2015 Amendment To Arbitration Act Cannot Invalidate Pre-Amendment Arbitrator Appointment: Delhi High Court

The Delhi High Court has held that the statutory ineligibility introduced for arbitrators by the 2015 amendment to the Arbitration and Conciliation Act, 1996, cannot be retrospectively applied to invalidate an appointment made before the amendment came into force.

A Division Bench of Justices Anil Kshetrapal and Bharat Parashar upheld the appointment of a serving Delhi Metro Rail Corporation (DMRC) employee as sole arbitrator.

The arbitration was invoked on June 3, 2014 and the arbitrator was appointed on March 24, 2015, while the amendment introducing Section 12(5) and the Seventh Schedule came into force only on October 23, 2015.

The bench observed, “Where the arbitral proceedings had commenced before 23.10.2015, the amended provisions cannot be applied merely on the ground that the circumstances attracting those provisions continued thereafter. Such proceedings remain governed by the pre-amendment regime unless the parties have otherwise agreed to the application of the amended Act within the meaning of Section 26.”

The dispute arose from a DMRC contract for operating parking sites at Dwarka Sector-21 and Sector-11 Metro stations. Pankaj Associates was awarded the licence for three years at a monthly fee of ₹5 lakh. Disputes later arose over the area handed over at Sector-21, collection of parking fees by the previous contractor and the alleged absence of certain infrastructure facilities.

Pankaj Associates invoked arbitration on June 3, 2014. Senior Additional General Manager/Financial Ashu Sharma was appointed as sole arbitrator on March 24, 2015 under Clause 45 of the agreement. The clause expressly provided that there would be no objection if the sole arbitrator appointed by DMRC was its employee.

The 2015 amendment subsequently introduced Section 12(5), which makes a person ineligible to act as an arbitrator where their relationship with the parties, counsel or subject matter falls within categories specified in the Seventh Schedule. In effect, it created statutory disqualifications that could operate notwithstanding an earlier arbitration agreement.

The sole arbitrator passed the award on July 21, 2017, rejecting Pankaj Associates' claims and allowing DMRC's counterclaim of ₹40,15,831 with interest. Pankaj Associates challenged the award under Section 34. The District Judge set it aside after holding that the appointment of the serving DMRC employee was hit by Section 12(5) read with the Seventh Schedule.

Before the high court, Pankaj Associates relied on Clause 45, which stated that the arbitration proceedings would be governed by the Act “as amended from time to time”. DMRC relied on Section 26 of the 2015 Amendment Act, arguing that the amended regime could not be applied to an arbitration that had already commenced.

The high court held that Clause 45 had to be read as a whole. Although it referred to the Act “as amended from time to time”, it also referred to the “provisions in force at the time the reference is made”. Since the reference was made in 2014, the clause did not amount to a sufficiently clear agreement to retrospectively apply the 2015 amendment.

The bench also found no subsequent agreement adopting the amended regime. The continuation of the arbitration after October 23, 2015 was not enough.

“The mere continuation of proceedings after 23.10.2015 cannot, without more, be regarded as an agreement to apply the amended Act,” the bench observed.

The court further held that, under the law prevailing when Sharma was appointed, his status as a DMRC employee did not by itself constitute a statutory bar. No separate circumstance establishing actual bias or giving rise to justifiable doubts about his independence or impartiality was established.

The bench accordingly set aside the District Judge's judgment insofar as it had set aside the arbitral award on this ground and rejected the challenge to the constitution of the arbitral tribunal.

For Delhi Metro Rail Corporation: Advocates Tarun Johri and Vishwajeet Tyagi.

For Pankaj Associates: Advocates Shashwat Dixit, Amit Mishra, Sajal Dutt Dixit, Gauri Dixit and Kushagr Tyagi.