Gujarat High Court
Kec International Limited vs Western Railay on 11 July, 2025
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/ARBI.P/85/2025 ORDER DATED: 11/07/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/PETN. UNDER ARBITRATION ACT NO. 85 of 2025
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KEC INTERNATIONAL LIMITED & ANR.
Versus
WESTERN RAILAY & ANR.
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Appearance:
MR.ANKIT JAIN AND MS.SHALAKA GARG WITH KRISHAL H
PATEL(9644) for the Petitioner(s) No. 1,2
MR HARSHEEL D SHUKLA(6158) for the Respondent(s) No. 1,2
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CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
SUNITA AGARWAL
Date : 11/07/2025
ORAL ORDER
1. This is a petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 (for short, "the Act' 1996") seeking for appointment of arbitrator in view of the arbitration clause as part of the EPC (Engineering, Procurement and Construction) Agreement dated 31.05.2021 executed between the Consortium of the petitioner Nos. 1 and 2 and the President of India acting through the Chief Project Director, read with the Subsidiary Agreement dated 09.05.2023 executed between the consortium of petitioner Nos. 1 and 2 and the respondent No.2 herein namely the Chief Project Director, Railway Electrification, Central Organization for Railway Electrification (CORE), having its Principal office at Ahmedabad, Gujarat.
2. The submission is that pursuant to the execution of the EPC Agreement, the supervision and overall management of the project work was entrusted to and the project work was Page 1 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined being carried out under the supervision and control of CORE. However, during the execution of the work and vide Railway Board's Office Memorandum dated 11.09.2023, the Ministry of Railways, Government of India has decided to close the operations of CORE and transfer all of CORE's ongoing projects to the concerned Zonal railways. By virtue of the Circulars and guidelines and the resultant closure of CORE, the projects in question / EPC Agreement stands transferred to respondent No.1 namely the Western Railways within whose jurisdiction the project in question falls.
3. The contention is that by virtue of the said assignment, the respondent No.1 had became a party and is bound by the arbitration agreement contained in the EPC Agreement read with the Subsidiary Agreement, and all references to the respondent No.2 / CORE may, therefore, be understood and read as reference to respondent No.1.
4. On a dispute arose about the liability of the parties under the agreement, the petitioners wrote letters dated 25.11.2024, 12.12.2024 and 09.01.2025 invoking arbitration clause mention the name of their nominee arbitrator, calling upon the respondent to nominate their arbitrator. However, inspite of lapse of more than 30 days, the respondent have failed to nominate / appoint their arbitrator and hence, the cause of action for filing of the present petition has arisen, i.e. after a lapse of 30 days from the date of the notice invoking arbitration, which is dated 12.12.2024. The petitioners would submit that they are seeking for appointment of the arbitral tribunal for adjudication of their outstanding claims amount to Page 2 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined INR 36,57,65,986 along with the interest and cost under Section 11 of the Act' 1996.
5. Mr.Harsheel D. Shukla, the learned advocate had put in appearance on behalf of the respondent Nos.1 and 2. On a query made by the Court, the learned counsel for the respondent would submit that despite there is no dispute about the receipt of the notice invoking arbitration clause but, the said notice stands discharged with the Clause '24.1' of the EPC Agreement, which reads as under:-
"24.1 Standing Arbitral Tribunal 24.1.1 The Arbitral Tribunal shall consist of a panel of three Retired Railway Officers not below JA grade. The Standing Arbitral Tribunal shall be formed within three months from the date of the execution of the Contract. For this purpose, the Authority will send a panel of 3 (Three) names of Retired Railway Officers of one or more departments of the Railway, within two weeks from the receipt of the list, the contractor shall intimate in writing two names from the said list to the Authority. The Authority shall appoint at least one out of them as the Contractor's nominee and will, also simultaneously appoint the balance number of arbitrators from the panel approved by Authority indicating the presiding arbitrator from amongst the 3 arbitrators so appointed. While nominating the Arbitrators, it will be necessary to ensure that one out of them is from the Accounts department.
24.1.2 If the Contractor fails to select the members from the approved panel within 14 (Fourteen) days of the date of the receipt of the said approved panel, the Authority Engineer shall immediately in writing inform this fact to the Authority. On receipt of this information, the Authority shall within two weeks, appoint one Arbitrator from the list of arbitrators given to the contractor.
