O.M .P. (COM M ) 151/2024 Page 1 of 34 $~ J * IN THE HIGH COURT OF DELHI A T NEW DELHI Judgment reserved on: 21.05.2025 Judgment pronounced on : 31 .07.2025 + O.M .P. (COM M ) 151/2024, I.A. 7697/2024 DAULA T RAM BRAKE M FG CO ...Petitioner Through: M r. Siddhartha Nagpal , M s. Kajal Kakani, Advs. versus UNION OF INDIA (THROUGH M INISTRY OF RAILW A YS) FOR NORTHERN RAILW YS (NR) & ORS.A ...Respondents Through: Dr. B. Ramaswamy, CGSC CORAM : HON'BLE M R. JUSTICE JASM ET SINGH JUDGM ENT : JASM ET SINGH , J 1. This is a petition filed by M/s Daulat Ram Brake Manufacturing Co . (petitioner) under Section 34 of the Arbitration and Conciliation, Act, ³ 1996 Act ´ VHHNLQJ WR FKDOOHQJH WK ³ Impugned Award ´ whereby the counter claims of the respondent No. 1 were allowed and the petitioner was directed to pay an amount of Rs. 1,37,53,824/ - to the respondent No. 1 within 90 days from the date of the award, failing which the awarded amount would cary a simple i nterest of 10% till the date of the actual payment. 2. By way of the present petition, the petitioner also seks appointment of a fresh Arbitral Tribunal consisting of thre independent arbitrators eligible under Section 12 and the Seventh Schedule of the 199 6 Act . O.M .P. (COM M ) 151/2024 Page 2 of 34 FACTUAL M A TRIX AS PER THE PETITIONER 3. The Petitioner, M/s Daulat Ram Brake M anufacturing Co ., is a proprietorship firm engaged in the business of manufacturing brake blocks used in passenger coaches. 4. Respondent No.1 is Union of India for Northern Railways (NR) represented through Dy. Chief M anager /Sig/NR, Baroda House, Northern Railway, New Delhi, 110001. Respondent No. 2 is the General M anager (Norther n Railways), Baroda House, Northern Railway, New Delhi, 110001. The Respondent no. 2 is the appointing authority as per Railway Board Letter No.2018/TF/Civil/Arbitration Policy dated 12.12.2018 and the Indian Railways Standard Conditions of Contract, 2018 ³ IRS ´ . 5. Respondent No.1 floated a tender dated 16.08.2018 for the supply of ³Non -As bestos Based µK¶ Type High Friction Composite Brake Blocks for coaches with bogie -mounted brake systems as per RDSO Drawing No. RDSO/ISK -98066, Alt (6), and Specification No. C9809 (Rev. -4) with Amendment -L´ ³ Contract agrement ´ . In response, t he petitioner submitted its bid, which was acepted by the r espondent no.1. Pursuant thereto, respondent No. 1 issued a Purchase O rder (PO) to the petitioner for the supply of 67,072 Composite Brake Blocks (CBBs) to the CSD , ANVT , Anand Vihar Terminal . The Contract agrement was governed by the IRS . The material supplied by the petitioner was inspected by the Research Designs and Standards Organization (RDSO), and due receipt notes were issued as confirmation of aceptance. Upon satisfaction with the supplies , respondent No.1 made payments to the petitioner. 6. Subsequently, a dispute arose betwen the petitioner and respondent No.1 concerning the quality of the material supplied by the petitioner. O.M .P. (COM M ) 151/2024 Page 3 of 34 Respondent No.1 in total, rejected 64,000 items supplied by the petitioner, through two rejection memos , one dated 10.02.2022, rejecting 31,531 items, and a final /second rejection memo dated 15.10.2022, rejecting the remaining 32,469 items. 7. Hence , in terms of the arbitration clause, the petitioner invoked arbitration vide legal notice dated 26.03.2022. The arbitration clause is contained as clause 2900 of the IRS . The relevant extract is reproduced below: ³ (a) In the event of any question, dispute or difference arising under these conditions or any special condit ions of contract, or in connection with this contract (except as to any matters the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitration of a Gazetted Railway Officer appointed t o be the arbitrator, by the General M anager in the case of contracts entered into by the Zonal Railways and Production Units; by any M ember of the Railway Board, in the case of contracts entered into by the Railway Board and by the Head of the Organisation in respect of contracts entered into by the other Organisations under the M inistry of Railways. The Gazetted Railway Officer to be appointed as arbitrator however will not be one of those who had an opportunity to deal with the matters to which the contra ct relates or who in the course of their duties as railway servant have expressed views on all or any of the matters under dispute or difference. The award of the arbitrator shall be final and binding on the parties to WKLVFRQWUDFW´ O.M .P. (COM M ) 151/2024 Page 4 of 34 8. The procedure for appointment of the arbitrator is contained under Clause 2905 of the IRS . The operative portion reads as under: ³2905: Appointment of Arbitrator: 2905 (a): Appointment of Arbitrator where applicability of section 12 (5) of Arbitration and Conciliation Act has ben waived off: L« ii. In cases where