyond the claim limit of Rs. 1.5 million. Beyond the
claim limit of Rs. 1.5 million, 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) For the disputes to be decided by a sole Arbitrator, a 'list of
three engineers taken the aforesaid panel will be sent to the
supplier by the Purchaser from which the supplier will choose
one;
(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;
(d) Neither party shall be limited in the proceedings before such
Arbitrators(s) to the evidence.or the arguments put before the
Conciliator;
(e) The Conciliation and Arbitration hearings shall be held in
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Delhi only. The language of the proceedings that of the documents
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and communications shall be English and the awards shall be
made in writing. The Arbitrators shall always give item-wise
and reasoned awards in all cases where the total claim exceeds
Rs. One mill ion; and
(f) The award of the sole Arbitrator or the award by majority of
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•
three Arbitrators as the case miiy be and shall be binding on all
parties."
7. As per the aforesaid procedure, having regard to the quantum
of claims and counter claims, three arbitrators are to constitute the arbitral
tribunal. The agreement further provides that respondent would make
out a panel of engineers with the requisite qualifications and professional
experience, which panel will be of serving or retired engineers of
govern1nent departments or public sector undertakings. From this panel,
the respondent has to give a list of five engineers to the petitioner and
both the petitioner and the respondent are required to choose one arbitrator
each from the said list. The two arbitrators so chosen have to choose
the third arbitrator from that very list, who shall act as the presiding
arbitrator.
8. In the letter dated June 14, 2016; addressed by the petitioner
to the respondent while invoking arbitration, the petitioner took the stand
th~t appointment of the arbitral tribunal as per the aforesaid clause from
a panel of five persons comprising of serving or retired engineers of
government departments or public sector undertakings, if followed, would
lead to appointment of'ineligible persons' being appointed as arbitrators,
in view of Section 12(5) of the Act read with Clause.:l·of:Seventh
Schedule to the same Act. The petitioner, thus, nominated a retired judge
of this Court as a sole arbitrator and requested the respondent for its
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9. The respondent, vide its letter dated July08, 2016, stuck to the
procedure as prescribed forthe arbitration clause and asked the petitioner
to nominate an arbitrator from the panel of five persons which it forwarded
to the petitioner. Thereafter vi de letter dated July 19, 2016, the respondent
appointed one person as its nominee arbitrator from the said list of five
persons who is a retired officer from Indian Railway Service of Engineers
(IRSE) and called upon the petitioner to appoint its nominee arbitrator
from the remaining panel of four persons. At this juncture, on August I 7,
2016 present petition under Section I I of the Act' was· filed by the
petitioner for constitution of the arbitral tribunal by this Court with the
prayer that the arbitratornominated by the petitioner(i.e: a former Judge
of this Court) should be appointed as the sole arbitrator ifthe respondent
consents to it or any impartial and independent sole arbitrator if '
appointment of the petitioner's nominee is objected to by the respondent.
Alternate prayer is made for appointment of an indepen_dent and impartial
•
MIS. VOE;.')I'ALPINE SCHIENEN GMBH v. DELHI METRO
RAIL CORPORATION LTD. [A. K. SIKRI, J.]
arbitral tribunal comprising of three members under Section 11 ( 6) read
with Section 11(8) of the Act for adjudication of the disputes between
the parties.
I 0. The respondents have contested the petition by filing its
detailed reply, inter alia, taking upon the position that in view of the specific
agreement between the parties containing arbitration clause, which
prescribes the manner in which arbitral tribunal is to be constituted, present
petition under Section 11(6) of the Act is not even maintainable. The
respondent maintains that arbitration agreement as per which arbitral
. tribunal is to be constituted from the panel prepared by the respondent
does not offend provisions of Section 12 of the Act as maintained in the
year 2015. It is submitted that the agreement valid, operative and capable
of being performed and the arbitrators proposed by the respondent are
not falling in the category of 'prohibited clause' as stipulated in under
Section 12(5) of the Act read with clause I of the 7'' Schedule thereto.
·As per the respondent, since the arbitration involves adjudication of
technical aspects, the respondents have proposed the panel of retired
engineers of the government having requisite expertise to arbitrate the
sub-matter. They are neither serving nor past employees of the DMRC
and have no direct or indirect relations with the DMRC. Therefore, they
are capable ofarbitrating the subject matter without compromising their
independence and impartiality.
