Arbitration Panel Needs To Be Broad-Based To Achieve Counter Balancing: Delhi HC Appoints Independent Arbitrators In Railway Case

The Court was adjudicating the plea wherein the Petitioner had contended the arbitration clause wherein only the Railways had power to appoint arbitrator and the Petitioner had to choose from a list of arbitrators maintained by the Railways which included retired employees of railways and PSU.

A Bench headed by Justice Sachin Datta said that “In the facts of the present case, applying the principles laid down in Voestalpine (supra) and in view of the aforesaid judgments of this Court, including in L&T Hydrocarbon Engineering Limited (supra), it is evident that the panel offered by the respondent to the petitioner in the present case is restrictive and not broadbased. The same adversely impinges upon the validity of the appointment procedure contained in clause 3.37 (supra), and necessitates that an independent Arbitral Tribunal be constituted by this Court.”

The Court further added that “The fulcrum of CORE is that the right of one of the parties to prescribe a panel of persons from which the parties would appoint their nominee arbitrators is counter balanced by the power of other contracting party to choose therefrom. However, whether counter balancing can be achieved in a situation where one of the contracting parties has a right to appoint the remaining 2/3rd of the members of the arbitral tribunal, was not specifically considered in CORE. Thus, the appointment procedure contained in Clause 3.37 of the RFP fails to pass muster for this reason as well. The “counter balancing” as contemplated in Perkins (supra) cannot be said to have been achieved in a situation where one of the parties has a right to choose an arbitrator from a panel and where the remaining (2 out of 3) arbitrators are appointed by the other party.”

Advocate Kunal Tandon appeared for the Petitioner while ASG Chetan Sharma represented the Respondents.

In the case, the Respondent railways issued a proposal seeking invitations for delivering Content on Demand (COD) services on Build Own Operate (BOO) model for Indian Railways. The work was awarded to the Petitioner. Various communications were exchanged between the parties in relation to : - (i) Execution of contract in terms of the Letter Of Award (LOA) and its effective date; (ii) Extension of time for furnishing Bank Guarantee (BG) and Performance Bank Guarantee (PBG) ; (iii) Performance of the respective obligations of the parties thereto. The respondent vide letter dated November 11, 2021 purportedly terminated the LOA and invoked the BG.

The petitioner vide demand-cum-invocation notice dated January, 10, 2022 raised certain claims upon the respondent and also assailed the procedure for appointment as contemplated in the aforesaid clause 3.37 on the basis that it was allegedly one sided.

The Court after submissions from both counsels said that “In the present case, the respondent has shared a panel of ten arbitrators with the petitioner, all being ex-employees of the Railways/RailTel. Apart from the ex-employees of the railways, no other person has been included in the panel. Such a panel is clearly restrictive and is manifestly not “broadbased” and therefore, impinges upon the validity of the appointment procedure prescribed in clause 3.37 of the RFP.”

The Court further added that “In the circumstances, the prayer of the Petitioner seeking appointment of an independent, impartial Arbitral Tribunal to adjudicate the disputes between the petitioner no.1 and the respondent, is allowed. The agreement between the parties contemplates a three member Arbitral Tribunal. Accordingly, Justice (Retd.) Dr. A. K. Sikri, Former Judge, Supreme Court of India is appointed as the Petitioner‟s nominee Arbitrator; Mr. Justice (Retd.) M.R. Shah, Former Judge, Supreme Court of India is appointed as the nominee Arbitrator of the Respondent. The two arbitrators shall now concur to appoint the third Arbitrator/ presiding Arbitrator within 30 days of the date of service of this order.”

Accordingly, the High Court disposed of the Petition.

Cause Title: Margo Networks Pvt. Ltd. & Anr. v. Railtel Corporation of India Ltd.

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