the total value of all claims in question added together exceds Rs.1,00,00,000/ - (Rupes One Crore only), the Arbitral Tribunal shall consist of a panel of thre Gazetted Railway Officers not below Junior Administrative Grade or 2 Railway Gazetted Officers not below Junior Administrative Grade and a retired Railway Officer, retired not below the rank of Senior Administrative Grade Officer, as the arbitrators. For this purpose, the Railway will send a panel of at least four (4) names of Gazetted Railway Officers of one or more departments of the VERSION 1.0 Railway which may also include the name(s) of retired Railway Officer(s) empaneled to work as Railway Arbitrator to the Contractor within 60 days from the day when a written and valid demand for arbitration is received by the General M anager Contractor will be asked to suggest to General M anager at least 2 names out of the panel for appointment as Contractor's nomine within 30 days from the da te of dispatch of the request by Railway. The General M anager shall appoint at least one out of them as the Contractor's nomine and will, also simultaneously appoint the balance number of arbitrators either from the panel or O.M .P. (COM M ) 151/2024 Page 5 of 34 from outside the panel, duly i ndicating the 'presiding arbitrator' from amongst the 3 arbitrators so appointed. General M anager shall complete this exercise of appointing the Arbitral Tribunal within 30 days from the receipt of the names of Contractor's nomines. W hile nominating the arbitrators, it will be necessary to ensure that one of them is from the Acounts Department. An officer of Selection Grade of the Acounts Department may be considered of equal status to the officers in Senior Administrative Grade of other departments of t he Railway for the purpose of appointment of arbitrator. 2905 (b): Appointment of Arbitrator where applicability of Section 12 (5) of Arbitration and Conciliation Act has not ben waived off: i« ii. In cases where the total value of all claims in question added together exceeds Rs.50,00,000/ - (Rupes Fifty Lakh only), the Arbitral Tribunal shall consist of thre (3) retired Railway Officers (retired not below the rank of Senior Administrative Grade Officer). For this purpose, the Railw ay will send a panel of at least four (4) names of retired Railway Officer(s) empanelled to work as Railway Arbitrators duly indicating their retirement date to the Contractor within 60 days from the day when a written and valid demand for arbitration is r eceived by the General M anager. Contractor will be asked to suggest to General M anager at least 2 names out of the panel f or appointment as Contractor's nominee within 30 days from the date of dispatch of the request by Railway. The General M anager O.M .P. (COM M ) 151/2024 Page 6 of 34 shall a ppoint at least one out of them as the Contractor's nomine and will, also simultaneously appoint the balance number of arbitrators either from the panel or from outside the panel, duly indicating the 'Presiding Arbitrator' from amongst the 3 arbitrators s o appointed. General M anager shall complete this exercise of appointing the Arbitral Tribunal within 30 days from the receipt of the names of Contractor's nomines. W hile nominating the arbitrators, it will be necessary to ensure that one of them has serve d in the Accounts Department. ´ 9. Clause 2905 of the IRS , provides for the appointment of employes/ex -employes of Railways as Arbitrator(s), in both the cases, where the applicability of Section 12(5) has ben waived off, and when the applicability of Secti on 12(5) has not ben waived off. Aggrieved , the petitioner raised an objection to the appointment of an employe/ex -employe of the Railways as arbitrator s and proposed that an independent Arbitrator must be appointed in acordance with the provisions of the 1996 Act . In this regard, various communications took place betwen the parties. The petitioner vide letter dated 02.05.2022 also denied the consent for waiving off the applicability of Section 12(5) of 1996 Act. Since there was no response from the re spondent no. 1, the petitioner filed a petition under Section 11 of the 1996 Act before the High Court of M adhya Pradesh (Jabalpur) , which was disposed of as infructuous vide order dated 27.05.2024 . 