The Delhi High Court has restored an arbitral award of more than ₹40 lakh in favour of the Delhi Metro Rail Corporation (DMRC), holding that the later statutory restrictions on arbitrator eligibility could not be used retrospectively to invalidate an appointment made before those provisions came into force.
A Division Bench of Justices Anil Kshetarpal and Bharat Parashar was dealing with a dispute involving Pankaj Associates, which had obtained a licence from DMRC to operate parking facilities at the Dwarka Sector 21 and Dwarka Sector 11 Metro stations.
The agreement provided for disputes to be referred to a sole arbitrator nominated by DMRC. It specifically permitted the appointment of a DMRC employee as arbitrator.
When arbitration was invoked in June 2014, DMRC appointed Ashu Sharma, then Senior Additional General Manager (Financial), as the sole arbitrator on March 24, 2015.
The legal position changed later that year.
Section 12(5) of the Arbitration and Conciliation Act, along with the Seventh Schedule, came into effect on October 23, 2015. These provisions introduced statutory disqualifications based on an arbitrator’s relationship with the parties.
Sharma subsequently rejected Pankaj Associates’ claims and allowed DMRC’s counterclaim of approximately ₹40.15 lakh, along with interest.
The award was later set aside by a district court in October 2024. The court accepted the argument that Sharma, being a serving DMRC employee, could not have acted as arbitrator in view of Section 12(5).
The High Court has now reversed that decision.
Appointment had to be tested under the law existing in 2015
The Bench held that the legality of Sharma’s appointment had to be assessed according to the law applicable when he was appointed and the arbitral tribunal was constituted.
The Court observed that the March 24, 2015 appointment could not be invalidated by retrospectively applying Section 12(5) and the Seventh Schedule.
The Bench also relied on Section 26 of the 2015 Amendment Act, which generally kept the amended provisions away from arbitral proceedings commenced before October 23, 2015, unless the parties agreed otherwise.
Pankaj Associates had relied on the arbitration clause, which stated that the proceedings would be governed by the Arbitration Act “as amended from time to time.”
The High Court, however, said that this wording could not be read in isolation. The same clause referred to provisions that were “in force at the time the reference is made.”
According to the Court, these expressions had to be read together. The clause therefore did not amount to an unconditional agreement that every future amendment would automatically govern an arbitration that had already begun.
The Bench further rejected the argument that simply continuing with the arbitration after October 23, 2015 amounted to consent to the amended legal regime.
Employee arbitrator: different rules before and after 2015 amendment
The judgment drew a clear distinction between the legal position before and after the 2015 amendments.
The Court noted that where Section 12(5) applies, a serving DMRC employee would face statutory disqualification from acting as arbitrator. But that restriction did not exist when Sharma was appointed in March 2015.
The fact that the arbitrator was a DMRC employee, therefore, was not by itself sufficient to invalidate his appointment under the law applicable at that time.
The High Court consequently set aside the district court’s order, rejected the challenge to the constitution of the arbitral tribunal and restored the award passed in DMRC’s favour.