Tag: #INDIAN OIL CORPORATION LTD.

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 07.10.2026

Delhi HC: Selection of Arbitrator from Panel Curated by One Party Does Not Make Appointment Consensual

In a significant ruling concerning the independence and constitution of arbitral tribunals, the Delhi High Court has held that merely allowing one party to select a sole arbitrator from a panel of three persons exclusively prepared by the opposite party does not make the appointment process consensual or equal.

In Newton Engineering and Chemicals Limited v. Indian Oil Corporation Ltd., a Division Bench comprising Justice Anil Kshetrapal and Justice Bharat Parashar allowed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 and set aside both the judgment of the Commercial Court and the underlying arbitral award. The judgment was pronounced on 6 October 2026.

The Court held that where the appointment mechanism is inconsistent with Section 12(5) of the Arbitration and Conciliation Act, 1996, subsequent participation in arbitration or selection of an arbitrator from a restricted panel cannot cure the defect unless there is an express written agreement after the dispute has arisen waiving the statutory protection.

Background of the Dispute

• Newton Engineering and Chemicals Ltd. had submitted an offer dated 3 January 2017 for the supply of Heat Exchangers for Indian Oil Corporation Ltd.’s VDU-II Revamp Project at Haldia Refinery. IOCL accepted the offer through a Letter of Acceptance dated 21 September 2017, followed by a Purchase Order dated 1 March 2018.
• The estimated delivery date was 20 July 2018. Disputes subsequently arose regarding delay in supply, and IOCL eventually terminated the contract on 31 January 2019 at Newton’s risk and cost. In the meantime, IOCL had issued a fresh tender and appointed another contractor for the project.
• Newton issued a legal notice on 26 March 2019.

Thereafter, IOCL, by communication dated 3 May 2019, furnished a panel containing three proposed arbitrators:

• Shri M.B. Lal;
• Shri A.K. Srivastava; and
• Shri M.C. Panda.

Newton was asked to select the sole arbitrator from these three names. It ultimately selected Shri A.K. Srivastava, Former ED (Legal), ONGC, and informed IOCL of its selection through a communication dated 27 January 2020.

The arbitral proceedings thereafter continued, with both parties filing their respective claims, defence and counterclaim and participating in the proceedings.

Arbitral Award and Section 34 Challenge

• The Sole Arbitrator delivered his award on 17 August 2023.
• The award allowed a claim of ₹6,30,054 along with ₹1,13,409 towards GST, together with simple interest at 9% per annum from the date of the award until realisation, in favour of IOCL.
• Newton challenged the award under Section 34 of the Arbitration and Conciliation Act.
• The District Judge dismissed the Section 34 petition and upheld the award, principally observing that the objections raised would require re-appreciation of evidence and reconsideration of facts and contractual terms—an exercise ordinarily outside the limited scope of Section 34 proceedings.
• Newton consequently approached the Delhi High Court under Section 37 of the Arbitration and Conciliation Act read with Section 13(1A) of the Commercial Courts Act, 2015.

Core Question Before the Delhi High Court

The principal question was not ultimately about the merits of the commercial dispute.

Instead, the fundamental issue was:

Can one party prepare a panel of three arbitrators, require the opposite party to select one of them as the Sole Arbitrator, and subsequently contend that the appointment was consensual merely because the opposite party made the selection?

Closely connected to this was another question:

Does participation in the arbitral proceedings amount to waiver of the protection under Section 12(5)?

• The Delhi High Court answered both propositions against IOCL.

Section 12(5): Waiver Must Be Express and in Writing

• Section 12(5) of the Arbitration and Conciliation Act makes persons falling within the categories specified in the Seventh Schedule ineligible for appointment as arbitrators, notwithstanding any prior agreement to the contrary.
• The proviso nevertheless allows parties, after disputes have arisen, to waive the applicability of Section 12(5) through an “express agreement in writing.”

The High Court emphasised two essential elements:

• First, the agreement must be entered into after the dispute has arisen.
• Second, the waiver must be express and in writing.
• Consequently, waiver cannot ordinarily be inferred merely from conduct, acquiescence or participation in arbitration.
• This distinction became decisive in the present case.

“Choose A, B or C — But You Cannot Choose D”

One of the most significant aspects of the judgment is the Court’s analysis of the three-member panel prepared by IOCL.

