India: Employees As Arbitrators? No, Says Delhi HC

Last Updated: 19 May 2016
Article by Siddharth Ratho, Payel Chatterjee and Vyapak Desai
  • The Delhi High Court clarifies applicability of Arbitration and Conciliation Amendment Act, 2015 ("Amendment Act") in case of invocation of arbitrations post October 23, 2015.
  • The Delhi High Court stresses the significance of adhering to the detailed guidelines on ineligibility of arbitrators as provided in the Seventh Schedule to the Amendment Act.
  • Positive move to do away with the practice of appointment of in-house arbitrators for resolution of disputes.


The Delhi High Court ("Delhi HC") in one of its recent judgment in Assignia-Vil ("Petitioner") JV v Rail Vikas Nigam Ltd.("Respondent")1, taking cognizance of the amendment to Section 12(5) of the Arbitration & Conciliation Act, 1996 ("Act") held that under the Amendment Act, the court is duty bound to secure appointment of an independent and impartial Arbitral Tribunal.

Brief Facts

The parties entered into a works contract ("Contract") under which the Petitioner undertook to carry out certain construction works ("Work") for the Respondent, to be completed by February 15, 2015. Certain disputes arose between the parties. The Petitioner had raised three claims ("First Dispute") against the Respondents during the execution of the Contract and sought payments. Due to failure of Respondent, to resolve issues amicably, an arbitral tribunal ("the First Tribunal") was constituted in relation to these three claims. The First Tribunal consisted of serving and retired employees of the Respondent and was constituted before the commencement of the Amendment Act.

During the pendency of the First Dispute, an extension of time for completion of work was granted to the Petitioner, however before this period had lapsed the Respondent served a notice of termination to the Petitioner due to faulty execution of the Work. The Petitioner opposed the termination and sought losses suffered due to untimely termination. As the attempt to resolve disputes amicable failed, the Petitioner by its letter dated October 26, 2015 invoked arbitration ("Second Dispute") and called upon the Petitioner to suggest five names for constituting an independent arbitral tribunal. The Respondent's failure to respond to the said invocation of arbitration, lead to the present application under Section 11 (6) of the Act.


The issue before the Delhi HC was whether the dispute relating to the termination of the Contract had to be referred to the First Tribunal for resolution, or to a newly constituted independent arbitral tribunal, in view of the Amendment Act.


Contentions of the Petitioner

The Petitioner based their arguments on the following main contentions:-

  1. Issue of termination of Contract constitutes a distinct and complicated issue;
  2. First Tribunal had been constituted to adjudicate specific issues and only to deal with the three original claims;
  3. Nomination of arbitrators who are serving or retired employees would not constitute an independent and unbiased tribunal;
  4. Arbitration with respect to the Second Dispute was invoked post October 23, 2016, making provisions of the Amendment Act applicable. The Second Dispute, therefore cannot be referred to First Tribunal.

Contentions of the Respondent

  1. The Respondent argued that there was already an existing tribunal and new claims could be added to the pending arbitration. The Respondent had given its consent to add/modify claims subsequent to the termination of contract, to be considered by First Tribunal itself. Placing reliance on State of Orissa v Asis Ranjan2 and HL Batra & Co. v State of Haryana3 and Shyam Charan Agarwal & Sons4 the Respondent argued that additional claims could be raised before the First Tribunal and that there was no legal justification in restricting the scope of arbitration, as the aim of the procedure was to settle all disputes between the parties and avoid future litigation.
  2. No objections were raised on the independence or impartiality of the First Tribunal by the Petitioner till date and therefore the Second Dispute may also be dealt with by the same tribunal. The Respondent contended that the Petitioner could not demand constitution of a new Tribunal and take benefit of its own mistake, after failing to participate in the proceedings before the First Tribunal


The Delhi HC, after hearing all the submissions, held that in the normal course, with due consent of parties, the issue of termination of Contract could be referred to the First Tribunal in the pending arbitration proceedings itself. This would be in the interest of time, cost- efficiency and to avoid conflicting decisions.

