India: Delhi High Court Disregards The Procedure For Appointment Limiting A Party's Choice To A Restricted Pool Of Retired/Serving Employees."

Last Updated: 21 July 2017
Article by Puneet Sharma

Most Read Contributor in India, December 2018

The Hon'ble High Court of judicature of Delhi, in the matter of AFCONS Infrastructure LTD . v. Rail Vikas Nigam Ltd.56 has held that the procedure for appointment of an arbitrator, which restricted the AFCON'S (Hereafter "petitioner,") choice of its nominee arbitrator to a select group, who were all former/ serving employees of the Rail Vikas Nigam Ltd. (Hereafter "respondent"), or its controlling body (Hereafter "Railways,") with power vested in the General Manager of the respondent to withdraw future work, on an apprehension of want of fairness on arbitrator's part, failed the test of judicial scrutiny, warranting appointment of an arbitrator, disregarding the procedure agreed between the parties.

The facts in nutshell were: A contract for infrastructure development was entered into between the AFCONS Infrastructure LTD and Rail Vikas Nigam Ltd on 12.12.2011. Clause 17.3 of the contract contained an arbitration clause. Sub-clause (i), whereof provided for three arbitrators, whereas Sub-clause (ii), provided for the procedure for appointment of arbitrators, namely (a) the petitioner was to consent to any one of five names in the panel forwarded by the respondent; (b) the respondent would decide on second arbitrator from the remaining four names in the panel; & (c) the third presiding arbitrator would be chosen by the two arbitrators, within 30 days, failing which the said arbitrator would be appointed by the respondent's Managing Director. Sub-clause (iii), provided for qualification, and experience of arbitrators, and inter alia specified that one member shall be working, or retired officer of Indian Railway Accounts Service, having experience in financial matters related to construction contracts. Another member shall be a technical person (working or retired) having knowledge, and experience of railway working. The presiding arbitrator was to be a serving officer having the qualification, and experience of either of the two arbitrators. Additionally, out of the three arbitrators, not more than one was to be retired.

Disputes having arisen between the parties, the petitioner vide letter dated 17.11.2016, wrote to respondent stating that the procedure for appointment of the arbitral tribunal had been rendered ultra vires the provisions of the amendment act, which required the arbitrators to be appointed in terms of the restrictions imposed by the Fifth, and Seventh Schedules to the Act. The petitioner also nominated a retired judge of the Calcutta High Court, as its nominee arbitrator, and requested the respondent to appoint its nominee arbitrator within a period of 30 days from receipt of the letter.

The respondent vide letter dated 15.12.2016 responded by proposing a panel of five arbitrators, which included names of retired officers of the Railways, and requested the petitioner to select its arbitrator from the said panel.

The parties having reached a stalemate, the petitioner filed a petition under section 11(6) for appointment of an arbitrator, on respondent's behalf, assailing the appointment procedure inter alia on the grounds that; a) the arbitration clause was ultra vires Section 12(5) of the Act; b) in view of the preceding argument, the respondent could not unilaterally insist on appointing retired officers of respondent/railways, since the same would tantamount to rewriting the contract; c) the railways exercised an all pervasive control over the respondent; & d) relationship with former employees, fell within the ambit of past business relationship, and was thus within prohibited category of entry 1 of schedule 7 of the act.

The Hon'ble court noted that there was a consensus ad idem between the parties that in view of section 12(5)57, read with seventh schedule, the serving officers of the respondent/railways were not eligible to be appointed as arbitrators. However, rather than striking out the entire arbitration clause, as specified in Clause 17.3, the Hon'ble court invoked the Blue Pencil Doctrine to severe Sub-clause (iii) of Clause 17.3, which prescribed the qualification of the members of the arbitral tribunal, while leaving out Sub-clause (ii) of Clause 17.3, which dealt with the procedure for appointment of the arbitrators, on the grounds that while the serving officers of the respondent could not be appointed as arbitrators, the same by itself would not render nugatory, the procedure for the constitution of the arbitral tribunal.

Having held the procedure for appointment of arbitrators to be valid, the Hon'ble court proceeded to scrutinize, whether the former employees of the respondent/railways were ineligible to be appointed as arbitrators by virtue of Section 12(5), read with Entry-158 of the Seventh schedule of the act. Answering this question per se in negative, the court, rejected the petitioner's contention that the relationship of former employee is within the ambit of business relationship, and observed that the prohibition under Entry-1 of the Seventh Schedule was restricted to a person who was related to a party as an employee, consultant, advisor, or who had any other past, or present business relationship. The word "any other" was interpreted to indicate a relationship other than as an employee, consultant, or an advisor, and a business relationship could not be understood to include an employeeemployer relationship.

Having rejected the per se argument, the Hon'ble court proceeded to scrutinize the above argument, in the peculiar facts of the case, and noticed that; a) the respondent is an arm of the railways, with the former being a "Special Purpose Vehicle," constituted to undertake project development, mobilize financial resources, and implement railway infrastructure projects. A deeper scrutiny revealed an all pervasive control of the railways over the respondent, leading court to observe that for the purpose of the act, no distinction could be drawn between former employees of the respondent, and the former employees of the Railways; b) the procedure for appointment of arbitrators, which restricted the petitioner to select only one out of the five names suggested by the respondent, consisting of former, or serving employees of the respondent/railway was not sufficiently broadbased, and failed to instil any confidence in the arbitral process. A similar clause which restricted a party to choose one out of the panel of five members to be appointed as an arbitrator had been disapproved by the Hon'ble Apex Court in M/s. Voestalpine Schienen Gmbh v. Delhi-Metro-Rail-Corporation;59 c) the guidelines issued by the railway board for appointment of retired railways officers as arbitrators, which were followed by the respondent, (required the General Manager to keep a watch on the performance of an arbitrator, and to consider deleting the arbitrator's name for subsequent period, if he found the arbitrator "did not appear to be fair,") gave an impression to the other party to arbitration that the impartiality of the arbitrator had been compromised.

In this view of the matter, the Hon'ble High Court disposed of the petition observing that the procedure under clause 17.3(ii) be disregarded, and issued a direction to the respondent to appoint a retired judge of the Supreme Court as an arbitrator on behalf of the petitioner, and nominate an arbitrator on its behalf, with a further direction that the two arbitrators shall nominate the third arbitrator, failing which the petitioner shall be at liberty to approach the court for appointment of the third arbitrator.


56 MANU/DE/1557/2017.

57 Sub-section (5) of Section 12 reads "Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subjectmatter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing."

58 Entry 1 of the Seventh Schedule reads "The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party."

59 (2017) 4 SCC 665 at 690, pp. 29-30.

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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions