The clause said the Act would apply as amended from time to time. It also said the provisions in force when the reference is made — and that decided the case

A DMRC finance officer was appointed sole arbitrator in March 2015. Justices Anil Kshetarpal and Bharat Parashar hold that Section 12(5), inserted seven months later, cannot be read back into an arbitration already under way.

An arbitral award in favour of the Delhi Metro Rail Corporation has been restored by the Delhi High Court, which held that the statutory ineligibility introduced by Section 12(5) of the Arbitration and Conciliation Act, 1996 cannot be applied to a sole arbitrator appointed before the provision existed. Justices Anil Kshetarpal and Bharat Parashar found that the arbitration had been invoked on 3 June 2014 and the arbitrator — a serving DMRC finance officer — appointed on 24 March 2015, both before the 2015 Amendment Act came into force on 23 October 2015. A District Judge had set the award aside on that ground. The Bench held he had applied the wrong statutory regime.

Two parking lots at Dwarka

The respondent, a proprietorship concern, was the successful bidder for parking sites at the Dwarka Sector-21 and Dwarka Sector-11 Metro Stations, and was awarded a licence at a monthly fee of Rs 5,00,000 for three years. The Letter of Acceptance issued on 28 June 2013 and possession was handed over on 16 July 2013.

At Dwarka Sector-21, only 3,652 square metres were initially handed over against a stipulated 6,965 square metres, the rest being under development. Disputes followed about the area actually handed over, about collection of parking fees by the previous contractor, and about the absence of certain infrastructure facilities at the sites.

The respondent invoked the arbitration clause on 3 June 2014. On 31 July 2014 DMRC terminated the licence agreement for non-payment of licence fee and other charges, and the respondent handed back charge of the site.

On 24 March 2015 DMRC appointed its own Senior Additional General Manager (Financial) as sole arbitrator. At the preliminary meeting on 27 May 2015 he furnished the declaration then contemplated by Section 12(1), stating that he had no personal interest in the outcome and that there were no circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

The respondent claimed Rs 71,53,025. DMRC filed a counter claim of Rs 40,15,083. Issues were framed on 16 August 2016. The award of 21 July 2017 rejected the respondent's claims and allowed DMRC's counter claim for Rs 40,15,831 with interest.

Before the District Judge-04, Patiala House Courts, the respondent ultimately confined its challenge under Section 34 to a single point: that the arbitrator was a serving employee of DMRC, unilaterally appointed, and that the appointment was hit by Section 12(5) read with the Seventh Schedule. It relied on an earlier Delhi decision against DMRC itself in OM 360 Degrees Advertising & Entertainment Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd., on Vineet Dujodwala v. Phoenix ARC Pvt. Ltd. and on Ellora Paper Mills Ltd. v. State of Madhya Pradesh. It also argued that the clause itself said the proceedings would be governed by the Act “as amended from time to time”, so the parties had agreed to later amendments applying.

DMRC's answer was that the proceedings had commenced before 23 October 2015 and that the amending Act could not retrospectively invalidate an appointment validly made under the law then prevailing. It relied on Section 26 of the 2015 Amendment Act and on S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh, BCCI v. Kochi Cricket Pvt. Ltd., Union of India v. Parmar Construction Co. and Aravali Power Company Pvt. Ltd. v. Era Infra Engineering Ltd., and submitted that Ellora Paper Mills was distinguishable on facts.

On 23 October 2024 the District Judge accepted the challenge and set aside the award.

Two regimes, and what changed between them

The Bench reconstructed the law in historical sequence, because the consequence attached to a unilateral appointment changed fundamentally on 23 October 2015.

Before that date the Act contained neither Section 12(5) nor the Fifth and Seventh Schedules. Section 11(2) expressly recognised the freedom of parties to agree a procedure for appointment; Section 12 required disclosure of circumstances likely to give rise to justifiable doubts; Section 18 required equal treatment. Independence and impartiality were recognised principles. What was absent, the judgment notes, was a statutory list of relationships which by operation of law rendered a person categorically ineligible.

The 2015 Amendment Act supplied that list. Section 12(5) provides that notwithstanding any prior agreement to the contrary, a person whose relationship with the parties, counsel or subject matter falls within the Seventh Schedule shall be ineligible to be appointed, with waiver permitted only by an express agreement in writing after disputes have arisen. The amendment did not merely elaborate an existing standard of impartiality; it attached a specific statutory consequence to the enumerated relationships.

That distinction matters because of what the earlier law held. In Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd., decided under the unamended Act, the Supreme Court held that the fact that a named arbitrator was an employee of a State instrumentality was not by itself sufficient to presume bias or lack of independence. The pre-2015 position was not that an interested person could invariably act, but that employment by one of the parties did not, without more, constitute a statutory bar; the inquiry was directed to the terms of the agreement and the circumstances of the particular appointment, including whether those circumstances gave rise to a reasonable apprehension of bias.

The judgment is careful not to overstate that. Indian Oil did not treat contractual authorisation as conclusive in every case, and the Court there recognised that the circumstances surrounding an appointment could still give rise to a justifiable apprehension about the arbitrator's independence. What changed in 2015 was not the standard of impartiality but the addition of a category of relationships that produce ineligibility by operation of law. And that statutory consequence, the Bench held, cannot be imported backwards into an appointment made under the earlier regime merely because the factual circumstance which now attracts ineligibility — here, employment with one of the parties — was already present when the appointment was made.

So the validity of this appointment had to be examined under the legal framework applicable when the arbitration was commenced and the arbitrator appointed, subject to the one provision that governs the transition.

What the post-2015 authorities do and do not decide

The respondent's strongest material came from the recent line of cases on unilateral appointment, and the Bench addressed each on its own terms.

