the Himachal Pradesh High Court declared that the Director of the Department of Digital Technologies and Governance was not eligible to serve as an arbitrator in a contractual dispute involving his own department. The Court cited the clear statutory bar under Section 12(5) of the Arbitration and Conciliation Act, 1996, which mandates neutrality and independence of arbitrators.
Case Background
The dispute arose between M/s Oasys Cybernetics Pvt. Ltd. and the State of Himachal Pradesh. The company challenged the appointment of the arbitrator on two main grounds: first, the arbitrator was appointed unilaterally by the government without consultation, and second, the appointee—Director of Digital Technologies and Governance—held a position that created a conflict of interest.
Clause 27 of the agreement between the parties stated that disputes would be resolved as per the Arbitration and Conciliation Act. However, the High Court observed that there was no provision authorizing unilateral appointment of the arbitrator, which the state had done in violation of the law.
Court’s Observations
The Court noted:
“The neutrality of the arbitrator is the hallmark of arbitration proceedings.”
Referring to Section 12(5) and the Seventh Schedule of the Act, the judges emphasized that individuals with any current or past relationship with a party—such as an employee, consultant, or advisor—are barred from acting as arbitrators.
The Court further explained that even if there was a previous agreement, the law still disqualifies such individuals unless both parties waive this in writing after the dispute arises.
Why the Director Was Barred
The Director’s role could potentially include advising or consulting for the respondents, thus falling within the ineligible categories outlined in the Seventh Schedule. The Court held:
“Any privity of contract, present or past, acts as an embargo, preventing that person from acting as an arbitrator.”
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The Court reinforced its position by referring to the Supreme Court’s ruling in Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd. vs. Ajay Sales and Suppliers (2021). There, even the Chairman of a party organization was deemed ineligible, though the title "Chairman" wasn't explicitly listed in the law. The logic was the same—any possible bias undermines the impartiality required of an arbitrator.
Appointment of a New Arbitrator
Despite the state's argument that the proceedings had already progressed, the High Court maintained that justice must be free from even the appearance of bias. Therefore, the Court appointed Senior Advocate Mr. Deepak Kaushal as the new arbitrator.
It directed the current arbitrator to hand over all case records to Mr. Kaushal and allowed both parties to retain the already submitted pleadings and evidence unless additional documents were introduced.
Case Title: M/s Oasys Cybernetics Pvt. Ltd. Versus State of H.P. & Anr.
Case Number: CWP No. 8122 of 2025
Judgment Date: 19/05/2025
For the petitioner : Mr. Sanjeev Bhushan, Senior Advocate with Mr. Rajesh Kumar, Advocate.
For the respondents : Mr. Anup Rattan, Advocate General with Mr. Ramakant Sharma, Mr. Navlesh Verma, Ms. Sharmila Patial, Mr. Sushant Keprate, Additional Advocates General and Mr. Raj Negi, Deputy Advocate General.
