Continuing Disclosure And De Jure Ineligibility Of Arbitrator Under The Arbitration And Conciliation Act, 1996: Case Analysis Of Himanshu Shekhar v. Prabhat Shekhar

Introduction 

Hon’ble High Court of Delhi recently in the matter of Himanshu Shekhar v. Prabhat Shekhar¹ revisited provisions under the Arbitration and Conciliation Act, 1996 (herein after referred as ‘Act”) governing the independence and impartiality of the arbitrators. The Court held that disclosure requirements under Section 12 of the Act are continuous in nature and failure to adhere, particularly considering new circumstances suggesting a potential conflict, renders the arbitrator de jure ineligible. The judgment therefore reinforces the Act’s statutory mandate of arbitrator’s disclosure via affidavit and that arbitration must remain free from bias, ensuring integrity in dispute resolution.   

Background 

The Present application before the High Court was filed by the Appellant under Section 14 read with Section 12 (5) of the Act for terminating the mandate of the arbitrator and his substitution. 

Present case involves dispute arising between Himanshu Shekhar (Petitioner) and Prabhat Shekhar (Respondent) pertaining to their family business. Under the Undertaking dated 04.10.2021 between the parties, the dispute was referred for arbitration. The Arbitrator had passed an order to maintain the status quo regarding the properties in dispute, which was set aside by the Delhi High Court, giving the liberty to implead the affected parties. 

Prior to the present facts in issue, Petitioner had challenged arbitrator’s mandate alleging disqualification based on “samdhi relationship” of the arbitrator thus his mandate was barred by Schedule 7 of the Act. Aforesaid plea of disqualification was rejected by the High Court, and the Special Leave Petition to this effect was also rejected by the Hon’ble Supreme Court.   

Facts in issue 

The Respondent on 07.11.2025 filed an application for impleadment of Sh. Sudhir Singal, Manohar Lal Sarraf and Sons Jewellers Private Limited (MLSSJPL) Manohar Lal Sarraf and Sons Private limited (MLSSPL). On 14.11.2025, the Petitioner sent an email to the arbitrator regarding filing of fresh section 12 declaration due to the impleadment sought. On 24.11.2025, the Applicant filed an application annexing a Rs. 1 Crore cheque dated 31.03.2025 by arbitrator in favour of Sudhir Singhal and the bank documents returning the cheque. The aforementioned Application pleaded that the financial interest or business interest between the arbitrator and party sought to be impleaded, which is barred per section 12(5) read with schedule 7 of the Act.  

Without filing the section 12 declaration, Arbitrator dismissed the impleadment application. The Arbitrator held that in view of dismissal of impleadment application, the requirement to file a fresh declaration under section 12 of the Act did not arise and the declaration filed previously on 04.10.2021 was sufficient.   

Contentions of the parties 

Petitioner has pleaded that arbitrator had financial relationship with the parties sought to be impleaded by respondent and cannot continue. Petitioner has cited the case of Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (CORE)² to contend that disclosure under section 12 is a continuing requirement to argue drawing of adverse inference due to non-filing of declaration.  

Respondent has argued that the section 34 is the remedy available against dismissal of section 12 petition. Additionally, it was argued that as the party imposed to be impleaded was not “party” as defined under the act thus seventh schedule shall not apply. Respondent also argued that Section 14 substitution are applicable in event of arbitrator becoming de jure or de facto, and that argument for de jure inability, disqualification by law must be there and not just mere apprehension.  

Issue(s) before the court 

1. Whether there was an obligation on the arbitrator to file declaration under section 12 with the filing of the application to implead Sudhir Singh? 
2. Whether the arbitrator in present case is de jure ineligible under Section 12 read with Seventh Schedule? 

Analysis of the judgment 

1. De jure ineligibility of the arbitrator 

The Hon’ble Supreme Court relied on its earlier ruling in HRD Corporation v. GAIL (India) Limited (2018) where the Court clarified that after the 2016 Amendment, a distinction exists between arbitrators who are “ineligible” and those whose independence or impartiality may be doubtful. If an arbitrator falls under any category in the Seventh Schedule, they are deemed ineligible, which makes them legally unable to perform their role, and their mandate can be terminated by the court through an application under Section 14(2). In such cases, it is not necessary to challenge the arbitrator before the Arbitral Tribunal. However, where doubts arise under the Fifth Schedule, such issues must first be decided by the Arbitral Tribunal under Section 13, and if the challenge fails, proceedings continue. A party can raise such objections again only after the arbitral award is made, by applying to set aside the award under Section 34. 

Additionally, the Court also referred to the Petitioner’s cited case of CORE³ wherein the Court held that ineligibility under Section 12 makes the arbitrator de jure ineligible and becomes liable to be substituted under section 14.  

