India: SC: Employee Of A Party Allowed As ‘Arbitrator' In Proceedings Initiated Prior To 2015 Amendment To The Arbitration And Conciliation Act

Last Updated: 21 September 2017
Article by Ajay Bhargava, Jeevan Ballav Panda and Shalini Sati Prasad

Most Read Contributor in India, August 2019

On 12 September 2017, the Supreme Court of India, in the matter of Aravali Power Company Private Limited Vs. M/s Era Infra Engineering Limited1 set-aside the common judgment and order dated 29 July 2016 passed by the Delhi High Court in OMP (T) No. 13/2016 filed under Section 14 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act") seeking termination of mandate of the arbitrator and Arbitration Petition No. 136/2016 filed under Section 11 (6) of the 1996 Act for appointing an independent arbitrator for adjudicating disputes between the parties.


The matter involved an interesting proposition of law in dealing with a challenge raised by Era Infra before the Delhi High Court in two separate petitions filed against Aravali Power under Section 14 and 11(6) of the 1996 Act, inter alia, on the grounds of apprehension of bias and justifiable doubts as to the independence and impartiality of the nominated arbitrator appointed as per the arbitration agreement between the parties. The Delhi High Court allowed both petitions holding that Section 12 of the 1996 Act even prior to the amendment in 2015, maintained the neutrality of arbitrators and emphasised appointment of independent and impartial arbitrators so that the arbitration procedure is fair and unbiased.

In the present case, Aravali Power awarded a contract to Era Infra for construction work of permanent township for Indira Gandhi Super Thermal Power Project at Jhajjar. The relevant portion of the arbitration agreement contained in the contract stipulated as under:

"56. Arbitration:-

... shall be referred to the Sole Arbitration of the Project In-charge of the Project concerned of the owner, and if the Project In-charge is unable or unwilling to act, to the sole arbitration of some other persons appointed by the Chairman and Managing Director, NTPC limited (Formerly National Thermal Power Corporation Ltd) willing to act as such Arbitrator. There will be no objections, if the Arbitrator so appointed is an employee of NTPC Limited (Formerly National Thermal Power Corporation Ltd), and that he had to deal with the matters to which the contract relates and that in the course of his duties as such he had expressed views on all or any of the matters in disputes or difference. The  Arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason as aforesaid at the time of such transfer, vacations of office or inability to act, Chairman and Managing Directors, NTPC limited (Formerly National Thermal Power Corporation Ltd.), shall appoint another person to act as Arbitrator in accordance with the terms of the contract......"

Era Infra vide letter dated 29 July 2015 sought appointment of an arbitrator, being a retired judge of the High Court, for adjudication of disputes which had arisen between the parties on account of delay in completion of the contract by disputing the arbitration agreement, inter alia, on the ground that "nobody can be a judge in his own cause" and sought reference to an independent tribunal. Aravali Power, while refuting the contentions raised by Era Infra, proceeded to appoint its chief executive officer as the sole arbitrator on 19 August 2015. Accordingly, the parties appeared before the sole arbitrator on 7 October, 2015 and thereafter Era Infra on 4 December, 2015 sought extension of time to file its statement of claim. However, Era Infra did not raise any dispute regarding the appointment or continuation of the arbitration proceedings. According to the record, the sole arbitrator granted one month's time, as prayed for.

On 12 January, 2016, Era Infra sought to challenge the appointment of the arbitrator and raised an objection regarding constitution of the arbitral tribunal. The sole arbitrator ruled on his jurisdiction and rejected Era Infra's contention on the ground that it had participated in the arbitral proceedings on 7 October, 2015 without raising any protest. Era Infra was then intimated to attend proceedings in the arbitration scheduled to be held on 16 February 2016. Era Infra however, approached the Delhi High Court by filing petitions as aforesaid, seeking termination of the mandate of the arbitrator and for appointing an independent arbitrator.

The Delhi High Court by its common judgment and order dated 29 July 2016 set aside the appointment of the arbitrator primarily on the grounds that "justice should not only be done but it must also seen to be done" and that appointment of the CEO as arbitrator is likely to give rise to justifiable doubts as to his neutrality. The Delhi High Court directed Aravali to suggest names of three panel arbitrators from different departments to Era Infra who could thereafter choose any one of them to be the arbitrator in the matter. It was directed that in the event of failure by Aravali Power to suggest an appropriate arbitrator, Era Infra would be at liberty to revive the petitions, in which case the Court would appoint a sole arbitrator from the list maintained by Delhi International Arbitration Centre. It was also observed that the arbitrator was CEO of Aravali Power and was previously involved in cases/contract works similar to the one involved in the present case and it could not be disputed that the decisions of part cancellation were taken at the highest level of Aravali Power. In the circumstances, the Delhi High Court found that the apprehension entertained by Era Infra was reasonable and not a vague or general objection.

