The Delhi High Court has held that the statutory ineligibility provisions introduced under Section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, 1996, cannot be applied retrospectively to invalidate the appointment of an arbitrator made prior to the 23 October 2015 amendment. Ruling on an appeal under Section 37 of the Act, a Division Bench comprising Justice Anil Kshetarpal and Justice Bharat Parashar set aside a District Court order that had nullified an arbitral award on the ground that the sole arbitrator was a serving employee of the Delhi Metro Rail Corporation Ltd. (DMRC). The High Court restored the arbitral award, holding that the appointment was permissible under the statutory regime in force when the reference was made and the arbitrator entered upon the dispute.
Background of the Dispute
The dispute originated from a contract awarded by DMRC to M/s Pankaj Associates, a proprietorship concern represented through its legal representatives. The contractor was declared the successful bidder for operating parking sites at Dwarka Sector-21 and Dwarka Sector-11 Metro Stations on a monthly licence fee of Rs. 5,00,000 for three years. A Letter of Acceptance was issued on 28 June 2013, and possession was handed over on 16 July 2013. However, at Dwarka Sector-21, only 3,652 square metres of area was initially handed over against the agreed 6,965 square metres.
Disagreements arose concerning the handed-over area, parking fee collections by a prior contractor, and infrastructure facilities. Consequently, the licensee invoked Clause 45 of the agreement on 3 June 2014, seeking arbitration. Clause 45 provided that disputes unresolved by conciliation would be referred to a sole arbitrator nominated by DMRC, explicitly stipulating that there would be no objection if the nominated arbitrator was an employee of DMRC, and specifying that proceedings would be governed by the Act “as amended from time to time including provisions in force at the time the reference is made.”
On 31 July 2014, DMRC terminated the licence agreement over unpaid dues, and the contractor surrendered the site. On 24 March 2015, DMRC appointed Shri Ashu Sharma, its Senior Additional General Manager/Financial, as the sole arbitrator. The arbitrator held a preliminary meeting on 27 May 2015, furnishing a Section 12(1) disclosure affirming independence and impartiality.
While the proceedings were ongoing, the Arbitration and Conciliation (Amendment) Act, 2015, came into effect on 23 October 2015, introducing Section 12(5) and the Seventh Schedule. On 21 July 2017, the arbitrator passed an award rejecting the contractor’s claims of Rs. 71,53,025 and allowing DMRC’s counter-claim for Rs. 40,15,831 along with interest.
The contractor challenged the award under Section 34 before the District Judge-04, Patiala House Courts, New Delhi. On 23 October 2024, the District Judge set aside the award, holding that the appointment of a serving DMRC employee was invalid under Section 12(5). Aggrieved, DMRC approached the High Court in appeal.
Contentions of the Parties
DMRC argued that the arbitral proceedings had commenced upon invocation on 3 June 2014 and the arbitrator was appointed on 24 March 2015—both dates falling well prior to the 23 October 2015 cut-off. Placing reliance on Section 26 of the 2015 Amendment Act and decisions including S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh & Anr., BCCI v. Kochi Cricket Pvt. Ltd., and Union of India v. Parmar Construction Co., DMRC contended that the validity of the tribunal’s constitution must be assessed under the legal regime prevailing at the time of appointment. It was further submitted that contractual language referring to the Act “as amended from time to time” could not be treated as an agreement to retrospectively invalidate an appointment already accomplished. DMRC also cited Central Organisation for Railway Electrification (CORE) v. ECI-SPIC-SMO-MCML (JV), D.V. Anand v. Hindustan Petroleum Corporation Ltd., and Avneet Soni v. Kavita Agrawal.
Conversely, the respondent argued that the arbitrator was a serving employee unilaterally appointed by DMRC, rendering him de jure ineligible to act. Citing Bhadra International (India) Pvt. Ltd. v. Airports Authority of India and State of Uttar Pradesh & Anr. v. R.K. Pandey & Anr., the respondent submitted that independence and equality are fundamental requirements operating even at the appointment stage. Relying on Jagdish Chand Gupta v. Union of India, Hanson Agro Ltd. v. GAIL (India) Ltd., Ellora Paper Mills Ltd. v. State of Madhya Pradesh, OM 360 Degrees Advertising, and Vineet Dujodwala v. Phoenix ARC Pvt. Ltd., the respondent argued that Clause 45 expressly contemplated that proceedings would be governed by subsequent statutory modifications, thereby attracting Section 12(5).
