Delhi High: Broad Panel Necessary to Ensure Arbitrator Independence Under Clause 64 Of GCC

Delhi High: Broad Panel Necessary to Ensure Arbitrator Independence Under Clause 64 Of GCC

The Delhi High Court has allowed an application filed under Section 14 of the Arbitration and Conciliation Act for the termination of an arbitrator's mandate under his former employment with the respondent, Northern Railway. The court held that a broad-based panel should have been provided to the complainant, and four was a very small number, coupled with the fact that each arbitrator in the panel was a former employee of Northern Railway. The court determined that this violated the principles stated in Clause 64 of the General Conditions of Contract (GCC) as well as Supreme Court rulings. The court further confirmed that the exclusion of four arguments raised by the petitioner is inappropriate and found it to be invalid as per the GCC.

The disputes between the parties have arisen in the context of a tender awarded to the petitioner, Braithwaite Burn, and Jessop Construction Co. Ltd. by Northern Railway, the respondent, for the construction of a four-lane road over a bridge.

The petitioner protested the exclusion of its four claims and asked for their inclusion in the arbitration, but the respondent Denied to the same and asserted that these claims are not referable to arbitration as they fell under excepted matters per the contract provisions and applicable GCC. The petitioner protested the Arbitral Tribunal's exclusion of its claims, raising doubts about the Tribunal's neutrality and impartiality. The tribunal denied the petitioner's application. Consequently, the petitioner filed an application under Section 14 of the Arbitration and Conciliation Act, 1996, before the Delhi High Court, seeking termination of the arbitrators' mandate. The High Court rejected the application.

Following the expiration of the arbitrator's mandate during the arbitration, the respondent requested that the petitioner complete Annexure XV of the updated GCC for the reconstitution of the arbitral tribunal. The respondent submitted the petitioner with a panel of four names, seeking that two be selected for the nomination of an independent sole arbitrator. The petitioner then filed applications with the High Court under Sections 14 and 15 of the Arbitration Act.

The respondent challenged the petition, claiming that the appointment mechanism outlined in clause 64 of the GCC was valid. It maintained that the respondent has the authority to reconstitute the arbitral tribunal in accordance with the GCC. It further asserted that the general manager has the right to notify arbitration claims and that the petitioner's additional claims cannot be sent to arbitration under GCC Article 63.

The court relied on the decision of the Supreme Court in Voestalpine Schienen GmbH v. Delhi Metro Rail Corp. Ltd. The court highlighted concerns regarding the procedure for constituting the Arbitral Tribunal and said that a choice should be given to the parties to nominate any person from the entire panel of arbitrators.

The High Court highlighted the significance of a diverse panel of arbitrators to guarantee impartiality and independence in arbitration proceedings and determined that the panel presented by the respondent, comprising only four retired railway officers, lacked diversity and was not sufficiently broad-based. This decision was deemed contradictory to established principles, such as those elucidated in Voestalpine, and undermined the legitimacy of the appointment process outlined in Clause 64 of the GCC.

The High Court ruled that the procedure proposed by the respondent for appointing a sole arbitrator did not adhere to legal standards. Instead, it affirmed that appointing an independent sole arbitrator to resolve disputes between the parties was permissible. Additionally, the High Court dismissed the respondent's argument that the remaining claims of the petitioner were not arbitrable. Referring to GCC Clause 63, the High Court emphasized that the general manager was obligated to decide on all matters referred by the petitioner within 120 days. However, as there was no evidence of the General Manager's decision on any claims falling under "excepted matters," the High Court concluded that without a decision under Clause 63, the bar specified in the same clause would not be applicable. This implies that matters related to the clauses mentioned in Clause 63 would be considered "excepted matters" only on decision by the Railways.

As a result, the High Court has appointed Justice (Retd.) Deepa Sharma, a former Delhi High Court Judge, as the sole arbitrator to adjudicate the disputes between the parties.

Case Title: The Braithwaite Burn and Jessop Construction Co Ltd v. Northern Railway