11. In support of the aforesaid plea taken in the petition, Mr .
Gopal Jain, learned senior counsel appearing for the petitioner submitted
that the entire ethos and spirit behind the amendment in Section 12 by
Amendment Act, 2015 were to ensure that the arbitral tribunal consists
of totally independent arbitrators and not those persons who are connected
with the other side, even remotely. He submitted that Respondent No. I,
i.e., DMRC was public sector undertaking which had all the trappings of
the Government and, therefore, even those persons who were not in the
employment of DMRC, but in the employment of Central Government
or other Government body/public sector undertakings should not be
permitted to act as arbitrators. He submitted that the very fact that the
panel of the arbitrator consisted only of'serving or retired engineers of
Government departments or public sector undertaking' defied the
neutrality aspect as they had direct or indirect nexus/privity with the
respondent and the petitioner had reasonable apprehension oflikelihood
of bias on the part of such persons appointed as arbitrators, who were
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not I ikely to act in an independent and impa1tial manner.
12. Mr. Mukul Rohatgi, learned Attorney General justifying the
stand taken by the respondent, with the aid of the provisions of the Act
and the case law, also drew attention to a subsequent development. He
pointed out that though in its earlier letter dated July 8, 2016 addressed
by the respondent tu the petitioner, a list of persons was given asking the
petitiuPer to choose its arbitrator therefrom, the respondent has now
forwarded to the petitioner the entire panel of arbitrator maintained by
it. This fresh list contains as many as 31 names and, therefore, a wide
choice is given to the petitioner to nominate its arbitrator therefrom. It
was further pointed out that many panelists were the retired officers
from Indian Railways who retired from high positions and were also
having high degree of technical qualifications and experience. The said
list included five persons who were not from railways at all but were the
ex-officers of the other bodies like, Delhi Development Authority (ODA)
and Central Public Works Department (CPWD). No one was serving
or ex-employee of the DMRC. He further submitted that merely because
these person had served in railways or other government departments,
would not impinge upon their impa1tiality.
13. From the stand taken by the respective pa1ties and noted
above, it becomes clear that the moot question is as to whether panel of
arbitrators prepared by the respondent violates the amended provisions
of Section 12 of the Act. Sub-section (I) and sub-section (5) of Section
12 as well as Seventh Schedule to the Act which are relevant for our
purposes, may be reproduced below.
"Section 12(1 ), the following sub-section shal I be substituted,
namely:-
"( I) When a person is approached in connection with his possible
appointment as an arbitrator, he shall disclose in writing any
circumstances,-
(a) such as the existence either direct or indirect, of any
past or present relationship with or interest in any of the
parties or in relation to the subject-matter in dispute,
whether financial, business, professional or other kind,
which is likely to give rise to justifiable doubts as to his
independence or impartiality; and
(b) which are likely to affect his ability to devote sufficient time
M/S. VOESTALPINE SCHIENEN GMBH v. DELHI METRO
811
RAIL CORPORATION LTD. (A. K. SIKRI, J.]
to the arbitration and in particular his ability to complete the entire · A
arbitration within a period of twelve months.
Explanation 1.-The grounds stated in the Fifth Schedule shall
guide in determining whether circumstances exist which give
rise to justifiable doubts as to the independence or impartiality of
an arbitrator.
B
Explanation 2.-The disclosure shall be made by such person in
the form specified in the Sixth Schedule.";
(ii) after sub-section (4), the following sub-section shall be
inserted, namely:-
"(5) 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 shall be
· ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen
between them, waive the applicability of this sub-section by an
express agreement in writing.
THE SEVENTH SCHEDULE
Arbitrator's relationship with the parties or counsel
1. The arbitrator is an employee, consultant, advisor or
has any other past or present business relationship with a
party.
2. The arbitrator currently represents or advises one of the parties
or an affiliate of one of the parties.
3. The arbitrator currently represents the lawyer or law firm
acting as counsel for one of the parties.
4. The arbitrator is a lawyer in the same law firm which is
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5. The arbitrator is a manager, director or part of the management,
or has a similar controlling influence, in an affiliate ofone of the
parties ifthe affiliate is directly involved in the matters in dispute
in the arbitration.
6. The arbitrator's law firm had a previous but terminated 14
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involvement in the case without the arbitrator being involved
himself or herself.
"
7. The arbitrator's law firm currently has a significant commercial
relationship with one of the parties or an affiliate of one of the
parties.
8. The arbitrator regularly advises the appointing party or an
affiliate of the appointing party even though neither the arbitrator
nor his or her finn derives a significant financial income therefrom.