The Constitution Bench decision in the CORE case considered neutrality, equality, nemo judex in causa sua and party autonomy, and issued a prospective direction. But that direction was expressly confined to appointments to three-member tribunals, and the Court was conscious of the consequences of disturbing completed and ongoing arbitrations. It did not declare that every appointment made before 23 October 2015 which would later fall within a Seventh Schedule category stood retrospectively invalidated.

Bhadra International is closer, and the judgment sets out its holdings at length: that Section 12(5) does not prohibit unilateral appointment as such but renders an arbitrator hit by the bar ineligible to act whether appointed unilaterally or by consent; that ineligibility under Section 12(5) precedes the de jure inability under Section 14(1)(a), the former being the specie and the latter the genus; that one who cannot sit on a chair himself cannot authorise another to sit on it; and that mere participation, filing of pleadings or absence of an early objection does not amount to the express written agreement the proviso requires.

But Bhadra International arose from an invocation of 27 November 2015 — after the amendment. It therefore did not answer the anterior question in this case, which is whether Section 12(5) applied at all to an arbitration commenced in 2014 with an arbitrator appointed in March 2015.

The respondent also had Dharma Prathishthanam v. Madhok Construction (P) Ltd., where the Supreme Court held that a party cannot unilaterally constitute a tribunal in a manner the arbitration agreement does not contemplate, and that such an appointment and reference are both void. The Bench distinguished it on the clause. The clause here did not merely provide for arbitration: it specifically contemplated reference to a sole arbitrator nominated by DMRC, and stipulated that no objection would be raised if the conciliator or sole arbitrator so appointed was an employee of DMRC. The appointment of a DMRC employee was not an act contrary to the agreed mechanism. It was an eventuality the parties had expressly accepted when they signed.

Section 26, and the two halves of one clause

The gateway provision is Section 26 of the 2015 Amendment Act, under which nothing in the amending Act applies to arbitral proceedings commenced under Section 21 before its commencement, unless the parties otherwise agree.

Kochi Cricket held that applicability to arbitral proceedings is determined with reference to the date of commencement under Section 21, subject to that qualification. In S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh, the Supreme Court considered whether a general contractual stipulation that the agreement is subject to statutory modification or re-enactment could itself amount to an agreement under Section 26. It declined to treat the clause before it as such an agreement, and — without expressing any opinion on the correctness of a contrary Delhi High Court view in Ratna Infrastructure Projects — held that since the arbitral proceedings had commenced in 2013, the amended provisions could not be invoked.

The Bench then applied the framework in Hanson Agro, a Delhi High Court decision of 1 September 2026 which sorted these transitional disputes into three categories: arbitrations commenced and awards rendered before 23 October 2015 with Section 34 proceedings afterwards; arbitrations commenced before that date but with awards and Section 34 proceedings afterwards; and cases where the arbitration agreement itself contemplates subsequent statutory modification or re-enactment. In the first two categories, the fact that the award or the Section 34 proceedings came later does not retrospectively subject the constitution of the tribunal to Section 12(5).

This case could not be disposed of as a second-category matter, because the clause contained the words “as amended from time to time”. It therefore raised the third-category question: had the parties otherwise agreed, through the agreement itself, to subject a pre-amendment arbitration to later amendments?

The answer turned on reading the whole clause. The same sentence continues — “including provisions in force at the time the reference is made”. The reference was made on 3 June 2014, when Section 12(5) and the Seventh Schedule did not form part of the Act. The first expression shows that the parties did not intend their reference to be frozen to the text as it stood on the date of execution. The second supplies a specific temporal marker for identifying which provisions apply. Read together, the clause cannot be construed as an unqualified agreement that every subsequent amendment would automatically govern an arbitration already commenced.

The judgment notes that Hanson Agro itself distinguished between the language in Ratnam Sudesh Iyer v. Jackie Shroff, where a reference to the Act “or any amendment thereto” was not by itself enough, and Jagdish Chand Gupta, where a reference to statutory modification was coupled with subsequent conduct. The inquiry is one of contractual intention in the context of Section 26, not an automatic consequence flowing from a particular form of words.

Continuing an arbitration is not agreeing to a new statute

That left conduct. The arbitrator was appointed on 24 March 2015, the preliminary meeting was held on 27 May 2015, pleadings were filed, issues were framed on 16 August 2016, and the award followed on 21 July 2017 — so the proceedings ran for nearly two years after the amendment came into force.

The Bench found nothing in that to help the respondent. No material was placed before it to show that after 23 October 2015 the parties expressly treated the 2015 Amendment as applicable to the constitution of the tribunal, or otherwise proceeded on the basis that Section 12(5) governed the arbitrator's eligibility. There was no subsequent written agreement adopting the amended Act, and neither side invoked Section 12(5) or sought to alter the tribunal's constitution.

The reasoning on this point has consequences well beyond the parties. Mere continuation of proceedings past 23 October 2015 cannot, without more, be regarded as an agreement to apply the amended Act — because such an approach would make the amended regime applicable to every arbitration that commenced before that date and continued after it, notwithstanding the express qualification Parliament wrote into Section 26. There must be some material indicating that the parties intended to subject the pending arbitration to the amended regime.

Order

The District Judge had proceeded on the basis that the appointment of the sole arbitrator was rendered impermissible by Section 12(5) read with the Seventh Schedule. In doing so, the Bench held, he erred in applying the post-2015 statutory regime to an arbitration which had commenced, and in which the tribunal had been constituted, before 23 October 2015.

The judgment of 23 October 2024 was set aside insofar as it set aside the arbitral award of 21 July 2017 on that ground. The challenge to the constitution of the arbitral tribunal was rejected. The appeal was allowed and the pending application closed.