The Respondents had relied upon certain case laws to argue that 'all disputes' arising out of an agreement could be referred to the same Arbitral Tribunal, and that therefore the issue of the untimely termination of the contract should also be referred to the first Tribunal. The Delhi HC refered to the Supreme Court's decision in Dolphin Drilling Limited v Oil and Natural Gas Corporation Limited5 which had dealt with the issue of disputes arising between the parties prior to the invocation of arbitration and those arising during the pendency of the arbitration dealing with the past disputes.

The Delhi HC thereafter noted that the First Dispute was invoked before the commencement of the Amendment Act and the Second Dispute was invoked post commencement. On the question of applicability of the Amendment Act, the Delhi HC highlighted that the arbitration clause in the Contract encompassed statutory modifications to the Arbitration and Conciliation Act, 1996, and therefore, since the amendments came into force prior to the invocation of arbitration of the Second Dispute, the provisions of the Amendment Act would apply.6

In light of the amendments brought about by the Amendment Act, the Delhi HC held that it was the prerogative of the Petitioner to seek constitution of an independent and impartial Arbitral Tribunal for adjudicating the issue of termination of the Contract, due to change in law under Section 11 (8) of the Act7 and the fact that the First Tribunal comprised of employees of the Respondent. Having the same tribunal resolve the Second Dispute would negate the very purpose of the amendments to Section 12 of the Amendment Act.8


The recent judgment may be amongst the first of many heralding a new era for the arbitration regime in India, bringing it in line with international best practices having stringent conflict of interest regimes. It has been common practice for public sector undertakings in India to have a panel of in-house arbitrators that are technically proficient in that particular sector, leading to an unfair advantage over the opposite party.

This judgment has dealt with several aspects in relation to appointment of arbitrators and procedure required to be followed pre and post amendment of the Act. The recourse to statutory provisions for appointment of arbitrator under Section 11(6) arises only upon failure of one party to follow procedure based on terms and conditions of the agreement. It is settled law that in the event of a corporation forfeiting its right to appoint an arbitrator, with similar clauses providing for employees as Arbitrators, the courts are entitled to appoint an independent and impartial arbitrator, giving a go-bye to the terms of the arbitration clause.9

In the short term, this judgment may result in the constitution of multiple tribunals dealing with disputes under the same agreement if new disputes have arisen post the Amendment Act, while proceedings are pending for previous disputes before an arbitrator tribunal, unless both parties consent otherwise.

This judgment marks the end of such in-house arbitrators and stresses the importance of compliance with guidelines provided under Section 12(5) read with Seventh Schedule of the Amendment Act for appointment of arbitrators to maintain independence and impartiality. Interestingly, the Delhi HC, by directing the parties to appear before the Delhi International Arbitration Centre, may have taken a conscious decision to go in for institutional arbitration, instead of ad-hoc. This may also be in line with the push for institutional arbitration as was envisaged under the law commission report but did not find place in the Amendment Act.


1 Arbitration Petition No. 677 of 2015

2 (1999) 9 SCC 249

3 (1999) 9 SCC 188

4 (2002) 6 SCC 201

5 (2010) 3 SCC 267

6 Section 26 of the Amending Act –

Act not to apply to pending arbitral proceedings- Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.

7 Section 11(8) of the Amendment Act-

"(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to— (a) any qualifications required for the arbitrator by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.";

8 Section 12 (5) of the Act read with the newly enacted Seventh Schedule identifies three categories of situations in which people would be ineligible to serve as arbitrators on an arbitral tribunal (i) when the arbitrator has a relationship with one of the parties; (ii) has provided advice/an opinion to a party to the dispute, or; (iii) has an interest in the outcome of the dispute. The first category of situations identifies a relationship of employment between the arbitrator and a party to the dispute. The Fifth Schedule elucidates that justifiable doubts as to the independence or impartiality of the arbitrator would arise when he is an employee.

9 Deep Trading Company v. Indian Oil Corporation and Ors. (2013) 4 SCC 35 and North Eastern Railway v. Tripple Engineering Works. (2014) 9 SCC 288

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Siddharth Ratho
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.