10. M eanwhile, a thre -member Impugned Tribunal was appointed by the respondent N o. 1 and the Impugned A ward came to be passed on 16.11.2023. As regards, the objection of the petitioner pertaining to O.M .P. (COM M ) 151/2024 Page 7 of 34 the appointment of the Arbitral Tribunal is concerned, the Arbitral Tribunal inter alia held as under: ³ Discussion and decision of the AT 9.1. Regarding objection to the constitution of the AT, it is noted that the Claimant took part in appointment of the AT and have not raised this matter during the hearing and pleadings. It is in the written arguments that they have mentioned this. The objections on thi s ground should have ben made earlier by them in terms of Section 16 of the Act. The AC noted that the AT was formed in acordance with the provisions of the contract agrement and the IRS conditions governing the contract. Hence the Claimant's objection do not have any merit. ´ SUBM ISIONS On behalf of the Petitioner 11. The petitioner has primarily challenged the Impugned A ward on the premise that the constitution of the Arbitral Tribunal was void ab initio and that there exist s justifiable doubts as to their impartiality and independence . T he appointed arbitrators were former employes of respondent No.1 and were unilaterally appointed by its General M anager, despite the pHWLWLRQHU¶V UHSHDWHG REM waive the applicability of Section 12(5) of the 1996 Act. 12. It is stated that the petitioner consistently objected to the appointment of employes or ex -employes of the respondent as arbitrators and repeatedly sought the appointment of independent arbitrators , as also noted in the n otice invoking arbitration dated 26.03.2022 . However, without responding to this request, respondent no.1, vide letter dated VRXJKWWKHSHWLWLRQHU pplicability O.M .P. (COM M ) 151/2024 Page 8 of 34 of Section 12(5) of the 1996 Act , which was expressly denied the petitioner vide its reply dated 02.05.2022 . It is well -settled that a waiver under Section 12(5) must be express and in writing post the appointment of the Arbitral Tribunal , and such rights cannot be demed waived by mere conduct. 13. It is further stated that i n anticipation of the appointment of ex - employes of the respondent No. 1 as arbitrator (s), the petitioner filed a petition under Section 11 of the 1996 Act before the High Court of M adhya Pradesh seeking appointment of an independent arbitrator. Despite duly informing both the respondent and the arbitral tribunal that the matter was sub judice before the High Court of M adhya Pradesh , the petitioner was compelled to nominate arbitrators from the rHVSRQGHQW¶VSDQHODQGSDUWLFLSD as Clause 2905(c)(i) of IRS provided that if the contractor fails to suggest his nomines for the arbitral tribunal within the prescribed time frame, then the General manag er has the power to proceed for appointment of arbitral tribunal within 30 days of the expiry of such time provided to contractor . 14. Vide letter dated 31.03.202 3, the General M anager provided a restricted panel of only 4 retired railway officers, to the petitioner to nominate its arbitrator . Even from this limited panel, the petitioner was not allowed to appoint an arbitrator of its choice but was to suggest two names . T he General M anager unilaterally appointed the arbitrator s. As a result, the entire tri bunal was constituted solely at the discretion of the General M anager, which is in violation of Section 18 of the 1996 Act and against the principles of party autonomy, natural justice, neutrality, and the independence and impartiality of arbitrators . O.M .P. (COM M ) 151/2024 Page 9 of 34 15. A pa rty cannot be compelled to select its nomine arbitrator from a panel unilaterally curated by the opposing party, particularly when such panel is not µbroad -based ¶. This practice undermines the principle of equal treatment of parties and disturbs the balance in the arbitral process, as it deprives the petitioner of equal participation in the constitution of the arbitral tribunal. Reliance is placed on the judgment passed by a coordinate bench of this Court in Taleda Square Private Limited v. Rail Land Development Authority 2023 SC OnLine Del 6321 (paras 5 and 7). 16. Further, out of the proposed 4 names, one was that of Shri Khichchu M al, which was rejected by the petiti oner. However , the General M anager vide appointment letter dated 12.05.2023 appointed Shri .KLFKFKX0DODVWKHµSUHVLGLQJDUE . 17. It is stated that the General M anager, being himself ineligible to act as an arbitrator, could not have appointed the arbitrator(s), as it is well - settled in law that a person who is disqualified from acting as an arbitrator is equally disqualified from apointing one. 18. Reliance is placed on the judgment passed by a Coordinate bench of this Court in BW Busine ss W orld M edia Pvt. Ltd. v. IRCTC , 2022 SC OnLine Del 226 . On behalf of the Respondent 19. Per Contra, it is stated that the constitution of the Arbitral Tribunal was caried out strictly in acordance with the agred contractual terms set out in Clause 2900 of the IRS , which forms an integral part of the binding arbitration agrement between the parties. 20. Clause 2900 of the IRS , provides for the appointment of a Gazetted Railway Officer as the sole arbitrator, to be appointed by the General M anager or other competent authority. The said clause excludes those O.M .P. (COM M ) 151/2024 Page 10 of 34 RIILFHUVZKRKDG³DQRSSRUWXQLW\W FRQWUDFW UHODWHV´ RU ZKR ³KDYH H ZV´ RQ WKH GL thereby ensuring impartiality and neutrality. Reliance is placed on the MXGJPHQW SDVVHG E\ WKH +RQ¶EOH 6 Voestalpine Schienen GmbH v. DM RC , (2017) 4 SC 665 . 