In the above background, Aravali Power preferred a Special Leave Petition before the Supreme Court of India challenging the said order dated 29 July 2016 passed by the Delhi High Court on the ground that the appointment of the arbitrator was completely in tune with Clause 56 of the GCC and there was no occasion for the Delhi High Court to exercise any power or jurisdiction and that the 1996 Act contemplated clear and definite procedure for challenging the arbitrator, and even if such challenge were to fail the remedy under Section 13 of the 1996 Act was specific and of different nature. To the extent the Delhi High Court had directed Aravali Power to submit three names from its panel of arbitrators from which list Era Infra was to select the sole Arbitrator, Aravali Power challenged that part of the judgment by filing SLP (Civil) Nos.503-504 of 2017.


The Supreme Court, at the very outset, observed that the parties invoked arbitration on 29 July, 2015, the arbitrator was appointed on 19 August, 2015 and the parties appeared before the arbitrator on 7 October, 2015, well before 23 October 2015 i.e. the date on which the 2015 Amendment was deemed to have come into force. It was prima facie held that the statutory provisions that would therefore govern the present controversy are those that were in force before the 2015 Amendment came into effect. The Supreme Court further relied on the judgment in the matter of Indian Oil Corporation Ltd. and Others v. Raja Transport Private Ltd.2 while holding that the fact that the named arbitrator happens to be an employee of one of the parties to the arbitration agreement has not by itself, before the 2015 Amendment came into force, rendered such appointment invalid and unenforceable. It was observed that the sole arbitrator undoubtedly was an employee of Aravali Power but so long as there is no justifiable apprehension about his independence or impartiality, the appointment could not be rendered invalid and unenforceable.

The Supreme Court while discussing the judgment passed in the matter of Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Ltd.3, along with various other judgments, observed and held that referring the disputes to the named arbitrator, by way of an arbitration agreement, shall be the rule. The Chief Justice or his designate will have to merely reiterate the arbitration agreement by referring the parties to the named arbitrator or named arbitral tribunal. Ignoring the named arbitrator/arbitral tribunal and nominating an independent arbitrator shall be the exception to the rule, to be resorted for valid reasons.

The Supreme Court also discussed the judgment passed in the matter of Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Limited4 and distinguished the same by observing that this was the only decision in which the invocation of arbitration was after the 2015 Amendment but the same would not apply to the facts of the present case.

In light of the rival contentions, the Supreme Court held as under:

  • Except the decision of this Court in Voestalpine Schienen GMBH (supra) referred to above, all other decisions arose out of matters where invocation of arbitration was before the 2015 Amendment came into force. Voestalpine Schienen GMBH (supra) was a case where the invocation was on 14 June, 2016 i.e. after the 2015 Amendment and the observations in para 18 clearly show that since "the arbitration clause finds foul with the amended provisions", the Court was empowered to appoint such arbitrator(s) as may be permissible.
  • The ineligibility of the arbitrator was found in the context of amended Section 12 read with Seventh Schedule (which was brought in by the 2015 Amendment) in a matter where invocation for arbitration was after the 2015 Amendment  had come into force. It is thus clear that in cases prior to the 2015 Amendment, the law laid down in Northern Railway Administration (Supra), as followed in all the aforesaid cases, must be applied, in that, the terms of the agreement ought to be adhered to and/or given effect to as closely as possible.
  • The jurisdiction of the Court under Section 11 of 1996 Act would arise only if the conditions specified in clauses (a), (b) and (c) are satisfied. The cases referred to above show that once the conditions for exercise of jurisdiction under Section 11(6) were satisfied, in the exercise of consequential power under Section 11(8), the Court had on certain occasions gone beyond the scope of the concerned arbitration clauses and appointed independent arbitrators. What is clear is, for exercise of such power under Section 11(8), the case must first be made out for exercise of jurisdiction under Section 11(6) of the 1996 Act.