24.1.3 If one or more of the Arbitrators appointed refuses to act as Arbitrator, withdraws from his office as Arbitrator, or vacates his office or is unable or unwilling to perform his functions as Arbitrator for any reason whatsoever or dies or in the opinion of the Authority fails to act without undue delay, the Authority Page 3 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined shall terminate the mandate of such Arbitrator and thereupon new Arbitrator shall be appointed in the same manner, as the outgoing Arbitrator had been appointed.
24.1.4 In the specific cases of any misconduct by any of the members of the TRIBUNAL, the parties shall have the right to specifically bring it to the notice of the TRIBUNAL such conduct, through a statement filed with necessary documents in proof of such misconduct and the TRIBUNAL, after taking NOTICE of such conduct initiate the replacement of the member concerned, in the same manner the member to be replaced was appointed."
6. The submission is that the Standing arbitral tribunal consisting of a panel of three retired railway officers not below JA grade has been set in place. Out of the panel of three names of the retired railway officers of one or more departments of the railways, the contractor was mandated to intimate in writing the two names from the said list to the authority. The authority, thereafter, shall appoint atleast one out of them as a contractor's nominee and similarly, appoint the balance number of arbitrators from the panel approved by the authority indicating the presiding officer from amongst the three arbitrators so appointed. This clause further provides that in the standing arbitral tribunal, one out of the nominated arbitrators must be from the accounts department.
7. The submission is that the said arbitral tribunal has already been constituted within three months from the date of execution of the contract and even in case of failure of the contractor to select the members from the approved panel within 14 days from the receipt of the said approved panel, it was open for the authority to appoint one arbitrator from the list of arbitrator given to the contractor.
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8. The submission of the learned counsel for the respondent - Railways if that once the mechanism has been provided in the contract itself for appointment of a Standing arbitral tribunal as per Clause '24.1' and such a tribunal is set in place the present petition seeking for appointment of arbitrator under Section 11 through the process of the Court is liable to be dismissed outrightly.
9. Noticing the above, we may simply note that three notices given by the petitioner invoking Section 21 of the Act' 1996 dated 25.11.2024, 12.12.2024 and 15.03.2025, have not been responded by the Railways. The submission of the learned counsel for the petitioner is that the mechanism for constitution of the Standing arbitral tribunal as provided in Clause '24.1' of the EPC Agreement dated 31.05.2021 is clearly hit by Section 12 (5) of the Act' 1996. Sub-section (5) of Section 12 starts with a non-obstante clause and make 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, as ineligible to be appointed as an arbitrator. This mandatory provision has only one exception in the proviso to Sub-section (5) of Section 12 of waiver which can be made applicable only by an expressed agreement in writing entered into subsequent to disputes having arisen between the parties.
10. Placing the judgment of the Apex Court in the case of Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd., [(2017) 4 SCC 665], it was argued that when the Page 5 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined arbitration clause finds foul with Section 12 Sub-section (5), 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. This is the effect of non- obstante clause contained in sub-section (5) of Section 12 and the other party (Railways herein) cannot insist on appointment of the arbitrator in terms of the arbitration clause.
11. The law laid down by the Apex Court in Voestalpine (supra) was in a matter where the arbitration agreement between the parties was instituted to seek rejection of the petition under Section 11(6) read with Section 11(8) of the Act' 1996 for appointment of sole arbitrator / arbitral tribunal. While elaborating on the provision of sub-section (5) of Section 12 brought by Amendment Act, 2015, it was emphasized by the Apex Court that independence and impartiality of the arbitrator are the hallmark 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 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, 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 Page 6 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined 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. In the adjudicatory role which the arbitrator has to perform after appointment, he must be independent of parties as well as impartial.
12. It was noted that the independence of arbitrator is a concept which can be ascertained by the parties, at the outset, of the arbitration proceedings and the Seventh Schedule, which is based on IBA Guidelines as a representation of International based practices and are based on statutes, case law and juristic opinion from a cross-section of jurisdiction. Various contingencies mentioned in the Seventh Schedule render a person ineligible to act as an arbitrator, such as 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, thus, put embargo on a person to act as an arbitrator, who is employee of the party to the dispute. The observations in paragraph No. '25' in Voestalpine (supra) are relevant to be noted hereinunder:-
"25. Section 12 has been amended 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 independence or impartiality of the arbitrator. If any of those circumstances as mentioned therein exists, it will 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, the Seventh Schedule mentions those circumstances which would attract the provisions of sub-section (5) of Section 12 Page 7 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined and nullify any prior agreement to the contrary. In the context of this case, 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, director or part of the management or has a single controlling influence in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. Likewise, persons who regularly advised the appointing party or affiliate of the appointing party are incapacitated. 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."