21. It is stated that despite initial objections raised by the peti tioner regarding the constitution of the Arbitral Tribunal , the petitioner actively engaged in the arbitral procedings over an extended period including nominating arbitrators, filing pleadings, and presenting arguments on merits. Consequently, any challe nge to the constitution of the tribunal stands waived by WKHSHWLWLRQHU¶V conduct . 22. ,WLVVWDWHGWKDWWKHSHWLWLRQHU¶ General M anager is ineligible to appoint arbitrators cannot be entertained as it is a settled law that ineligibility under Seventh Schedule of 1996 Act applies to a person acting as an arbitrato r, not merely appointing one unless such ineligibility is expressly extended through contractual interpretation or statutory bar, which is not the case here. 23. Further, the petition HU¶V DUJXPHQW UHJDUGLQJ lack of consent under Section 12(5) is untenable. The record demonstrates that the petitioner was issued a letter dated 13.04.2022 seking waiver of Section 12(5), to which no objection was raised at that stage. On the contrary, the petitioner proceded to nominate arbitrators from the panel, indicating acquiescence to the process. 24. The mere pendency of a Section 11 petition does not, in itself, preclude the continuation of arbitral procedings, particularly where the Arbitral Tribunal has already ben constituted in acordance with the terms of the contract. In the absence of any stay or judicial injunction, which the Petitio ner has failed to produce, the t ribunal was fully competent to proced. In any event, the Arbitral Tribu nal, O.M .P. (COM M ) 151/2024 Page 11 of 34 exercising its powers under Section 16 of the Act, duly considered and rejected the objections to its constitution. This determination, EHLQJ VTXDUHO\ ZLWKLQ WKH 7ULEXQD amenable to review under Section 34. ANALYSIS 25. I have heard learned counsel for the parties and perused the material and documents placed on record. 26. The gist of the argument s by the petitioner is that the respondent went on to unilaterally appoint the Arbitral T ULEXQDOGHVSLWHW continuous objection to its constitution vide its letter (s) dated 26.03.2022 and 02.05. 2022. Even otherwise, the General M anager provided a restricted panel of only 4 retired railway officers , which cannot be said to be µbroad based ¶. Per Contra, the objection raised by the respondent in a gist is that the constitution of the Arbitral Tribunal was in acordance with Clause 2900 of the IRS. 27. A perusal of the Clause 2905 of the IRS as reproduced above indicates two distinct scenarios: (i) where the appli cability of Section 12(5) of the 1996 Act has ben expressly waived by the petitioner in acordance with the proviso thereto, and (ii) where no such waiver has ben made. Therefore, the primary issue that arises before me is whether, in the facts of the present case, there has ben a valid waiver by the petitioner of the ineligibility criteria of the Arbitral Tribunal under Section 12(5) of the 1996 Act. 28. In this regard, the respondent No. 1 has contended that although the petitioner initially objected to the constitution of the Arbitral Tribunal, it thereafter proceded to actively participate in the arbitral procedings , by nominating arbitrators, filing pleadings, and making submissions on merits. Such conduct clearly sign ifies acquiescence O.M .P. (COM M ) 151/2024 Page 12 of 34 and amounts to a waiver of any objection to the Arbitral 7ULEXQDO¶V constitution. 29. Section 12 (5) of the 1996 Act reads as under: ³*URXQGVIRUFKDOOHQJH «« (5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject -matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointe d as an arbitrator: Provided that parties may, subsequent to disputes having arisen betwen them, waive the applicability of this sub - VHFWLRQE\DQH[SUHVVDJUHHPHQW 30. To my mind, the argument by the respondent is meritless. The essence of Section 12 of the 1996 Act lies in ensuring the independence and impartiality of the Arbitral Tribunal. The provision mandates that any appointment made in violation of Section 12(5) read with the Fifth and the Seventh Schedule of the 1996 Ac t renders the arbitrator de jure ineligible. Such ineligibility goes to the very foundation of the arbitral process 7KH+RQ¶EOH6XSUHPH&RXUW Voestalpine (supra), inter alia held as under: ³ Independence and impartiality of the arbitrator are the hallmarks of any arbitration procedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi -judicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature O.M .P. (COM M ) 151/2024 Page 13 of 34 and the source of an arbitrator's appointment is deduced from the agrement entered into betwen the parties, no twithstanding the same non -independence and non - impartiality of such arbitrator (though contractually agred upon) would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in term s of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Hashwani v. Jivraj [Hashwani v. Jivraj, (2011) 1 W LR 1 872 : 2011 UKSC 40] in the following words : (W LR p. 1889, para 45) ³ « WKH GRPLQDQW SXUSRVH arbitrator or arbitrators is the impartial resolution of the dispute betwen the parties in acordance with the terms of the agreement and, alt hough the contract betwen the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the SDUWLHV´ «« 22. