Delhi High Court Sets Aside ₹5.19 crore Award Against Railways Board After Serving Officer Appointed As Arbitrator

The Delhi High Court has set aside a ₹5.19 crore arbitral award against the Railways Board after the Railways challenged the legality of the sole arbitrator it had appointed. The Court held that appointing a serving railway officer as arbitrator, without an express written waiver by both parties, rendered the award void from the beginning.

Allowing a petition under Section 34 of the Arbitration and Conciliation Act, 1996, Justice Avneesh Jhingan held, “The appointment of a serving employee as an arbitrator falls within the teeth of Section 12(5) read with Schedule VII of the Act. The appointment being void ab initio rendered impugned award nullity.”

The dispute arose from a contract dated September 30, 2020 under which Titagarh Rail Systems Limited was awarded a contract worth Rs 499,56,48,000 for the manufacture and supply of 1,652 wagons. Differences later emerged over re-fixation of delivery timelines, imposition of liquidated damages and invocation of a denial clause. On March 20, 2023, the Railways short-closed the contract, cancelled the supply of the remaining 390 wagons and forfeited the bank guarantee.

Titagarh invoked arbitration under Section 21 of the Act and later consented to fast-track arbitration under Clause 2905(c)(ii)(a) of the Indian Railway Standard Conditions of Contract. The Railways proposed four names of its serving employees. Titagarh shortlisted two. On January 30, 2024, the Railways appointed one of its serving officers as sole arbitrator.

The award dated August 5, 2024 allowed Titagarh's claims. It directed refund of Rs 5,19,15,870 towards liquidated damages for delayed supply of 272 wagons, granted price variation up to the date of actual supply with May 2019 as the base month, set aside the contract cancellation and directed supply of the remaining 390 wagons with applicable price variation.

Despite having made the appointment, the Railways challenged the award under Section 34 of the Act. It argued that Section 12(5) renders an employee of a party statutorily ineligible to act as arbitrator unless both sides, after the dispute arises, enter into an express agreement in writing waiving the disqualification. No such waiver existed. Titagarh had in fact twice stated that it was not waiving the statutory protection.

Titagarh opposed the plea and argued that the Railways were taking a u turn after losing the arbitration. It contended that by shortlisting names from the panel and consenting to fast-track arbitration, the parties had waived the objection through their conduct.

The Court rejected that submission. It held that waiver under the proviso to Section 12(5) cannot be inferred from participation or implied conduct. An express written agreement is mandatory.

“In none of the documents relied upon there is an express agreement in writing waiving the rigours of Section 12(5). The short-listing of two names from the four names proposed by the petitioner cannot be considered to be compliance and the waiver has to be specific and not to be implied from conduct,” the Court observed.

The court also noted that even under Clause 2905(a) of the IRS, claims exceeding Rs 1 crore required the constitution of a three-member tribunal. Yet a sole arbitrator had been appointed.

Holding that statutory ineligibility strikes at the root of jurisdiction and cannot be cured by participation in proceedings, the Court declared the appointment void ab initio and set aside the award.

For Petitioner (Railways Board, Ministry of Railways): Advocates Shashank Garg, Senior Advocate, with Husain Taqvi, Nishtah Jain, Aradhya Chaturvedi and Vidhi Gupta.

For Respondent (Titagarh Rail Systems Limited): Advocates Akhil Sibbal, Senior Advocate, with Rishi Agarwal, Aanchal Mullick, Daksh Arora, Shubhi Agarwal, Krishneshbapat and Manan Bansal.