13. Same view has been affirmed by the Apex Court in the case of TRF Limited Vs. Energo Engg. Projects Ltd. [(2017) 8 SCC 377], wherein the issue was that once the person was required to arbitrate upon the disputes arising under the terms and conditions of the contract, becomes ineligible by operation of law, he would not be eligible to nominate another person as an arbitrator. While reading sub- section (5) of Section 12 with the proviso appended thereto, it was noted by the Apex Court that on a careful reading of the proviso, it is discernible that there are three fundamental components, namely:-
(i) The parties can waive the applicability of the sub-
section;
(ii) The said waiver can only take place subsequent to the dispute having arisen between the parties, and
(iii) Such waiver must be an express agreement in writing.
14. The Seventh Schedule, which finds mention in Section 12(5) has three parts namely:-
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(i) Arbitrator's relationship with the parties or counsel;
(ii) Relationship of the arbitrator to the dispute, and
(iii) Arbitrator's direct or indirect interest in the dispute.
15. It was observed in TRF Ltd. (supra) that there is no quarrel that by virtue of Section 12(5) of the Act' 1996, any person who falls in any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. It was held that for the language employed in the Seventh Schedule, there cannot be a doubt that the Managing Director of the Corporation has become ineligible by operation of law.
16. The question, thus, was as to whether the Managing Director after becoming ineligible by operation of law is still eligible to nominate an arbitrator. It was concluded that once the arbitrator has become ineligible by operation of law, as per the prescription contained in Section 12(5) of the Act, it is inconceivable in law that a person who is statutorily ineligible can nominate a person as an arbitrator. Once the identity of the Managing Director as the Sole Arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated.
17. In a subsequent decision in Perkins Eastman Architects DPC v. HSCC (India) Ltd., [(2020) 20 SCC 760], the issue was for appointment of arbitrator under Section 11 (6) read with Section 11(12)(9) of the Act' 1996, in view of the dispute resolution clause contained in the contract Page 9 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined entered into between the parties on 22.05.2017. In the said case, the Apex Court was concerned with the capacity of the Chairman and Managing Director to appoint an arbitrator.
18. Taking note of the decision of the Apex Court in TRF Ltd. (supra), it was noted in Perkins (supra) therein that there are two categories of cases, the first similar to one dealt within TRF Ltd. (supra) where the Managing Director was found incompetent because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity, thus, would be directly relatable to and arise from the interest that he would be having in such outcome or decision of the dispute. The second category of cases are those where the bias or possibility of bias can be taken if the interest an officer has in the outcome of the dispute. If such a conclusion is drawn from the decision in TRF Ltd. (supra) of cases having clauses similar to that with which the Court was concerned, the party to the agreement would be disentitled to make any appointment of arbitrator on its own and it would always be available to argue that a party or an official or authority having interest in the dispute would be disentitled to make appointment of the arbitrator.
19. It was, thus, clarified that the logical deduction from TRF Ltd. (supra) (paragraph No. '50') would that "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator." The ineligibility referred therein was a result of operation of law, in that a person having an interest in the dispute or in the Page 10 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined outcome or decision thereof must not only be ineligible to act as an arbitrator, but must also be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. However, where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation.
20. It was, thus, clarified in Perkins (supra) that naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. However, one party cannot be deprived of nominating the respective arbitrator of their choice, which can be counter balanced by equal power with the other party nominating the arbitrator of its choice, inasmuch, the element of exclusivity in determining or charting the course of dispute resolution stands removed in such cases. The clarification given in paragraph No. '21' in Perkins (supra) is to be noted hereinunder to understand the effect of the dispute resolution clause '24.1' pressed in the present matter:-
"21. But, in our view that has to be the logical deduction from TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 :
(2017) 4 SCC (Civ) 72] Para 50 of the decision shows that this Court was concerned with the issue, "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator" The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators Page 11 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined of their choice were found to be completely a different situation.