Court’s Analysis on Temporal Applicability and Pre-2015 Law
The Division Bench observed that prior to the 2015 Amendment, Section 11(2) recognized party autonomy in agreeing upon appointment procedures. Citing the Supreme Court’s ruling in Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd., the High Court observed that:
“The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part.”
The Court highlighted that under the unamended regime, an employee arbitrator was permissible so long as the officer was not associated with the contract or directly subordinate to the decision-maker, and actual bias was not shown. In contrast, Section 12(5) created an automatic statutory disqualification:
“Thus, the amendment did not merely elaborate upon the existing standard of impartiality. It attached a specific statutory consequence, namely, ineligibility to act as an arbitrator, to the relationships enumerated in the Seventh Schedule.”
Addressing later decisions such as TRF Ltd. v. Energo Engineering Projects Ltd., Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd., Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd., and CORE, the Bench noted that these authorities developed post-amendment principles. The Constitution Bench in CORE expressly ordered its findings to operate prospectively for three-member tribunals to prevent nullifying pending and completed proceedings. Similarly, Bhadra International addressed an arbitration invoked after 23 October 2015, where Section 12(5) was directly operational.
The Bench examined Section 26 of the 2015 Amendment Act, which provides that the amendments do not apply to arbitral proceedings commenced prior to 23 October 2015 unless parties agree otherwise. Referring to the three-category classification established in Hanson Agro Ltd. v. GAIL (India) Ltd., the Bench scrutinized Clause 45, which stated that proceedings would be governed by the Act “as amended from time to time including provisions in force at the time the reference is made.”
Construing the clause harmoniously, the Court held:
“The two expressions in Clause 45 therefore have to be read together. The words ‘as amended from time to time’ indicate that the parties did not intend their contractual reference to be confined permanently to the text of the A&C Act as it stood on the date of execution of the agreement. However, the reference to the ‘provisions in force at the time the reference is made’ provides a specific temporal reference for determining the provisions applicable to the arbitration. The clause can accordingly not be read as an unqualified agreement that every subsequent amendment to the A&C Act would automatically govern an arbitration which had already commenced.”
The Bench pointed out that no conduct or express written agreement after 23 October 2015 existed to show that the parties agreed to adopt the amended regime. The Court distinguished Ellora Paper Mills (where arbitral proceedings had not effectively commenced) and Dharma Prathishthanam v. Madhok Construction (P) Ltd., observing that the appointment here was strictly within the agreed contractual mechanism:
“In Dharma Pratishthanam (supra), the unilateral appointment was challenged because the contractual mechanism did not authorise the manner in which the Arbitrator had been appointed. Here, the authority to nominate the Sole Arbitrator is expressly found in the contract. Consequently, the principle that parties must adhere to the agreed procedure does not invalidate the appointment, rather, it supports the appointment made in conformity with that procedure.”
Furthermore, the record showed no evidence that the sole arbitrator had dealt with the dispute during its execution, or was a direct subordinate of the officer whose decision was challenged, or acted with bias.
Decision of the Court
Concluding that Section 12(5) read with the Seventh Schedule cannot operate retrospectively to dismantle an arbitral appointment validly completed before 23 October 2015, the High Court held:
“The learned District Judge, having proceeded on the basis that the appointment of the Sole Arbitrator was rendered impermissible by Section 12(5) read with the Seventh Schedule, therefore erred in applying the post-2015 statutory regime to an arbitration which had commenced and in which the Arbitral Tribunal had been constituted prior to 23.10.2015.”
The High Court allowed DMRC’s appeal, quashed the District Judge’s judgment dated 23 October 2024, rejected the challenge to the arbitral tribunal’s constitution, and disposed of all pending applications.
Case Details
Case Title: Delhi Metro Rail Corporation Ltd. v. Sh. Pankaj (Since Deceased) Thr LRs
Case No.: FAO (COMM) 23/2025 & CM APPL. 4055/2025
Bench: Justice Anil Kshetarpal and Justice Bharat Parashar
Date: September 30, 2026
