The Delhi High Court has clarified that appointing an arbitrator as an “Observer” in a separate legal matter does not make them ineligible to act in arbitration proceedings under the Arbitration and Conciliation Act, 1996.

Justice Jasmeet Singh held that such a role does not fall under disqualifying grounds listed in the Fifth or Seventh Schedule of the Act. The court dismissed the petition seeking the arbitrator’s removal, allowing the petitioner to raise the issue under Section 34 after the award.

“The arbitrator’s role as an ‘Observer’ of a different company does not create a conflict of interest with his current arbitration responsibilities.” — Delhi High Court

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Case Background

The case involved Ram Krishan Associates Pvt. Ltd. and Asian Hotel (North) Ltd. over the alleged wrongful sealing of commercial premises at Hotel Hyatt Regency, New Delhi, on 29 May 2020.

The dispute was sent to arbitration. On 2 September 2024, the Court appointed a sole arbitrator, who declared neutrality on 7 September 2024. Later, the petitioner discovered that the arbitrator had also been appointed as an “Observer” in another matter related to Exclusive Capital Ltd. (ECL), involving some shareholders of the respondent.

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The petitioner argued this created a conflict of interest and filed an application under Section 12 seeking recusal, which was rejected by the arbitrator.

“There is no personal stake or managerial role involved in the Observer position. The petitioner’s perception of bias is based on imagination.” — Arbitrator’s Ruling

Petitioner’s Claims:

• The arbitrator failed to disclose his appointment in ECL matters.
• The ECL case involved examining financial links with the respondent, raising potential conflict.
• The arbitrator was de jure and de facto disqualified.

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Respondent’s Response:

• The Observer role in ECL does not relate to the respondent’s operations.
• The petitioner failed to cite any specific disqualifying entries from the Fifth Schedule.
• The application was delayed and part of a pattern to disrupt the process.

Referring to past judgments including HRD Corporation v. GAIL, Chennai Metro Rail Ltd., and NHAI v. K.K. Sarin, the Court emphasized:

“Only grounds explicitly listed in the Fifth and Seventh Schedules are valid for disqualification. Bias must be clearly proven and not based on conjecture.”

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The Court observed that the arbitrator had already declared neutrality, and his role in ECL as an “Observer” did not affect his independence in this arbitration.

“The challenge lacks legal basis and does not warrant termination of the arbitrator’s mandate at this stage.”

Case Title: Ram Krishan Associates Pvt. Ltd. vs Asian Hotel (North) Ltd.

Case Number: O.M.P. (T) (COMM.) 31/2025

Judgment Date: 24 April 2025

Judge: Justice Jasmeet Singh