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well acepted, O.M .P. (COM M ) 151/2024 Page 14 of 34 is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly asc ertained by the parties at the outset of the arbitration procedings in light of the circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration SURFHHGLQJV´ (emphasis supplied) 31. The legal position with respect to Section 12(5) of the 1996 Act , read with the Seventh Schedule, is no longer res integra. It stands conclusively settled by a catena of judgments . It has time and again ben held that any person having an ineligible relationship under the Seventh Schedule of the 1996 Act is disqualified from being appointed as an arbitrator, and such ineligibility cannot be cured except through an express written waiver in terms of the proviso to Section 12(5). 7KH +RQ¶EOH 6XSUHPH &RXUW in Bharat Broadband Network Limited v. United Telecoms Limited (2019) 5 SC 755 has explained the same. (For reference se para nos. 15 and 17) 32. Now coming to the issue at hand, that whether a party waives its right under Section 12(5) of the 1996 Act through conduct , is now well settled . Any waiver of the disqualification contemplated under Section 12(5) of the 1996 Act , must be made expressly in writing. The statut e does not permit an implied waiver through conduct or participation in arbitral procedings. The requireme nt of a written waiver ensures that the party unequivocally agres to proced with the appointment, despite the disqualification, and avoids any ambiguity in this regard. ,Q WKLV UHJDUG WKH +RQ¶EOH 6XSU Bharat Broadband (supra) inter alia held as under: O.M .P. (COM M ) 151/2024 Page 15 of 34 ³20. This then brings us to the applicability of the proviso to Section 12(5) on the facts of this case. Unlike Section 4 of the Act which deals with demed waiver of the right to object by conduct, the proviso to Section 12(5) will only apply if subsequent to disputes having arisen betwen the parties, the parties waive the applicability of sub -section (5) of Section 12 by an express agrement in writing . For this reason, the argument based on the analogy of Section 7 of the Act must also be rejected. Section 7 deals with arbitration agrements that must be in writing, and then explains that such agrements may be contained in documents which provide a record of such agreements. On the other hand, Section 12(5) refers to an ³H[SU HVV DJUHHPHQW LQ ZULWLQJ´ DJUHHPHQWLQZULWLQJ´UHIHUVWR opposed to an agrement which is to be inferred by conduct. Here, Section 9 of the Contract Act, 1872 becomes important. It states: ³ 3URPL ses, express and implied. ²Insofar as the proposal or acceptance of any promise is made in words, the promise is said to be express. Insofar as such proposal or aceptance is made otherwise than in words, WKHSURPLVHLVVDLGWREHLPSO It is thus ne FHVVDU\ WKDW WKHUH EH DQ writing. This agreement must be an agrement by which both parties, with full knowledge of the fact that Shri Khan is ineligible to be appointed as an arbitrator, still go ahead and say that they have full fa ith and confidence in him to continue as such. The facts of the present case disclose no such express O.M .P. (COM M ) 151/2024 Page 16 of 34 agrement . The appointment letter which is relied upon by the High Court as indicating an express agreement on the facts of the case is dated 17 -1-2017. O n this date, the M anaging Director of the appellant was certainly not aware that Shri Khan could not be appointed by him as Section 12(5) read with the Seventh Schedule only went to the invalidity of the appointment of the M anaging Director himself as an a rbitrator ««´ (emphasis supplied) 33. Following the law laid down in Bharat Broadband (supra) several other judgment(s) have ben passed by this Court , on similar lines . Reliance is placed on Govind Singh vs Satya Group Pvt. Limited and Another 2023 SC OnLine Del 37 and A K Builders vs Delhi State Industrial Infrastructure Development Corporation Ltd O.M .P. (T) (COM .) 12/2022 . 34. In the present case , the facts are not in dispute. T he petitioner invoked arbitration vide letter dated 26.03.2022 , whereby the petitioner indicated that an independent arbitrator be appointed. Letter dated 26.03.2022 is reproduced below: O.M .P. (COM M ) 151/2024 Page 17 of 34