India: Appointment Of Government Employees As Arbitrators: Regress Or Reform?

Last Updated: 21 March 2018
Article by Raj Panchmatia, Peshwan Jehangir and Sraddha Kedia

Most Read Contributor in India, August 2019

Recent developments

Independence and impartiality are the cornerstones of Arbitration. It is true that if you have an arbitrator whose reputation is impeccable and is known for his independence and impartiality, the quality of the Award will be such which, will invariably be upheld by the courts. Further, party autonomy is another important factor which needs to be kept in mind for appointment of an arbitrator. Before the Arbitration and Conciliation (Amendment) Act, 2015 ("2015 Amendment Act") came into operation, the law or rather the strict rule was that the disputes are to be referred to the named arbitrator and a party cannot wriggle out of the situation that the named arbitrator will not be impartial. With regard to the fact that this rule led to a lot of disputes with the party complaining about the fact that the arbitrator is partial or bias, a need was felt to amend the laws.

The Law Commission of India ("the Commission") submitted its' 246th Report, recommending sweeping amendments to the Arbitration and Conciliation Act 1996 ("1996 Act"). The reasons mentioned by the Commission were aimed, inter alia, at settlement of disputes through arbitration in a cost-effective at the same time and expeditious manner.1

The commission, in its' 246th Report, addressed the issue of 'neutrality of arbitrators,' which it considered critical to the functioning of the arbitration process in India. With regard to neutrality of arbitrators, the Commission had proposed certain amendments, inter alia, on the basis of the IBA Guidelines on Conflicts of Interest in International Arbitration ("IBA Guidelines").2

Several proposals of the Commission have been incorporated, in the 2015 Amendment Act, which came into force with effect from 23 October 2015.

One of the key amendments was to section 12 of the 1996 Act. Section 12(1) of the 1996 Act initially provided that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence and impartiality. Section 12(1) was amended to include that, the arbitrator likely to be appointed is required to disclose the fact that if he has any direct or indirect, past, or present relationship or any interest in the subject-matter in dispute. Further, a fifth schedule has been inserted providing a list of grounds that would give rise to justifiable doubt regarding the independence and impartiality of the arbitrator. There is also an insertion of sub-section 5 to section 12 which provides that any person whose relationship with any of the parties or the subject-matter of the dispute falls under any of the categories listed in the seventh schedule (also newly added), then that person would be ineligible to be appointed as an arbitrator, notwithstanding any prior agreement to the contrary. The parties may however, choose to waive the applicability by an express agreement in writing after the dispute has arisen. The fifth and seventh schedule have been fundamentally adopted from the IBA Guidelines, which served as an indicative note or rather a base on the basis of which the Commission had to make amendments.

This article proposes to examine the question of appointment of government employees, past or present, as arbitrators, where one of the parties to the arbitration is a government entity. Another ancillary question would be the applicability of the 2015 Amendment Act to not only the arbitrations commenced on or after 23 October 2015, but also to arbitrations prior to the said date of coming into force of the 2015 Amendment Act.

Judicial interpretation

An interesting Supreme Court case which discusses the question of the applicability of the 2015 amendment in proceedings initiated before the amendment act came into force and appointment of an employee as an arbitrator is Aravali Power Company Pvt. Ltd. V Era Infra Engineering Ltd.3 Although this case law talks about the applicability of the un-amended provisions, it was decided only in September 2017.

In this case, the appellant and the respondent had entered into a contract for construction of a thermal power project, which was awarded to the respondent. Disputes arose between the two, the result of which was that the CEO of the appellant was appointed as the arbitrator pursuant to the terms of the arbitration clause provided in the contract. It is vital to note that the arbitration clause was invoked by the respondent only on 29 July 2015 after which the arbitrator fixed the first hearing and the parties appeared before him. None of the parties raised any objections regarding the appointment of the arbitrator. But later, the respondent challenged the appointment of the arbitrator, which was rejected by the arbitrator on the ground that the respondent had participated in the arbitral proceedings without any objections. The respondent however approached the High Court, which issued notice and stayed further proceedings. Hence, an appeal was made to the Supreme Court.

The Supreme Court stated that the invocation of arbitration in the above case was on 27 July 2015 and the parties appeared before the arbitrator on 7 October 2015, all of which is before 23 October 2015 i.e. the date on which the 2015 Amendment Act came into force. The statutory provisions that would therefore govern the present controversy are those that were in force before the 2015 Amendment Act came into effect.

