Railways Cannot Appoint Or Nominate Arbitrators From Amongst Its Own Serving Or Retired Officers U/S 12(5) Of A&C Act: Gauhati HC

The Gauhati High Court held that the Railways cannot appoint or nominate Arbitrators from amongst its own serving or retired officers under Section 12(5) of the Arbitration and Conciliation Act, 1996 (A&C Act).

The Court held thus in an arbitration petition filed by a company seeking appointment of an Arbitrator under Section 11(6) of the A&C Act.

A Single Bench of Justice Michael Zothankhuma observed, “The question to be decided is as to whether the respondent Railways could have appointed serving/retired Railway Officers as Arbitrators, in the absence of any waiver given by the petitioner under Section 12(5) of the Act. … In view of the two judgments of the Supreme Court stated above and the fact that the application for appointment of an Arbitrator had been made subsequent to the amendment of Section 12 of the Act, this Court is of the view that the respondent Railways could not appoint/nominate Arbitrators from amongst its own serving/retired officers, to decide the disputes between the parties.”

Advocate S.J. Sharma appeared on behalf of the petitioner while CGC A. Gayan appeared on behalf of the respondents.

In this case, the petitioner company entered into a contract agreement with the respondents to build and operate a 25,000 MT Capacity godown with private Siding under the Private Entrepreneurship Godown Scheme of the FCI. Consequently, contract agreement was executed between the parties. Disputes having arisen between the parties, the petitioner filed the application for appointment of an Arbitrator, as Clause 64 of the contract agreement provided for resolution of disputes between the parties by way of arbitration, by constituting an Arbitral Tribunal, made up of members to be appointed by the General Manager, Northeast Frontier Railway.

The petitioner’s counsel submitted that though Clause 64.(3)(a)(ii) of the contract agreement provides that the dispute between the parties is to be referred to a 3 member Arbitral Tribunal to be constituted by the General Manager, N.F. Railway, the Arbitrator would have to be appointed by the High Court and not by the General Manager, N.F. Railway. He further submitted that this is due to the fact that the General Manager, N.F. Railway cannot be appointed as an Arbitrator as he has an interest in the dispute and is not a neutral person and as such, the General Manager cannot in turn appoint any other Arbitrator.

The High Court after hearing the contentions of the counsel noted, “The issue that now arises is as to which judgment should be followed by this Court. In this regard, the learned CGC has taken this Court through the judgment of the Hon’ble Supreme Court in the case of Union Territory of Ladakh & Ors Vs. Jammu and Kashmir National Conference & Anr, reported in 2023 Legal Eagle (SC) 891, wherein it has been held that when faced with conflicting judgments by Benches of equal strength of the Supreme Court, the earlier judgment has to be followed by the High Court, which would be in consonance with the decision of the Five Judges Bench of the Supreme Court in the case of National Insurance Company Ltd. Vs. Pranay Sethi, reported in (2017) 16 SCC 680.”

After going through some judgments, the Court said that the respondent Railways could not have constituted an Arbitral Tribunal consisting of serving/retired Railway Officers, as it was not in consonance with Section 12(5) and 7th Schedule of the A&C Act, in the absence of any waiver given by the petitioner to Section 12(5) of the Act.

“As the respondents’ alternative prayer is for appointment of a Single Arbitrator, this Court appoints Mr. Justice C. R. Sarma, retired Judge of this Court as an Arbitrator, to decide the dispute between the parties. The parties shall appear before the learned Arbitrator, within a period of one month from today. The disclosures required from the Arbitrator, in terms of Section 11(8) of the Act, have already been taken”, it directed.

Accordingly, the High Court disposed of the arbitration petition and set aside the Arbitral Tribunal constituted by the Railways.

Cause Title- PCM Cement Concrete Pvt. Ltd. v. The Union of India and Anr.

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