The Court observed that Newton was permitted to select one person from the panel, but had no right to:

• nominate an arbitrator independently;
• prepare its own panel;
• add names to IOCL’s panel; or
• require IOCL to select from a panel prepared by Newton.

The Court therefore concluded that the element of equality in constituting the arbitral tribunal was absent.

The Court explained the practical problem in particularly clear terms:

“The Appellant could choose A, B or C, but it could not choose D.”

• The field of choice remained exclusively controlled by IOCL because IOCL itself had decided who could appear on the panel.
• This distinction is important. Providing a limited choice does not necessarily transform a unilateral appointment mechanism into a bilateral one.

Equal Treatment Extends to Appointment of Arbitrators

• The High Court relied substantially upon the Constitution Bench decision of the Supreme Court in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) (CORE).
• The Court noted that the principle of equal treatment under Section 18 of the Arbitration and Conciliation Act extends to the stage of appointment of arbitrators.
• While a Public Sector Undertaking is not prohibited from maintaining a panel of potential arbitrators, the opposite party cannot be compelled to select its arbitrator exclusively from a panel curated by that PSU.
• Such an arrangement lacks an effective counterbalance because both parties do not participate equally in determining the constitution of the tribunal.
• The Delhi High Court further clarified that the prospective direction in CORE concerning three-member tribunals did not validate the mechanism in the present dispute because the case involved appointment of a Sole Arbitrator. The principles in TRF Ltd. v. Energo Engineering Projects Ltd. and Perkins Eastman Architects DPC v. HSCC (India) Ltd. concerning sole arbitrators continued to remain relevant.

Did Newton’s Letter Amount to Consent?

• IOCL relied heavily upon Newton’s letter dated 27 January 2020, through which Newton selected Shri A.K. Srivastava from the three proposed names.
• The High Court rejected the argument that this amounted to a valid waiver.
• The Court examined the language of the communication and found that Newton had merely communicated its selection pursuant to Clause 34.1 of the General Purchase Conditions.

More importantly, the letter did not refer to:

• Section 12(5);
• the Seventh Schedule;
• waiver;
• statutory ineligibility;
• independence or impartiality of the arbitrator; or
• any conscious agreement to relinquish the statutory protection.

It therefore could not constitute the express written agreement contemplated by Section 12(5).

The Court emphasised that a waiver under Section 12(5) requires a conscious and unequivocal relinquishment of the statutory right through an express written agreement after disputes have arisen. No such agreement existed in this case.

Participation in Arbitration Does Not Cure an Invalid Appointment

• Another important argument raised by IOCL was that Newton had fully participated in the arbitration.
• Newton had selected the arbitrator, filed its Statement of Claim, contested IOCL’s counterclaim and participated in the proceedings without raising an effective objection at that stage.
• The High Court nevertheless held that such participation could not substitute the statutory requirement for an express written waiver.
• The Court relied upon the Supreme Court’s ruling in Bhadra International (India) Pvt. Ltd. v. Airports Authority of India, along with the Delhi High Court decisions in Mahavir Prasad Gupta and Sons v. Govt. of NCT of Delhi and Ahluwalia Contracts (India) Ltd. v. Airports Authority of India.
• The Court reiterated that participation in arbitral proceedings cannot confer jurisdiction upon an arbitral tribunal where the tribunal suffers from the relevant statutory defect and no valid waiver under Section 12(5) exists.
• Accordingly, Newton’s participation in the arbitration did not cure the defect.

Contractual Arbitration Clause Cannot Override Section 12(5)

• The High Court also rejected IOCL’s reliance upon Clause 34.1 of the General Purchase Conditions.
• Section 12(5) begins with a non-obstante clause and therefore operates “notwithstanding any prior agreement to the contrary.”
• The Court held that once the statutory prohibition becomes applicable, the contractual appointment mechanism must yield unless the conditions prescribed by Parliament for a valid waiver are independently fulfilled.
• This is an important principle for commercial contracts containing legacy arbitration clauses that confer disproportionate appointment rights upon one contracting party.
• A contractual provision cannot itself become evidence of the statutory waiver required to overcome the prohibition.