The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter-balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72]"
21. The last decision relied by the learned counsel for the petitioners is the judgment of the Delhi High Court reported in Sri Ganesh Engineering Works v. Northern Railway, [2023 SCC OnLine Del 7574] where the Delhi High Court has considered the Clause '64(3)(b)(ii)' of the GCC, 2020, which provides the same procedure as aligned in Clause '24.1' of the EPC Agreement dated 31.05.2021 herein. It was the case of the petitioner therein who sought appointment of arbitrator invoking Section 11(6) of the Act' 1996 from the Court, that the procedure provided in Clause '64(3)(b)(ii)' virtually amounts to unilateral appointment since Petitioner has to choose from a restricted panel and thus, violates the party autonomy principle. Paragraph No. '7' of the decision, wherein the mechanism of appointment envisaged in Arbitration Clause '64(3)(b)(ii)', subject matter of consideration therein, is relevant to be extracted hereinunder:-
"7. ...The mechanism of appointment envisaged in Arbitration Clause 64(3)(b)(ii) provides that the Arbitral Tribunal shall consist of a panel of 3 retired Railway officers, retired not below the rank of Senior Administrative Grade Officers and for this purpose, Page 12 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined Railway will send a penal of at least 4 names of retired Railway Officer(s), empanelled to work as Railway Arbitrators. Contractor will be asked to suggest to the General Manager at least 2 names out of the panel for appointment as Contractor's nominee within 30 days from the date of despatch of the request by Railway. The General Manager shall appoint at least one out of them as Contractor's nominee and will also simultaneously appoint the balance number of Arbitrators either from the panel or from outside the panel, duly indicating the 'Presiding Arbitrator' from amongst the 3 Arbitrators so appointed. This procedure virtually amounts to unilateral appointment since Petitioner has to choose from a restricted panel and this violates the party autonomy principle."
22. Considering the decision of the Apex Court, it was held by the High Court of Delhi in Sri Ganesh Engineering Works (supra) that the choice given to the petitioner therein is from a panel of four Retired Railway officials, out of whom petitioner has to choose two, is a 'restricted' choice and cannot be countenanced in law, being in contravention of the party autonomy principle. The procedure envisaging appointment of 2/3rd strength of the Arbitral Tribunal by the Respondents tilts the scale in favour of the respondent and is directly hit by the judgments in Perkins (supra), TRF Limited (supra) and Voestalpine (supra).
23. Taking note of the above, we may also go through the recent decision of the Constitution Bench of the Apex Court dated 08.11.2024 in the case of Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), [(2025) 4 SCC 641], wherein the Apex Court has dealt with the larger issue of the interplay between the party autonomy, independence and impartiality of the arbitral tribunal. While dealing with the issue of unilateral appointment of arbitrators being violative of the equality clause under Section 18 of the Page 13 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined Act' 1996, it was noted therein that the doctrine of bias as evolved in English and Indian law emphasises independence and impartiality in the process of adjudication to inspire the confidence of the public in the adjudicatory processes. Although Section 12 deals with the quality or independence and impartiality inherent in the arbitrators, the provision's emphasis is to ensure an independent and impartial arbitral process. The agreement on the number of arbitrators is a matter of party autonomy. However, the choice of arbitrators has a direct effect on the conduct of arbitral proceedings. In commercial cases, the choice of the number of arbitrators is usually between one and three. The parties select the number of arbitrators by considering factors such as the needs of a particular dispute, costs, and efficiency. Equal treatment of parties at the stage of appointment of an arbitrator ensures impartiality during the arbitral proceedings.
24. It was observed that a clause that allows one party to unilaterally appoint a sole arbitrator is exclusive and hinders equal participation of the other party in the appointment process of arbitrators. In comparison, a three-member Arbitral Tribunal usually allows each party to nominate one arbitrator of their choice, with the third arbitrator being appointed either by the two party-appointed arbitrators or by agreement of parties. The fact that both parties nominate their respective arbitrators gives them "a sense of investment in the Arbitral Tribunal". A three-member Arbitral Tribunal also enhances the quality of the adjudicative deliberations and ensures compliance with due process. It was noted that Page 14 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined Perkins (supra) rightly observed that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. This counter balancing will ideally apply only in situations where the arbitrators are appointed by the parties in the exercise of their genuine party autonomy. It was further noted in paragraph Nos. '132' to '137' as under:-
"132. In Voestalpine (supra) and CORE (supra), one of the parties curated a panel of arbitrators and mandated the other party to select their arbitrator from the panel. Since the curation of the list is exclusively undertaken by one party, the other party is effectively excluded from the process of curating the panel from which exclusively, the appointment of an arbitrator is to be made. The other party has to mandatorily select its arbitrator from a curated panel, restricting their freedom to appoint an arbitrator of their choice. This is against the principle of equal treatment contained under Section 18. In this situation, there is no effective counter-balance because both parties do not participate equally in the process of appointing arbitrators. The party curating the panel can restrict the choice of the party only to a person who is on the panel selected by the other party and to no other person.
