Can Section 12(5) Invalidate an Arbitrator Appointed Before 2015 Amendment? Delhi High Court Says Statutory Disqualification Cannot Operate Retrospectively
DMRC Employee Appointed Sole Arbitrator Before 2015 Amendment; Delhi High Court Says Section 12(5) Cannot Retrospectively Invalidate Appointment and Restores Arbitral Award Against Parking Contractor
Facts
Delhi Metro Rail Corporation Ltd. awarded Pankaj Associates parking sites at Dwarka Sector-21 and Dwarka Sector-11 Metro Stations for three years at a monthly licence fee of ₹5 lakh. At Dwarka Sector-21, only 3,652 sq. metres was initially handed over against the stipulated 6,965 sq. metres. Disputes subsequently arose concerning the area provided, parking-fee collection by the previous contractor and infrastructure at the sites. DELHI METRO RAIL
Pankaj Associates invoked Clause 45 of the agreement on 3 June 2014. The clause authorised DMRC to nominate a sole arbitrator and expressly provided that there would be no objection merely because the arbitrator was a DMRC employee. It also stated that arbitration would be governed by the Arbitration and Conciliation Act “as amended from time to time including provisions in force at the time the reference is made.” DELHI METRO RAIL DELHI METRO RAIL
DMRC appointed its Senior Additional General Manager (Finance), Shri Ashu Sharma, as Sole Arbitrator on 24 March 2015. Importantly, both invocation and appointment occurred before the 2015 Arbitration Amendment came into force on 23 October 2015. DELHI METRO RAIL
The contractor claimed ₹71.53 lakh, while DMRC raised a counterclaim. On 21 July 2017, the Sole Arbitrator rejected the contractor’s claims and allowed DMRC’s counterclaim for approximately ₹40.15 lakh with interest. DELHI METRO RAIL
The District Judge subsequently set aside the award under Section 34, principally because the arbitrator was a serving DMRC employee and was considered ineligible under Section 12(5) read with the Seventh Schedule. DMRC challenged that decision under Section 37. DELHI METRO RAIL
Issues
The principal question was whether Section 12(5) and the Seventh Schedule, introduced with effect from 23 October 2015, could invalidate an arbitrator appointed on 24 March 2015 in an arbitration invoked on 3 June 2014.
The connected question was whether Clause 45’s reference to the Arbitration Act “as amended from time to time” amounted to an agreement between the parties to apply subsequent amendments to their already commenced arbitration.
A further issue was whether appointment of a DMRC employee was independently invalid under the law prevailing before the 2015 Amendment.
DMRC’s Arguments
DMRC argued that the arbitration had commenced and the Sole Arbitrator had been appointed before 23 October 2015. Consequently, Section 26 of the 2015 Amendment required the Tribunal’s constitution to be examined under the pre-amendment law.
It contended that subsequent statutory amendments could not retrospectively convert an appointment that was lawful when made into an invalid appointment.
DMRC also emphasised that Clause 45 expressly permitted nomination of a DMRC employee and therefore the appointment complied with the parties’ agreed contractual mechanism. DELHI METRO RAIL
Respondent’s Arguments
The contractor argued that a serving employee appointed unilaterally by DMRC lacked the requisite independence and impartiality.
It relied upon Section 12(5), the Seventh Schedule and subsequent jurisprudence on unilateral appointments, including Bhadra International, and argued that the disqualification went to the Tribunal’s jurisdiction.
It further relied upon the words “as amended from time to time” in Clause 45 to contend that the parties themselves had agreed that subsequent amendments to the Arbitration Act would govern their proceedings. DELHI METRO RAIL
Analysis of the Law
1. Section 12(5) Created a New Statutory Ineligibility
The High Court drew an important distinction between the law before and after 23 October 2015.
Before the amendment, independence and impartiality were undoubtedly required, but the Arbitration Act did not contain the statutory categories that automatically rendered specified persons ineligible to act as arbitrators.
Section 12(5) fundamentally changed that regime by declaring persons falling within the Seventh Schedule ineligible notwithstanding prior contractual agreements. DELHI METRO RAIL
2. Employee Status Was Not Automatically Disqualifying Under Pre-2015 Law
The Court discussed Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd., where the Supreme Court held under the unamended Act that employment with a State instrumentality did not, by itself, establish bias or lack of independence.
An employee arbitrator could be questioned where there were specific circumstances creating a reasonable apprehension of bias—for example, where the employee had dealt with the underlying contract—but mere employment was not an automatic disqualification. DELHI METRO RAIL
That distinction became critical because DMRC’s appointment occurred under this earlier legal regime.
