HP High Court: Govt Department Director Ineligible as Arbitrator Under Section 12(5) of Arbitration Act

Introduction

In a significant ruling, the Himachal Pradesh High Court has held that a government official actively associated with one of the disputing parties cannot serve as an arbitrator, citing the statutory bar under Section 12(5) of the Arbitration and Conciliation Act, 1996.

A division bench comprising Justices Tarlok Singh Chauhan and Sushil Kukreja passed this judgment in the case M/s Oasys Cybernetics Pvt. Ltd. v. State of H.P. & Anr. (CWP No. 8122 of 2025), decided on May 19, 2025.

Background of the Case

The petitioner contested the appointment of an arbitrator on two primary grounds. First, the arbitrator had been appointed unilaterally by the respondents without any consultation with the petitioner. Second, the appointee—Director of the Department of Digital Technologies and Governance, Himachal Pradesh—was challenged on the grounds of ineligibility under Section 12(5) read with the Seventh Schedule of the Arbitration Act.

Court’s Analysis and Findings

Upon reviewing the arbitration clause in the agreement between the parties, the High Court observed that the respondents did not have the authority to unilaterally appoint an arbitrator. The court criticized this move as being inconsistent with the provisions of the Arbitration and Conciliation Act.

Referring to Section 12(5) and the accompanying Seventh Schedule, the bench emphasized that any individual having a direct or indirect relationship with either party, including roles such as advisor, consultant, employee, or someone with a past or present business association, is ineligible to serve as an arbitrator. The court stated that this restriction is intended to eliminate even the slightest suspicion of bias or partiality.

The bench underscored that the purpose of Section 12(5) is to ensure complete neutrality of the arbitral tribunal. In this case, since the appointed Director may function as a consultant or advisor to the respondent government department, his independence and impartiality could not be assured. Thus, he falls within the prohibited categories outlined in the Seventh Schedule.

The court cited the Supreme Court's decision in Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd. v. Ajay Sales and Suppliers (2021), which had similarly disqualified an arbitrator due to a position that implied partiality, even if that position wasn’t explicitly mentioned in the statute.

Conclusion

The High Court held that the Director of the Department of Digital Technologies and Governance was ineligible to serve as an arbitrator under Section 12(5) of the Arbitration Act. As a result, the petition was allowed, and a new, independent arbitrator was directed to be appointed.

Legal Representation

• For the Petitioner: Mr. Sanjeev Bhushan, Senior Advocate with Mr. Rajesh Kumar, Advocate.

• For the Respondents: Mr. Anup Rattan, Advocate General with Mr. Ramakant Sharma, Mr. Navlesh Verma, Ms. Sharmila Patial, Mr. Sushant Keprate, Additional Advocates General, and Mr. Raj Negi, Deputy Advocate General.