The Tripura High Court clarified that the neutrality provision in Section 12(5) of the Arbitration and Conciliation Act, 1996 applies even to arbitration agreements executed before the 2015 amendment, thereby preventing a party-employee from being appointed as arbitrator unless the parties expressly waive the provision.
Background & Facts
The Dispute
- The petitioner, Sri Kashinath Bhattacharjee, entered into an agreement dated 26.10.2012 with Bharat Sanchar Nigam Limited (BSNL) for the supply of telecom services under BID document No. WZ-59/Pt-IV/12-13/19.
- Clauses 17.1 to 17.3.9 of the agreement contain a mandatory arbitration clause.
- A dispute arose concerning the performance of the agreement, leading the petitioner to file Money Suit No.35 of 2021 before the Civil Judge, Senior Division, Court No.2, West Tripura, Agartala.
Key Facts
- 12.12.2025: The Civil Court accepted the respondent’s objection that the arbitration clause made the suit non-maintainable and referred the parties to arbitration under Section 8 of the Act.
- 22.12.2025: The petitioner issued a notice objecting to the appointment of the BSNL General Manager (Tripura) as arbitrator, invoking the amendment to Section 12(5) (effective 23.10.2015) which disqualifies persons falling within the Seventh Schedule.
- 19.01.2026: The petitioner reiterated the objection in writing.
- 02.02.2026: The respondents rejected the objection, asserting that the parties had previously agreed to the General Manager’s appointment.
- No written waiver of Section 12(5) was ever executed by the parties.
Procedural History
- 26.10.2012 - Agreement containing arbitration clause executed.
- 2021 - Money suit filed (Suit No.35 of 2021).
- 12.12.2025 - Civil Court referred parties to arbitration under Section 8.
- 22.12.2025 - Petitioner's notice challenging the General Manager’s appointment.
- 19.01.2026 - Petitioner's further objection.
- 02.02.2026 - Respondents’ refusal to consider the objection.
- 31.07.2026 - Court reserved judgment (CAV).
- 10.08.2026 - Judgment delivered.
Parties' Positions
- Petitioner: Contended that the General Manager, being an employee of BSNL, falls within the Seventh Schedule and is therefore ineligible under Section 12(5); without a written waiver, the appointment is void.
- Respondent: Argued that the arbitration agreement predates the amendment and that the parties had already consented to the General Manager’s appointment, making the amendment inapplicable.
Relief Sought
- Appointment of an independent and impartial arbitrator not disqualified under Section 12(5).
- Declaration that the General Manager’s appointment is invalid.
The Legal Issue
What is the correct interpretation of Section 12(5) of the Arbitration and Conciliation Act, 1996 with respect to an arbitration agreement executed before the amendment (effective 23 Oct 2015) when the designated arbitrator is an employee falling within the Seventh Schedule and no written waiver of the provision exists?
Arguments Presented
For the Petitioner
- Relied on the plain language of Section 12(5), emphasizing its retrospective effect from 23.10.2015 as inserted by Act 3 of 2016.
- Cited Supreme Court precedents Voestalpine Schienen GMBH v. Delhi Metro Rail Corp. Ltd. (2017), Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd. v. Ajay Sales & Suppliers (2021) and Solaris Chem Tech Industries Ltd. v. Assistant Executive Engineer (2024) which held that the disqualification applies to pre-amendment agreements where no arbitrator was appointed before the amendment.
- Asserted that the absence of a written waiver makes the appointment ultra vires.
For the Respondent
- Maintained that the arbitration agreement, dated 26.10.2012, expressly provided for the General Manager’s appointment, and that the amendment could not alter a prior contractual stipulation.
- Attempted to distinguish the cited Supreme Court cases, arguing that in Union of India v. Parmar Construction Co. (2019) the arbitration had already commenced before the amendment, rendering Section 12(5) inapplicable.
- Emphasised that the parties had not contested the appointment until after the amendment, suggesting implied consent.
The Court's Analysis
The Court began by examining the legislative intent behind the 2015 amendment. It noted that the amendment was introduced to safeguard the independence and impartiality of arbitrators, expressly inserting a non-obstante clause in Section 12(5). The provision states:
"Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing."
The Court held that the phrase "notwithstanding any prior agreement to the contrary" confers a prospective-to-retrospective effect, meaning the amendment overrides earlier agreements unless a written waiver exists. It relied heavily on the Supreme Court’s reasoning in Voestalpine that the amendment’s purpose was to ensure neutrality, and therefore the disqualification clause must be applied even to agreements executed before the amendment if the arbitrator had not been appointed before 23.10.2015.
The Court distinguished Union of India v. Parmar Construction on the ground that in Parmar the arbitration proceedings had already commenced before the amendment, whereas in the present case no arbitrator had been appointed prior to the amendment’s effective date. Consequently, the non-obstante clause was fully operative.
Having found no written waiver, the Court concluded that the General Manager, Tripura, fell squarely within the Seventh Schedule and was therefore ineligible to act as arbitrator. The Court affirmed its power under Section 11(6) to appoint an arbitrator where the parties cannot agree.
The Verdict
The petition was allowed. The Court appointed Sri Swapan Bhattacharjee, retired Grade-I Officer of TJS, as the arbitrator to adjudicate the dispute. The Registry was directed to forward the complete pleadings to the appointed arbitrator and to communicate the order forthwith. The instant petition and any pending applications were disposed of.
What This Means For Similar Cases
Pre-Amendment Agreements Must Be Re-Examined
- Lawyers must review arbitration clauses in agreements dated before 23 Oct 2015 to ensure that the designated arbitrator does not fall within the Seventh Schedule.
- Absence of a written waiver renders the appointment void, even if the parties previously consented.
Waiver Must Be Explicit and Written
- Parties can overcome the disqualification only by executing a clear written waiver after the dispute has arisen.
- Oral agreements or implied consent are insufficient under the Supreme Court’s interpretation.
Courts Will Exercise Statutory Power to Appoint
- Under Section 11(6), courts can appoint an independent arbitrator when the parties fail to agree on a qualified person.
- Practitioners should be prepared to suggest suitable independent arbitrators to expedite the process.
Practical Checklist for Counsel
- Verify the date of the arbitration agreement and compare with the amendment’s effective date.
- Identify any potential disqualification under the Seventh Schedule.
- Draft and obtain a written waiver if the parties wish to retain a pre-existing arbitrator.
- Anticipate a court-appointed arbitrator and prepare a shortlist of neutral candidates.