Section 26 and Retrospectivity
The High Court held that the 2015 Amendment does not ordinarily govern arbitral proceedings commenced before 23 October 2015, unless the parties otherwise agree.
Accordingly, the legality of an appointment made in March 2015 had to be tested according to the law existing at that time.
The subsequent insertion of Section 12(5) could not, merely because the arbitration continued after October 2015, convert an appointment that was permissible when made into a statutorily prohibited appointment.
Meaning of “As Amended From Time to Time”
This was one of the most significant parts of the judgment.
Clause 45 stated that the Arbitration Act would apply “as amended from time to time including provisions in force at the time the reference is made.”
The Court refused to isolate the first part of that expression.
The additional words referring specifically to the “provisions in force at the time the reference is made” supplied a temporal reference point. Here, the reference was made on 3 June 2014, when Section 12(5) and the Seventh Schedule did not exist.
Therefore, merely writing “as amended from time to time” in an arbitration clause does not automatically establish an agreement to retrospectively apply every future statutory amendment to an arbitration already underway.
The Court held that what matters is the contractual language read as a whole and the parties’ conduct.
Continuation After 2015 Is Not Consent
The arbitration continued after the 2015 Amendment and eventually resulted in an award in 2017.
But that did not amount to an agreement to apply the amended Act.
The Court found no subsequent written agreement and no material showing that after 23 October 2015 the parties expressly treated Section 12(5) as governing the arbitrator’s eligibility.
Accordingly, mere continuation of an existing arbitration after the amendment was insufficient to constitute consent to the amended statutory regime.
Precedent Analysis
The Court considered the evolution of arbitrator-independence jurisprudence through Indian Oil v. Raja Transport, TRF Ltd. v. Energo Engineering, Perkins Eastman, Voestalpine, CORE, Bhadra International, S.P. Singla, BCCI v. Kochi Cricket, Parmar Construction, Ellora Paper Mills, Jagdish Chand Gupta and Hanson Agro.
The Court recognised that under the post-2015 regime, unilateral appointment of a sole arbitrator by an interested party raises serious statutory concerns. TRF and Perkins significantly transformed the law governing such appointments. DELHI METRO RAIL
But those principles could not simply be projected backwards to create a statutory disqualification that did not exist when the present arbitrator was appointed.
The Court treated Hanson Agro as particularly relevant to the transitional problem and emphasised that where arbitration commenced before 23 October 2015, the subsequent award or Section 34 proceedings occurring after the amendment does not by itself retrospectively subject the Tribunal’s constitution to Section 12(5).
Court’s Reasoning
The decisive chronology was:
3 June 2014: Arbitration invoked.
24 March 2015: DMRC employee appointed Sole Arbitrator.
23 October 2015: Section 12(5) and Seventh Schedule came into force.
21 July 2017: Arbitral award passed.
Thus, both commencement of arbitration and constitution of the Tribunal preceded the statutory disqualification.
The High Court held that the parties had not agreed, within the meaning of Section 26, to retrospectively subject the arbitration to the amended regime.
Moreover, Clause 45 expressly permitted appointment of a DMRC employee. Under the law prevailing when the appointment was made, employment by DMRC was not itself a statutory prohibition.
There was also no independent material establishing actual bias or circumstances giving rise to justifiable doubts about the particular arbitrator’s independence or impartiality.
Conclusion
The Delhi High Court held that the District Judge had wrongly applied the post-2015 statutory regime to an arbitration commenced and constituted before 23 October 2015.
It held that:
Section 12(5) read with the Seventh Schedule could not retrospectively invalidate the Sole Arbitrator’s appointment; the parties had not agreed to apply the amended regime retrospectively; Clause 45 expressly authorised the appointment mechanism; and no independent circumstance demonstrating actual bias or justifiable doubts regarding impartiality had been established.
The judgment dated 23 October 2024 was therefore set aside insofar as it had set aside the arbitral award on this ground. The challenge to the constitution of the Tribunal was rejected, and DMRC’s Section 37 appeal was allowed.
Case Details
Case: Delhi Metro Rail Corporation Ltd. v. Sh. Pankaj (Since Deceased) Through LRs
Court: High Court of Delhi at New Delhi
Case No.: FAO (COMM) 23/2025 & CM APPL. 4055/2025
CNR No.: DLHC011020552024
Bench: Justice Anil Kshetrapal and Justice Bharat Parashar DELHI METRO RAIL
Reserved: 23 September 2026
Pronounced: 30 September 2026 DELHI METRO RAIL
Result: Appeal allowed; District Judge’s order setting aside the award on the ground of arbitrator ineligibility was set aside; challenge to the constitution of the Arbitral Tribunal rejected.