In view of the above, the Supreme Court allowed the appeal filed by Aravali Power and held that:

  • Observations of the High Court show that the exercise was undertaken by the High Court, "in order to make neutrality or to avoid doubt in the mind of the petitioner" and ensure that justice must not only be done and must also be seen to be done.
  • In effect, the High Court applied principles of neutrality and impartiality which have been expanded by way of the 2015 Amendment, even when no cause of action for exercise of power under Section 11(6) had arisen.
  • The procedure as laid down in Section 12 of the 1996 Act prior to the 2015 Amendment mandated disclosure of circumstances likely to give rise to justifiable doubts as to independence and impartiality of the arbitrator. It is not the case of Era Infra that the provisions of Section 12 of the 1996 Act in un-amended form stood violated on any count. The provision contemplated clear and precise procedure under which the arbitrator could be challenged and the objections in that behalf under Section 13 of the 1996 Act could be raised within prescribed time and in accordance with the procedure detailed therein. The record shows that no such challenge was raised within the time and in terms of the procedure prescribed.
  • As a matter of fact, Era Infra had participated in the arbitration and by its communication dated 4 December 2015, had sought extension of time to file its statement of claim.
  • Accordingly, it was held that the Delhi High Court was clearly in error in exercising jurisdiction in the present case and it ought not to have interfered with the process and progress of arbitration. Therefore, the challenge raised by Aravali Power was accepted and the contentions raised by Era Infra were rejected.


The judgment delivered by the Supreme Court comes as a step back in implementing the true nature and spirit of the 1996 Act particularly with the advent of the 2015 Amendment and is conservative in approach in the light of the judgment of the Supreme Court in the Voestalpine Case (Supra).

The primary reason for allowing the employee of a party to continue as the nominated arbitrator by the Supreme Court is the distinction sought to be drawn with the pre-2015 Amendment period as compared to the post-2015 Amendment period. However, the Supreme Court ignored the legal position that existed even prior to the 2015 Amendment in as much as the principles of independence and impartiality were embedded in the provisions contained in Section 12 read with Section 11(8) of the 1996 Act even prior to the 2015 Amendment. The 2015 Amendment clarified the position by emphasising specific categories under Schedule V and VII of the 1996 Act.

Even on facts, the Supreme Court has ignored the factual findings of the Delhi High Court that though the CEO of Aravali Power was not the Engineer-in-Charge or the day-to-day in-charge of the work which was to be performed by Era Infra, but those who were responsible for such day-to-day work ultimately reported to the CEO. Therefore, the CEO had a controlling influence in Aravali Power against whom Era Infra sought to assert claims. In view of the above, circumstances existed for Era Infra to have justifiable doubts as to the independence and impartiality of the tribunal or that the arbitration procedure would be fair and unbiased.

Independence and impartiality are the touchstone of any adjudication process and more so in an arbitration process, where it is an alternative dispute resolution mechanism created by agreement between the parties. The endeavour of the legislature and the judiciary in the recent past has been to promote faster dispute redressal through mechanisms like – arbitration as compared to tardy and cumbersome Court process. Therefore, the role of fairness, independence and impartiality of the tribunals are indispensable. In view of limited judicial interference in the adjudication and post-adjudication stage, it is quintessential that there is a fair and unbiased adjudication. Apprehension of bias or justifiable doubts to the independence and impartiality of arbitral tribunals are to be resolved at the very outset rather than leaving it to a challenge at a later stage so as to avoid multiplicity of judicial proceedings, which has been one of the primary objectives of alternative dispute resolution. The whole scheme behind ensuring independence and impartiality of an arbitrator is to provide the necessary confidence and relief to contesting parties involved in the process of dispute resolution by resorting to the machinery of alternative disputes redressal. This becomes more important when a private party is contracting with a dominant government undertaking or a public aector undertaking (PSU), where the private party has minimal negotiating powers. In view of settled legal position, such government undertakings/ PSUs may strive to defend claims of the private contracting parties on merits rather than resorting to technical pleas.

Though the arbitration proceedings which have commenced post 2015 Amendment will continue to reap the benefits of the order passed in Voestalpine (Supra), the arbitration proceedings which commenced pre-2015 Amendment are bound to receive a differential treatment in this regard. The above judgment also dilutes the directives, with respect to procedure of appointment of arbitrators especially in cases of various Government agencies/ PSUs, as laid in another recent judgment of the Hon'ble Supreme Court dated 03 July 2017 passed in TRF Limited v. Energo Engineering Projects Limited5. A party, left with no choice or freedom of selection of an independent and impartial arbitral tribunal under the 1996 Act, will be left at the mercy of such an arbitral tribunal without any effective recourse to seek a fair, unbiased and reasonable adjudication of its disputes.

KCO represented Voestalpine Schienen GMBH before the Hon'ble Supreme Court.


[1] Civil Appeal Nos. 12627- 12628 of 2017

[2] (2009) 8 SCC 520

[3] (2008) 10 SCC 240

[4] (2017) 4 SCC 665

[5] (2017) 8 SCC 377

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

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
Link Legal India Law Services
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Link Legal India Law Services
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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