Supreme Court Dismisses Appeal by Central Organisation for Railway Electrification Against Appointment of Independent Arbitrator in Contract Dispute. Statutory Ineligibility Under Section 12(5) of Arbitration Act Prevents Serving and Retired Railway Officers from Acting as Arbitrators Despite Contractual Clause.

Civil appeal against High Court order appointing an independent arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, in a contract dispute between the appellant (employer) and respondent (contractor).

The appellant sought to set aside the High Court's appointment of an independent arbitrator and to enforce the arbitration clause in the General Conditions of Contract providing for a panel of railway officers as arbitrators.

The appellant challenged the High Court's order appointing a retired judge as sole arbitrator, arguing that the appointment contravened Clauses 64(3)(a)(ii) and 64(3)(b) of the General Conditions of Contract.

The High Court of Allahabad in Arbitration Application No.151 of 2018 rejected the appellant's contention and appointed Shri Justice Rajesh Dayal Khare as sole arbitrator vide order dated 03.01.2019, and directed the arbitrator to proceed vide order dated 29.03.2019.

Whether the High Court was correct in appointing an independent arbitrator in contravention of Clauses 64(3)(a)(ii) and 64(3)(b) of the General Conditions of Contract. Whether the proposed panel of serving and retired railway officers were ineligible under Section 12(5) read with Seventh Schedule of the Arbitration and Conciliation Act, 1996.

Appellant: The agreement and General Conditions of Contract provide for appointment of Arbitral Tribunal consisting of three arbitrators from the panel; the High Court erred in appointing a sole arbitrator outside the panel; the appointment of an independent arbitrator contravenes Clauses 64(3)(a)(ii) and 64(3)(b). Respondent: The amended Act applies; Section 12(5) read with Seventh Schedule makes serving and retired employees of the appellant statutorily ineligible; the General Manager cannot nominate ineligible persons; the High Court rightly appointed an independent arbitrator.

Section 12(5) read with Seventh Schedule of the Arbitration and Conciliation Act, 1996 creates a statutory ineligibility for employees of a party to act as arbitrator, which cannot be waived except by express agreement in writing after disputes have arisen. Contractual clauses like Clause 64 of the General Conditions of Contract cannot override this statutory bar. The High Court's power under Section 11(6) to appoint an arbitrator is independent of contractual provisions.

Section 12(5), on the other hand, is a new provision which relates to the de jure inability of an arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the non obstante clause in Section 12(5) the moment any person whose relationship with the parties or the counsel or the subject-matter of the dispute falls under the Seventh Schedule. The only way in which this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing.

The respondent filed Arbitration Petition No. 151 of 2018 before the High Court of Allahabad under Section 11(6) of the Arbitration and Conciliation Act seeking appointment of a sole arbitrator. The High Court vide order dated 03.01.2019 appointed Shri Justice Rajesh Dayal Khare as sole arbitrator. Vide order dated 29.03.2019, the High Court noted the consent of the arbitrator and directed him to proceed. The appellant appealed to the Supreme Court by way of SLP(C) Nos.24173-74 of 2019, which were converted into Civil Appeal Nos. 9486-9487 of 2019.

• Arbitration and Conciliation Act, 1996: Section 11(6), Section 11(8), Section 12(5), Schedule VII