133. Many PSUs are regularly involved in arbitration disputes and constantly need the services of arbitrators. Such institutions often maintain a pool of potential arbitrators with the sole object of having a ready pool of qualified professionals who have committed their time and consented to act as arbitrators for fixed fees. The Arbitration Act does not prohibit parties to an arbitration agreement from maintaining a curated panel of potential arbitrators. However, the problem arises when the PSUs make it mandatory for other parties to select their nominees from the curated panel of arbitrators. When a PSU exercises its discretion to curate a panel, the very factor that the PSU is choosing only a Page 15 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined certain number of persons as potential arbitrators and not others will raise a reasonable doubt in the mind of a fairminded person. The PSUs may conceivably have nominated a person on the panel of potential arbitrators because they have a certain predisposition in favour of the former. This doubt is reinforced when the other party is given no choice but to select its arbitrator from the curated panel.
134. In CORE (supra), the three-member tribunal was sought to be constituted in the following manner: (i) the Railways would suggest at least four names of retired railway officers; (ii) the contractor would select two names out of the panel for appointment as their arbitrator; (iii) The General Manager (of the Railways) would thereafter choose at least one person out of the two to be appointed as the contractor's arbitrator; and (iv) The General Manager would proceed to appoint the balance arbitrators from the panel or outside the panel and also indicate the presiding arbitrator.
135. Such an arbitrator-appointment clause is likely to give rise to justifiable doubts as to the independence and impartiality of arbitrators for two reasons: (i) the contractor is restricted to choosing its arbitrator from the panel of four arbitrators nominated by the party who is a disputant; and (ii) the contractor's choice is further constrained because it is made subject to the decision of the General Manager who will choose one among the two persons suggested by the party. Since the contractor has to select its arbitrator from a curated panel, the arbitration clause does not allow the contractor equal participation in the appointment of their arbitrator. Moreover, the clause allows the General Manager to appoint the balance arbitrators from either the panel or outside the panel. Thus, the process of appointing the arbitrators is unequal because the General Manager can go beyond the panel of four potential arbitrators, while the contractor is bound by the names enlisted in the panel.Page 16 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025
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136. In a three-member tribunal, the independence and impartiality of a third or presiding arbitrator are prerequisites to the integrity of the arbitral proceedings. In CORE (supra), the arbitration clause allowed the General Manager to unilaterally nominate the presiding officer out of the panel of three arbitrators. The clause does not countenance any participation from the contractor in the process of appointing or nominating the presiding officer. Thus, the process of appointing and nominating the presiding officer is unequal and prejudiced in favour of the Railways. The fact that the General Manager is nominating the presiding officer gives rise to a reasonable doubt about the independence and impartiality of the entire arbitration proceedings.
137. Given the above discussion, it needs reiteration that the Arbitration Act does not prohibit PSUs from empanelling potential arbitrators. However, an arbitration clause cannot mandate the other party to select its arbitrator from the panel curated by PSUs. The PSUs can give a choice to the other party to select its arbitrators from the curated list provided the other party expressly waives the applicability of the nemo judex rule."
25. The above referred discussion in paragraph Nos. '132' to '137' makes it clear that an arbitration clause like Clause '24.1' of the EPC Agreement, subject matter of consideration herein, gives limited choice to the other party to select its arbitrator from a curated panel. The panel of arbitrator, as conceived in Clause '24.1.1' is sought to be constituted of three retired Railway Officers not below JA grade. The Standing arbitral tribunal is to be constituted as per Clause '24.1.1', within three months from the date of execution of the contract, out of panel of three names of retired railway Page 17 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined officers of one or more department of the Railways. The contractor will have a limited choice to select two names from the list of panel of three names of retired railway employees of one or more departments of the Railways, even out of which one is selected by the authority who would be included in the panel as contractor's nominee. However, the Railway Authority would have power to appoint the remaining two arbitrators including the presiding arbitrator from amongst the three arbitrators so appointed from the panel. Clause '24.1.2' further gives power to the Authority Engineer to intimate the failure of the contractor to select two members from the approved panel within 14 days from the receipt of the said approved panel and on receipt of his explanation, the authority shall be able to appoint one arbitrator from the list of arbitrators given to the Contractor.
