The Delhi High Court has held that the statutory restrictions introduced by Section 12(5) of the Arbitration and Conciliation Act, 1996, through the 2015 Amendment, cannot be retrospectively applied to invalidate an arbitrator’s appointment made before the amendment came into force.
Background
The dispute arose from a parking licence agreement between the Delhi Metro Rail Corporation (DMRC) and Pankaj Associates concerning parking sites at Dwarka Sector-21 and Dwarka Sector-11 Metro Stations. Disputes developed regarding the area handed over, parking fee collection and infrastructure facilities.
Pankaj invoked the arbitration clause on June 3, 2014. DMRC subsequently appointed its employee, Shri Ashu Sharma, as the Sole Arbitrator on March 24, 2015. At that time, Section 12(5) and the Seventh Schedule had not yet been introduced into the Arbitration Act. The 2015 Amendment came into force on October 23, 2015.
The arbitrator eventually passed an award on July 21, 2017, rejecting Pankaj’s claims and allowing DMRC’s counter-claim. The District Court later set aside the award, holding that the appointment of a serving DMRC employee was contrary to the amended statutory regime.
The Division Bench of Justice Anil Khetarpal and Justice Bharat Parashar examined whether the later amendment could be applied to an arbitration that had already commenced and in which the arbitrator had already been appointed. The Court noted that Section 26 of the 2015 Amendment generally preserves the pre-amendment regime for arbitrations commenced before October 23, 2015, unless the parties agreed otherwise. It also found that Clause 45 of the agreement did not clearly establish such an agreement.
The Court held:
“For the foregoing reasons, the appointment of the Sole Arbitrator on 24.03.2015 cannot be invalidated by retrospectively applying Section 12(5) read with the Seventh Schedule. The arbitration proceedings had commenced prior to 23.10.2015 and the parties have not otherwise agreed, within the meaning of Section 26, to subject the present arbitration to the amended statutory regime. The appointment was, moreover, expressly authorised by Clause 45 and the mere fact that the person appointed was an employee of DMRC did not, under the law then prevailing, constitute a statutory bar to his appointment. No separate circumstance demonstrating actual bias or giving rise to justifiable doubts as to his independence or impartiality has been established.”
The High Court held that the District Judge had erred in applying the post-2015 statutory regime to the earlier arbitration. It therefore set aside the District Court’s judgment insofar as it had set aside the arbitral award on the issue of the arbitrator’s appointment.
The challenge to the constitution of the arbitral tribunal was rejected, and DMRC’s appeal was allowed.