9. The arbitrator has a close family relationship with one of the
parties and in the case of companies with the persons in the
management and controlling the company.
I 0. A close family member of the arbitrator has a significant
financial interest in one of the parties or an affiliate of one of the
parties.
I 1. The arbitrator is a legal representative of an entity that is a
party in the arbitration.
I 2. The arbitrator is a manager, director or part of the
management, or has a similar controlling influence in one of the
parties.
13. The arbitrator has a significant financial interest in one of the
parties or the outcome of the case.
14. The arbitrator regularly advises the appointing party or an
affiliate of the appointing party, and the arbitrator or his or her
firm derives a significant financial income therefrom.
Relationship of the arbitrator to the dispute
15. The arbitratqr has given legal advice or provided an expert
opinion on the dispute to a party or an affiliate of one of the
parties.
I 6. The arbitrator has previous involvement in the case.
Arbitrator's direct or indirect interest in the dispute
17. The arbitrator holds shares, either directly or indirectly, in
one of the parties or an affiliate of one of the parties that is
privately held.
M/S. VOESTALPINE SCHIENEN GMBH v. DELHI METRO
813
RAIL CORPORATION LTD. [A. K. SIKRI, J.]
18. A close family member of the arbitrator has a significant
A
financial interest in the outcome of the dispute.
19. The arbitrator or a close family memberofthe arbitrator has
a close relationship with a third party who may be liable to
recourse on the part of the unsuccessful party in the dispute.
Explanation l._:The term "close family inember" refers to a
13
spouse, sibling, child, parent or life partner .
. Explanation 2.-The te1m "affiliate" encompasses all companies
in one group of companies including the parent company.
Explanation 3.-For the removal of doubts, it is clarified that it
may be the practice in certain specific kinds of arbitration, such
as maritime or·conimodities arbitration, to draw arbitrators from
a small, specialized pool. If in such fields it is the custom and
practice for parties frequently to appoint the same arbitrator in
different cases, this is a relevant fact to be taken into account
while applying the rules set out above.'."
14. It is a well known fact that the Arbitration and Conciliation
Act, 1996 was enacted to consolidate and amend the law relating to
domestic arbitration, inter al ia, commercial arbitration and enforcement
of foreign arbitral awards etc. It is also an accepted position that while
enacting the said Act, basic structure of UNCITRAL Model Law was
kept in.mind. This became necessary in the wake of globalization and
the adoption of policy of liberlisation of Indian economy by the
Government of India in the early 90s. This model law ofUNCITRAL
provfdes the framework in order to achieve, to the maximum possible
exteni, uniform approach to the international commercial arb.itration. Aim
is to achieve convergence in arbitration law and avoid conflicting or
varying provisions in the 16 arbitration Acts enacted by various countries.
Due to certain reasons, working of this Act witnessed some unpleasant
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developments and need was felt to smoothen out the rough edges
encountered thereby. The Law Commission examined various
shortcomings in the working of this Act and in its first Report, i.e, 176'"
Report ~ade various s~ggestions for amending certain provisions of the
Act. This exercise was again done by the Law Commission of India in
its Report No. 246 in August, 2004 suggesting sweeping amendments
touching upon various facets and acting upon most of these
recommendations, Arbitration Amendment Act of2015 was passed which
came into effect from October 23, 2015.
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15. Apart from other amendments, Section 12 was also amended
and the amended provision has already been reproduced above. This
amendment is also based on the recommendation of the Law Commission
which specifically dealt with the issue of'neutrality ofarbitrators' 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 - "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 has 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, Puri v. Gangaram Chhapolia, 1984
(3) SCC 627; Secretary to Government Transport Department,
Madras v. Munusamy Mudaliar, 1988 (Supp) SCC 651;
International Authority of India v. K.D. Bali and Anr, 1988 (2)
SCC 360; S. Rajan v. State of Kerala, 1992 (3) SCC 608; Mis.
Indian Drugs & Pharmaceuticals v. Mis. Jndo-Swiss Synthetics
Germ Manufacturing Co.Ltd., 1996 (I) SCC 54; Union oflndia
v. M.P. Gupta, (2004) 10 SCC 504; Ace Pipeline Contract Pvt.
Ltd. v. Bharat Petroleum Corporation Ltd., 2007 (5) SCC 304)
M/S. VOESTALPINE SCHIENEN GMBH v. DELHI METRO
RAIL CORPORATION LTD. [A. K. SIKRI, J.]
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 Corp. Ltd. v.