26. Such an arbitration clause, which gives restricted choice to the contractor to choose its arbitrator from a panel of three arbitrators that too of retired railway officers of one or more departments of the Railways, cannot be said to be a procedure providing level playing field to the contractor to appoint an arbitrator of its own choice. The Railway Authority has been given a clear upper hand in the constitution of the Standing arbitral tribunal, which would not get counterbalanced by equal power with the contractor, the other party.
27. Such a clause has been disapproved by the Apex Court in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), [(2020) 14 SCC 712]. The Constitution Bench of the Apex Court in the abovenoted Page 18 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined paragraph Nos. '134' and '135' in 2024 decision has observed that such an arbitrator-appointment clause is likely to give rise to justifiable doubts as to the independence and impartiality of arbitrators for two reasons : (i) the contractor is restricted to choosing its arbitrator from the panel of four arbitrators nominated by the party who is a disputant; and (ii) the contractor's choice is further constrained because it is made subject to the decision of the General Manager who will choose one among the two persons suggested by the contractor. The fact that the contractor has to select its arbitrator from a curated panel, the arbitration clause does not allow the contractor equal participation in the appointment of their arbitrator. Moreover, the clause allows the General Manager to appoint the balance arbitrators from the panel.
28. It was held by the Constitution Bench of the Apex Court in 2024 decision that in a three member Tribunal, the independence and impartiality of the third arbitrator or presiding arbitrator are prerequisites to the integrity of the arbitral proceedings. Lastly, it was observed that the arbitration act does not prohibit PSUs from empanelling potential arbitrators. However, an arbitration clause cannot mandate the other party to select its arbitrator from the panel curated by PSUs. The PSUs can give a choice to the other party to select its arbitrators from the curated list provided the other party expressly waives the applicability of the nemo judex rule.
Page 19 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined
29. Coming to facts of the instant case, it is evident that there is no response of the respondent to the notice dated 12.12.2024 invoking arbitration under Section 21 of the Act' 1996 highlighting the unilateral appointment of presiding arbitrator vide CORE letter dated 08.05.2024 and bringing the Constitution Bench Judgment of the Apex Court dated 08.11.2024 to the notice of the respondent authority. However, two communications dated 18.12.2024 and 25.02.2025 referring to the communications of the petitioners dated 12.11.2024, 25.11.2024, 09.01.2025 and the decision of the Constitution Bench of the Apex Court dated 08.11.2024 have been brought on record, wherein it was agitated that the law laid down by the Apex Court will be applicable prospectively to the arbitrator's appointment to be made after the date of the judgment.
30. We may also record that a communication dated 31.01.2025 sent by CAO, CORE, Prayagraj dated 31.01.2025 has also been brought on record, wherein while writing to the ED, RE (Railway Board), the request was made to take necessary action in regard to the guidelines, clarifications on the matters in view of the Constitution Bench Judgment of the Apex Court dated 08.11.2024 to take a policy decision relating to arbitration process specially arbitration panel.
31. In the affidavit in reply filed by the respondents Railways, the Clause '24.1' is agitated to assert that as per the mutual agreement signed between the parties, it is clear that the contractor had agreed to abide by the conditions of the Page 20 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined appointment of arbitrator. In terms of the said clause, with the appointment of arbitrators, Standard arbitration tribunal has been constituted and communicated to the petitioner as on 19.08.2021, on the choice made by the petitioner for selection of two arbitrators suggested vide letter dated 11.08.2021.
32. It is stated that in view of Clause '24.1.3', even if an arbitrator refuses to act or withdraws his name or vacates his office or is unable or unwilling to perform for any reason or choice, or in the opinion of the authority fails to act without undue delay, the mandate of such arbitrator shall be terminated by the authority and a new arbitrator shall be appointed in the ongoing arbitration. This clause does not provide for dissolution of the Standing arbitral tribunal. In the ongoing arbitration, the outgoing arbitrator was nominated by the Railway Authority as the Presiding arbitrator and on his resignation, another Presiding arbitrator was appointed. The nominee of the contractor is still part of the Standing arbitrator tribunal. The contention is that once the petitioner has agreed to constitution of Standing arbitral tribunal by choosing its nominee, he cannot be permitted to turn around to raise any dispute.