Defect Goes to the Jurisdiction of the Arbitral Tribunal

• The Court distinguished a challenge to the constitution and jurisdiction of the tribunal from an ordinary challenge to the merits of an arbitral award.
• Once the constitution of the tribunal is contrary to a mandatory statutory requirement and no valid waiver has been established, the resulting award cannot be sustained.

According to the Court, the issue:

• “goes to the root of the jurisdiction of the Arbitral Tribunal”
• and does not concern mere appreciation of evidence or reconsideration of the merits of the claims.
• This was also where the Commercial Court had gone wrong.
• While the District Judge had correctly recognised the limited scope of interference with arbitral awards, it had examined Newton’s objections principally through the lens of re-appreciation of evidence and patent illegality.
• The High Court held that a challenge to the lawful constitution of the tribunal is anterior to the merits of the dispute and concerns the jurisdiction of the forum that rendered the award.

Delhi High Court Sets Aside the Award

The Delhi High Court ultimately allowed Newton Engineering’s appeal.

The Court set aside:

1. the judgment dated 5 April 2025 of the District Judge (Commercial)-02, South-East, Saket Courts, New Delhi in OMP (COMM) No. 104/2023; and

2. the arbitral award dated 17 August 2023 passed by the Sole Arbitrator.

• The award was specifically set aside because the Arbitral Tribunal had not been validly constituted in accordance with the mandatory requirements of the Arbitration and Conciliation Act.
• Importantly, however, the Delhi High Court did not adjudicate the underlying commercial dispute on merits.
• Instead, the parties were granted liberty to commence fresh arbitral proceedings in accordance with law, and all questions concerning the merits were left open for future adjudication.

Key Legal Principles Emerging from the Judgment

The judgment reinforces several important principles of Indian arbitration law.

• Equal participation begins at the appointment stage. Procedural equality is not confined to hearings before the tribunal; it extends to the manner in which the tribunal itself is constituted.
• A curated panel does not automatically create mutual consent. Where one party exclusively determines the entire pool of eligible arbitrators and the other can merely select one person from that restricted pool, the appointment process may lack the necessary equality.
• Selection is not the same as waiver. Selecting an arbitrator from names furnished by the opposite party does not, by itself, amount to an express waiver under Section 12(5).
• Participation does not replace statutory waiver. Filing claims, leading evidence, arguing before the tribunal or otherwise participating in arbitration cannot substitute an express written waiver where Section 12(5) requires one.
• The waiver must be post-dispute, express and written. Courts should not infer it merely from correspondence or conduct unless the statutory standard is satisfied.
• Jurisdiction is different from merits. A challenge concerning invalid constitution of the arbitral tribunal goes to the foundation of its jurisdiction and cannot simply be rejected as an attempt to re-appreciate evidence.

Significance for PSUs and Government Contracts

• The ruling has particular significance for PSUs, government entities and large corporations whose standard contracts provide for arbitrators to be selected from internally maintained panels.
• The Delhi High Court has recognised that maintaining a panel is not, by itself, prohibited. The difficulty arises where one contracting party exclusively curates that panel and the counterparty is restricted to selecting only from those names.
• Consequently, organisations using standard arbitration clauses should reassess whether their appointment mechanisms provide a genuine and effective counterbalance and equal participation to both parties.
• The judgment is equally important for contractors. A contractor should not assume that selecting an arbitrator from a panel or subsequently participating in arbitration necessarily extinguishes every objection regarding the lawful constitution of the tribunal.

Conclusion

The Delhi High Court’s decision in Newton Engineering and Chemicals Limited v. Indian Oil Corporation Ltd. strengthens the principle that party autonomy in arbitration cannot operate contrary to mandatory statutory safeguards concerning neutrality, independence and equality in constituting the arbitral tribunal.

The judgment draws an important distinction between being permitted to choose an arbitrator and being permitted to participate equally in deciding who can be chosen.

Where one party determines the entire field of candidates and the other is merely permitted to choose among those pre-selected names, the appearance of choice does not necessarily amount to an equal appointment process. Most importantly, the judgment reinforces that the statutory protection under Section 12(5) cannot be casually lost through conduct or participation. Where waiver is required, Parliament has prescribed a specific standard: an express agreement in writing after the disputes have arisen.

Connected Matter

Supreme Court: Arbitrator Appointed Unilaterally by Interested Party Lacks Legal Authority

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Source: Delhi High Court

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