Past Professional Relationship Creates Enough Bias To Terminate Arbitrator's Mandate U/S 14 Of A&C Act, Duration Is Immaterial: Delhi HC
The Delhi High Court bench of Justice Jasmeet Singh has held that if any person had any professional or supervisory relationship with the party to the Arbitration, such person cannot be appointed as an Arbitrator as per Entry 1 of the Seventh Schedule. It does not matter whether such a relationship existed over 17 years ago but the real test is whether such a relationship...
The Delhi High Court bench of Justice Jasmeet Singh has held that if any person had any professional or supervisory relationship with the party to the Arbitration, such person cannot be appointed as an Arbitrator as per Entry 1 of the Seventh Schedule. It does not matter whether such a relationship existed over 17 years ago but the real test is whether such a relationship created a reasonable apprehension of bias. Accordingly, the mandate of the Arbitrator was terminated in the present case.
Brief Facts:
This is a petition filed under Section 14 and 15 of the Arbitration and Conciliation Act, 1996 (Arbitration Act”) seeking termination of the mandate of the arbitrator, Mr. B.B. Dhar (for brevity “the appointed arbitrator”), appointed vide the order dated 10.02.2025 passed by this Court and appointment of another independent arbitrator to adjudicate the disputes between the parties.
The Petitioner was awarded a contract by the Respondent through a letter of acceptance issued on 05.01.2019 for constructing additional classrooms, laboratories, toilets and allied services at Seven Government Schools.
The works were completed to the satisfaction of the respondent and the petitioner raised its final bill for Rs.20,73,39,891/- on 23.05.2022. When payment was released in March 2023, the respondent unilaterally reduced the amount to Rs.5,09,52,388/- giving rise to multiple monetary claims and disputes.
Between July 2023 and February 2024, the petitioner exhausted the three tier dispute resolution mechanism envisaged in Clause 25 of the GCC and on 16.12.2024, the petitioner issued a notice under Section 21 of the Act and when no arbitrator was appointed, filed ARB.P. 214/2025 under Section 11 of the Act in this Court. Vide the order dated 10.02.2025, this Court appointed Mr B. B. Dhar, a retired CPWD engineer, as the sole arbitrator to adjudicate the disputes between the parties.
Later, the petitioner discovered that the appointed arbitrator had been the concerned engineer in various works executed by the petitioner for the respondent.
The Petitioner submitted that the appointed arbitrator is a “regular” nominee of the respondent and has previously adjudicated several of its matters, creating a perception of bias that violates the rule against interested adjudicators and the principles of natural justice.
Per contra, the Respondent submitted that since the appointment was done by the court under section 11 of the Arbitration Act, the mandate cannot be terminated under sections 14 and 15 of the Act unless actual proof of ineligibility is provided which the petitioner has failed to provide.
It was further submitted that the Arbitrator's association was merely an indirect supervision of the project that too over 17 years ago and there has been no professional relationship since 2015 after his retirement therefore grounds mentioned under the fifth or Seventh Schedule are not established to terminate the mandate of the Arbitrator.
Observations:
The court at the outset noted that Section 12(5) read with Seventh Schedule and Section 14(1)(a) of the Act provides that an arbitrator becomes de jure unable to act if any of the disqualifications listed in the Seventh Schedule are attracted.
It further observed that Entry 1 of the seventh schedule of the Arbitration Act disqualifies any person from acting as an arbitrator who had any professional or business relationship in the form of employee, consultant or advisor with any of the parties to the Arbitration. The purpose of the provision introduced by the 2015 Amendment is to ensure impartiality in the Arbitration. The Supreme Court TRF Limited and Perkins held that any such relationship of the Arbitrator with the party disqualifies them unless such ineligibility is waived expressly in writing after the dispute having arisen.
Similarly, the Coordinate Bench of the Delhi High Court Proddatur Cable TV DIGI Service and the Division Bench in Govind Singh held that past or present association of the Arbitrator with the party creates a reasonable apprehension of bias on which an arbitration can be disqualified under section 12(5) of the Arbitration Act.
In light of the above discussion, the court held that in the present case, the petitioner and the appointed arbitrator had a professional relationship in the past. The Petitioner was a contractor and the Appointed Arbitrator was acting as a Superintendent Engineer in CPWD which was a client of the Contractor. The Respondent contended that their interaction was limited and happened over 17 years ago. Nonetheless, it shows that a professional, business or supervisory relationship existed between the petitioner and the Arbitrator.
It further held that “Entry 1 of the Seventh Schedule, in particular, is designed to insulate the arbitral process from both actual and perceived bias by disqualifying individuals who have had a past or present business relationship with a party to the dispute.”
The court further observed that the purpose of Entry 1 is to disqualify any person from acting as an Arbitrator if he had any professional or business relationship with the party. It does not focus on the nature or duration of the relationship rather whether such association has created a reasonable apprehension of bias or not. This prior association creates an apprehension of bias thereby violating the principle of neutrality that the Arbitration law upholds.
It held that therefore, it cannot be said that the Petitioner's invocation of Entry I of the Seventh Schedule is not arbitrary or whimsical but a valid ground to seek termination of mandate of the Arbitrator.
It held that the court appointment under Section 11 of the Act does not override the statutory safeguards of independence or disqualify a party from seeking redress under Section 14 of the Act.
The court further observed that the Arbitrator not only was a former employee but also had a professional or supervisory association with the petitioner. The appointment of the Arbitrator was earlier withdrawn by the Respondent on similar grounds. The fact that a declaration was made under section 12(1) of the Arbitration Act does not mean that the ineligibility attracted under section 12(5) of the Arbitration Act is cured and that too when no express waiver in writing has been given by the petitioner. An earlier order appointing the Arbitrator was passed by the court without any knowledge of these facts.
Accordingly, the present petition was allowed and the mandate of the Arbitrator was terminated.
Case Title: ROSHAN REAL ESTATES PVT LTD versus GOVERNMENT OF NCT OF DELHI
Case Number: O.M.P.(T)(COMM.) 23/2025
Judgment Date: 01/07/2025
For Petitioner: Ms. Anusuya Salwan, Adv.
For Respondent: Mr. Tushar Sannu with Mr. Aman Kumar, Advs.