If we look at the 2015 Amendment Act, the fifth schedule enumerates grounds which give rise to justifiable doubts regarding the independence and impartiality of the arbitrator. Entry no. 1 of the fifth schedule provides, "The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party." In view of this provision, the appointment of the arbitrator does give rise to doubt regarding its' independence and impartiality. But the Supreme Court held that even though the arbitrator was an employee of the appellant but as long as there is no justifiable apprehension about his independence or impartiality, the appointment could not be rendered invalid and unenforceable. The facts of the case did not indicate that the arbitrator in the present matter was either the dealing authority in regard to the contract or was directly sub-ordinate to the officer(s) whose decision was the subject matter of the dispute.

While the Aravali case (supra) discusses the question of appointment of an "employee" as an arbitrator, in the case of Voestalpine Schienen GmbH V Delhi Metro Rail Corporation Ltd.,4 the Supreme Court dealt with the question of appointment of retired government employees (ex-employees) as an arbitrator.

The Court held that simply because the person appointed as an arbitrator is a retired officer who retired from the government or other statutory corporation or public sector undertaking and had no connection with the respondent, he cannot be treated as ineligible to act as an arbitrator. If this would have been the intention of the legislature, the seventh schedule would have covered such persons as well. Bias or even real likelihood of bias cannot be attributed to such highly qualified and experienced persons, simply on the ground that they served the Central Government or Public-Sector Undertaking's, even when they had no connection with the respondent. The main reason for empaneling these persons is to ensure that technical aspects of the dispute are suitably resolved by utilizing their expertise when they act as arbitrators. The Court further observed that the respondent ought to include a larger pool of experienced people, while constituting a panel of people who could be appointed as an arbitrator so as to give a wide choice to the other party while selecting an arbitrator.

Dealing with the same subject, the Punjab and Haryana High Court made an important observation in the case of Reliance Infrastructure Ltd. V Haryana Power Generation Corporation Ltd.5 Entry no. 1 in the fifth schedule is identical to entry no. 1 in the seventh schedule, which reads as "Arbitrator's relationship with the parties or counsel

1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party."

The language of entry 1 indicates a clear division. The bar in section 12(5) is to a person who is an employee, consultant, or advisor. In other words, the bar is against a person who is, at the time of appointment, an employee, consultant, or advisor of the party concerned. There is no bar against a former employee, consultant, or advisor. The words "or has any other past or present business relationship with a party" do not include a former employee, consultant, or advisor of the party. The word "other", however, refers to a relationship other than that of an employee, consultant, or advisor. Thus, the bar applies in respect of a person who has had a business relation with a party other than as an employee, consultant, or advisor.

If the intention was to bar even former employees, advisors, or consultants, item 1 in both the Schedules would have been worded entirely differently. It would not then have been necessary to employ the opening words "The arbitrator is an employee, consultant, advisor or ..... .....". The clause makes a clear distinction between an arbitrator who "is" an employee, consultant or advisor and a person who has had any other business relationship past or present with a party. The embargo against a past business relationship does not refer to a relationship of an employee, consultant, or advisor.

The contention that former employees are disqualified from being appointed because they receive pension and post-retiral benefits from the Government is irrelevant.

However, in the matter of Offshore Infrastructure Limited V Bharat Heavy Electricals Limited and Ors,6 when the issue as to whether an ex-employee of any party seeking resolution of disputes by arbitration is disqualified from acting as an arbitrator in view of the amendments to the provisions of the Arbitration and Conciliation Act, 1996, the Court took a view that, in this case since the request for arbitration was made on 19 May 2016, that is after the 2015 Amendment Act came into force. It was undisputed that the amended provisions would govern the arbitration between the parties.

The Madras High Court has therefore held that entry no. 31 of the fifth schedule which reads as "The arbitrator had been associated within the past three years with a party or an affiliate of one of the parties in a professional capacity, such as a former employee or partner, uses the expression "former employee." The natural corollary is that there is a difference between an employee and ex-employee. Thus, while being an employee is sufficient for justifiable doubts, such justifiable doubts would arise in case of an ex-employee only if he is within the window of three years from the date of ceasing to be an employee.