33. Considering the above, suffice it to record that the constitution of the Standing arbitral tribunal from the panel of three suggested by Railway authority as per the procedure prescribed in Clause '24.1' of the EPC Agreement in question, cannot pass the test laid down by the Apex Court in Perkins (supra), TRF Ltd. (supra), Voestalpine (supra) and CORE Page 21 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined (supra), wherein though no reservation has been taken about empanelment of potential arbitrators to maintain with the pool of arbitrators, with the sole objective of having qualified professionals, who would consent to act as arbitrators for fixed week. As noted by the Constitution Bench of the Apex Court in CORE (supra), the Arbitration Act does not prohibit parties to an arbitration agreement from maintaining a curated panel of potential arbitrators. However, the problem arises when the PSUs make it mandatory for other parties to select their nominees from the curated panel of arbitrators.
34. The observation of the Constitution Bench that when a PSU exercises its discretion to curate a panel, the very factor that the PSU has chosen only a certain number of persons as potential arbitrators and not others will raise reasonable doubt in the mind of a fair-minded person, that the PSUs may conceivably have nominated a person on the panel of potential arbitrators because they have a certain predisposition in favour of the former. This doubt is reinforced when the other party is given no choice but to select its arbitrator from the curated panel.
35. Considering the law stated by the Constitution Bench of the Apex Court in CORE(supra), suffice it to note, in the instant case, that the panel of only retired officers of Railway has been suggested for consideration of Standing arbitral tribunal in Clause '24.1' of the EPC Agreement, where 2/3rd of the arbitrators including the Presiding arbitrator is to be appointed by the Railway Authority. The choice of the contractor is restricted to recommend two out of three Page 22 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined members of the panel suggested by the Railway authority and the choice of appointment then is left in the hands of the Railway authority to one as the contractor's nominee. This restricted panel of three suggested by the Railway Authority, one of the parties to the contract, is evidently contrary to the principles of party autonomy.
36. In the matter of choice of arbitrators, which has a direct effect on the conduct of the arbitration proceedings, it is violative of the equality clause under Section 18 of the Act' 1996. The equality or equal treatment to the parties and independence and impartiality inherent quality in the arbitrators has been compromised with the upper hand given to the Railway authority in the matter of constitution of the Standing arbitral tribunal. The fact that three members arbitral tribunal comprised of only retired railway employees, as contemplated in Clause '24.1' of the EPC Agreement further makes the clause violative of Section 12(5) of the Act' 1996. By the fact that the petitioner had agreed to the said clause at the time of signing of the agreement in the year 2021, would not imply the principle of waiver enshrined in the proviso to sub-section (5) of Section 12. The petitioner cannot be said to have expressly waived the applicability of the nemo judex rule incorporated in sub-section (5) of Section 12 by virtue of proviso to subsection (5).
37. In view of the above discussion, all arguments made by Mr.Harsheel D. Shukla the learned advocate appearing for the respondent Railways to seek rejection of this petition under Page 23 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025 NEUTRAL CITATION C/ARBI.P/85/2025 ORDER DATED: 11/07/2025 undefined Section 11 of the Arbitration and Conciliation Act' 1996 on the premise that a Standing arbitral tribunal has already been constituted in the year 2021 by invoking Arbitration Clause '24.1' of the EPC Agreement and the petitioner cannot invoke Section 11 of the Act' 1996, are liable to be turned down.
38. Consequently, the arbitration petition is allowed.
39. Hon'ble Mr. Justice Akil Kureshi, Former Chief Justice of Rajasthan High Court, having address at: Akil Villa, Opp. B-9 Swastik Society, Navrangpura, Ahmedabad - 380009 and having contact numbers 9408481511 and 9825049099 and Email ID: [email protected] is hereby appointed as the sole Arbitrator to resolve the disputes between the parties in accordance with the Arbitration Centre (Domestic and International), High Court of Gujarat Rules, 2021. Both Parties would also be governed by said Rules.
(i) Registry to communicate this order to the sole Arbitrator forthwith by Speed Post.
(ii) Pending application/s, if any, stands consigned to records.
(SUNITA AGARWAL, CJ ) SAHIL S. RANGER Page 24 of 24 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Tue Jul 29 2025 Downloaded on : Fri Aug 01 22:41:32 IST 2025