Jurisdiction of the Tribunal under Section 16 to Adjudicate on impleadment of Parties 

The Court stated that the arbitrator avoided filing of section 12 declaration and waited for the outcome of the impleadment application that he himself was adjudicating. The Court held that the arbitrator violated the statutory provisions and decided impleadment application under section 16, thus deciding jurisdiction of the Tribunal regarding the non-signatories of the Agreement.  

Citing the case of Adavya Projects Private Limited v. Vishal Structurals Private Limited & Ors⁴ wherein the Court had held that the determination of who is party to an arbitration agreement falls within domain of the tribunal per section 16, that covers all jurisdiction questions including party to the agreement. The court observed that in spite the documents indicating business or financial relationship between the arbitrator and party proposed to be impleaded, the arbitrator decided his competence regarding Sudhir Singhal and MLSSJPL. Arbitrator had avoided filing the section 12 application and refused to file so after dismissing the impleadment application.   

Applicability of Schedule 7 to Party sought to be Impleaded and Continuing Disclosure Requirement under Section 12. 

The court rejected the Respondent’s contention that the party sought to be impleaded is not party under the Act and seventh schedule. The Court cited the case of ASF Buildtech (P) v. Shapoorji Pallonji Co (P) Ltd⁵ where court held that where if the party is a veritable party or bound by the agreement, they can be impleaded by the tribunal based on factual circumstances and necessity.  

The Court observed that allowing the Respondent’s argument that Shri Sudhir Singal is not “party” per definition of Act and not subject to Schedule  7 would mean that an arbitrator who is ineligible under Section 12(5) read with Schedule 5 would be deciding its jurisdiction regarding a party that is claimed to be a necessary party and is bound by the agreement in spite documentary proof of violation of section 12(5) read with Schedule 7. Thus, arbitrator can decide issues pertaining to parties with whom it shares a financial interest or business relationship it does not want to disclose despite the statutory requirement.  

2. Continuing duty of disclosure 

The Court observed that the documents attached indicate financial interest or business relationship between the Arbitrator and party sought to be impleaded, which was not denied but instead the Arbitrator proceeded to decide jurisdiction of the Tribunal. 

The Court had further referred to the CORE ⁶ case which stated the disclosure under Section 12 to be a continuing requirement for purpose of securing information regarding “circumstances that only arise at later stages of arbitration proceeding” such as new business affiliations or acquisition of shares.  

The Court had refuted the Respondent’s argument that the repeated challenge to tribunal’s jurisdiction is to stall proceeding and held that the challenge to arbitrator is consequence of application of impleading of proposed parties and this gives rise to a new cause of action for claimant. 

The Court observed that the impleadment application had led to change of circumstances that cast duty on arbitrator to file a fresh section 12 disclosure, more so with the documents indicating business relationship or financial interest with the party sought to be impleaded. The Court held that arbitrator erred in proceeding with the section 16 application without the declaration under section 12 read with schedule 7 and stated that in the circumstances of the case, the failure to file the comply with the section 12 requirement was fatal to the arbitrator’s mandate, especially considering the fact that the cheque issued was neither denied nor explained. 

The court clarified that Petitioner’s case was that of arbitrator having financial interest or business relationship with the party proposed to be impleaded was ineligible to continue his mandate and not “mere apprehension of bias”. 

Conclusion 

In summary, the Court had held that (1) obligation to file disclosure under Section 12 arose due to Change in circumstances and (2) the Arbitrator was held to be de jure ineligible under section 12(5) read with Schedule 7 of the Act. The Court again reiterated that person falling in any category specified in Seventh Schedule becomes de jure ineligible and cannot perform functions of an arbitrator. 

The case thus has practical implications to Arbitration proceedings as it expands upon the continuing disclosure requirements as a mandatory procedural requirement based on changing circumstances and places additional requirement to file fresh disclosure under Section 12 due to change in circumstances such as impleadment of a non-signatory party to the arbitration proceedings, and failure to abide by such requirement or to avoid it can be fatal to mandate of the Arbitrator.  In addition to the practical implication, the case has further emboldened the requirement of disclosure and independence and impartiality of the Arbitrator. 

Footnotes

1. Himanshu Shekhar v. Prabhat Shekhar, 2026 SCC OnLine Del 1494.

2. Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Company (2025) 4 SCC 641.

3. Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Company (2025) 4 SCC 641.

4. Adavya Projects Private Limited v. Vishal Structurals Private Limited & Ors., 2025 SCC OnLine SC 806.

5. ASF Buildtech (P) Ltd. v. Shapoorji Pallonji & Co. (P) Ltd., (2025) 9 SCC 76.

6. Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Company (2025) 4 SCC 641.

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