The Seventh Schedule does not have any clause for an ex-employee. Entry no. 1 of Seventh Schedule is identically worded to entry no. 1 of the Fifth Schedule. Thus, the expression "employee" has to be understood similarly at both the places. The absence of any clause for ex-employee in the Seventh Schedule itself implies that there is no prohibition in the appointment of an ex-employee as an arbitrator per se. However, the use of expression "former employee" in Entry no. 31 of the Fifth Schedule (supra) would show that if the proposed arbitrator has ceased to be an employee within the window of three years, there would be justifiable doubts to the independence or impartiality of the arbitrator, though there is no absolute bar as under the Seventh Schedule.

The neutrality of the arbitrator could not be said to be restricted to the fact that an arbitrator was named in the arbitration clause but would also include cases where only one of the parties to the dispute had the right to appoint an arbitrator. The Delhi High Court has in the case of Usae Equipment Private Limited V Krishna Shanker Tripathi7 held that if at the time of entering into the contract, the parties agree that one of them would have the right to appoint a sole arbitrator, it would not be open for the other party to contest the same at a later stage.

Question still unanswered

After a reading of the amendments and the decisions of the courts post the 2015 Amendment Act, the question that arises first is that how can there be an exact entry in two schedules, especially when one (fifth schedule) talks about the grounds giving rise to justifiable doubts and the other (seventh schedule) lists down the categories making the arbitrator ineligible to be appointed? The specific entry which finds a mention in the fifth and the seventh schedule is "The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party." Having such a common entry can actually create more confusion in the minds of the law interpreters than do any good.

Moreover, the IBA Guidelines merely act as a guidance note, covering situations that are likely to occur in today's arbitration. But again, these guidelines do not cover every situation but merely provide for general standards.8 The Commission, in my view, ought to have used these guidelines as a base to further develop the law and not adopt the guidelines suggested as the law and incorporate in the statute. Further, even the decisions of the courts of law do not directly address the issue of appointment of government employees as arbitrator, having left lacunae open for interpretation. Even still after the amendment, the same question seeks to remain unanswered that 'can government employees-past or present be appointed as arbitrators?'

Inconclusive interpretations

A reading of the case laws in which the un-amended provisions were applied, portray that emphasis was always given to the named arbitrator and there was no bar with regard to appointment of an employee-arbitrator. However, since this led to an increase in the number of disputes where the party contested the impartiality or independence of the appointed arbitrator, a need was felt to amend the provisions of the 1996 Act, emphasis being laid on the neutrality of arbitrators. As the Law Commission has already observed that neutrality of arbitrators is vital to any arbitration process. To make the arbitration process more transparent, it is inevitable to have an impartial or unbiased arbitral tribunal.

The 2015 Amendment Act sought to rectify such a position in law. The position of law after the amendment is if not the same, slightly similar, where unless there is a justifiable apprehension regarding the impartiality, appointment of an employee-arbitrator was valid especially when the employee-arbitrator had no connection with the project, where his decision would be the subject-matter of the dispute. This would also be applicable in the case of a retired government employee (ex-employee) appointed as an arbitrator, especially with regard to the fact that there is neither any entry in the fifth schedule nor in the seventh schedule with regard to appointment of ex-employees, except entry no. 31 of the fifth schedule which however provides for a time frame of three years. After the amendment, the fact that the person to be appointed as an arbitrator has to make disclosures under section 12 if any of the grounds listed in the fifth schedule are applicable, would not mean that the person would be barred from acting as an arbitrator. However, the fact that the latest Supreme Court judgement in the Aravali case has laid down that in cases governed by the 1996 Act after the 2015 Amendment Act came into force, if the arbitration clause finds foul with the amended provisions, the appointment of the Arbitrator even if apparently in conformity with the arbitration clause in the agreement, would be illegal and thus the Court would be within its powers to appoint such arbitrator(s) as may be permissible. But in my view there still needs to be far more clarity on this, despite the views of the Apex Court after the 2015 amendment, addressing the question of appointment of government employees, past or present as an arbitrator.


1. Statement of Object and Reasons – The Arbitration and Conciliation (Amendment) Bill 2015


3. AIR 2017 SC 4450

4. AIR 2017 SC 939

5. 2016(6)ARBLR480(P&H)

6. 2017(6)CTC301

7. ARB.P. 139/2016

8. IBA Guidelines on Conflicts of Interest in International Arbitration, Adopted by resolution of the IBA Council on Thursday 23 October 2014.

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

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