Clarification on the Applicability of Section 12(5) of the Arbitration & Conciliation Act, 1996 Post-2015 Amendment By Abhishek Jat, Advocate

 

Clarification on the Applicability of Section 12(5) of the Arbitration & Conciliation Act, 1996 Post-2015 Amendment

By Abhishek Jat, Advocate

Introduction

The principle of impartiality and independence in arbitration has been a cornerstone of India’s arbitration regime, particularly reinforced through the 2015 Amendment to the Arbitration & Conciliation Act, 1996 ("A&C Act"). A recent ruling by the Delhi High Court in Varrsana Ispat Limited v. Telecommunications Consultants India Ltd. (ARB.P. 18/2025) has further solidified the application of Section 12(5) of the A&C Act to arbitrations initiated prior to the amendment but pending thereafter. This decision aligns with the Supreme Court’s ruling in Ellora Paper Mills Limited v. State of Madhya Pradesh, (2022) 3 SCC 1, thereby eliminating any ambiguity regarding the retrospective applicability of Section 12(5).

Case Background

The dispute arose from a purchase order and work agreement dated 11.11.2008, between the petitioner and the respondent. The respondent unilaterally appointed a sole arbitrator in 2014—an individual who was a serving employee of the respondent. The petitioner objected to the arbitrator’s appointment and later sought termination of the arbitrator’s mandate, citing ineligibility under Section 12(5) post the 2015 Amendment.

Despite these objections, the arbitration proceedings continued until 2016 and resumed again in 2022. The arbitrator dismissed an application seeking his substitution, leading the petitioner to approach the Delhi High Court for relief under Section 11 of the A&C Act.

Delhi High Court’s Observations

The Court acknowledged that the arbitral proceedings commenced before the 2015 Amendment but emphasized that Section 12(5) is applicable to pending matters. The key observations were:

1. De Jure Ineligibility of the Arbitrator: The Court reaffirmed that an arbitrator who is a serving employee of one of the parties is ineligible to act as an arbitrator under Section 12(5), as held in Perkins Eastman Architects DPC & Ors. v. HSCC (India) Ltd., (2020) 20 SCC 760.
2. Non-Waiver of Rights: The mere participation of a party in arbitration does not imply a waiver of the right to challenge the arbitrator’s eligibility under Section 12(5), as observed in Govind Singh v. M/s Satya Group Pvt. Ltd. & Anr., 2023 SCC OnLine Del 37.
3. Judicial Precedent on Retrospective Application: The Court relied on the Supreme Court’s ruling in Glock Asia Pacific Limited v. Union of India, 2023 SCC OnLine SC 664, which reiterated that arbitration clauses allowing a party’s employee to be an arbitrator contravene the amended provisions of the A&C Act.

 

Key Takeaways

• Clarity on Applicability: Section 12(5) applies even to arbitrations initiated before the 2015 Amendment if they are still pending.
• Independence & Impartiality: The appointment of arbitrators must adhere to neutrality standards, regardless of the arbitration’s initiation date.
• Judicial Consistency: The ruling aligns with past Supreme Court judgments, reinforcing the importance of fairness in arbitral proceedings.

Conclusion

The Delhi High Court’s ruling in Varrsana Ispat Limited sets a firm precedent on the retrospective application of Section 12(5) of the A&C Act, ensuring that arbitration proceedings, irrespective of their initiation date, adhere to principles of impartiality. This judgment further strengthens India’s arbitration framework by eliminating biased appointments and upholding party autonomy in choosing arbitrators.

For legal professionals and stakeholders in arbitration, this decision underscores the necessity of ensuring that arbitration agreements and appointments comply with statutory mandates, reinforcing confidence in India’s arbitration process.

References

1. Ellora Paper Mills Limited v. State of Madhya Pradesh, (2022) 3 SCC 1.
2. Perkins Eastman Architects DPC & Ors. v. HSCC (India) Ltd., (2020) 20 SCC 760.
3. Govind Singh v. M/s Satya Group Pvt. Ltd. & Anr., 2023 SCC OnLine Del 37.
4. Glock Asia Pacific Limited v. Union of India, 2023 SCC OnLine SC 664.
5. Delhi High Court Judgment in Varrsana Ispat Limited v. Telecommunications Consultants India Ltd. (ARB.P. 18/2025).