Arbitrator ineligibility under Section 12(5): government contracts and serving-officer appointments cannot override the statutory bar.

A contract executed in the name of the President of India is not exempt from Section 12(5) of the Arbitration and Conciliation Act, 1996, because Article 299 governs formal validity and does not create immunity from statutory norms. Clause 28 of the tender, which allowed a serving officer to appoint another serving officer as sole arbitrator, was incompatible with Section 12(5) read with Paragraph 1 of the Seventh Schedule, since an employee of a party is ineligible absent a post-dispute written waiver. The appointment mechanism therefore could not be sustained, and an independent former judge was appointed as sole arbitrator subject to the required disclosures.

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Issues: (i) Whether a contract entered into in the name of the President of India is immune from the application of Section 12(5) of the Arbitration and Conciliation Act, 1996; (ii) Whether Clause 28 of the tender conditions, which empowers a serving officer to appoint a serving officer as sole arbitrator, is hit by Section 12(5) read with Paragraph 1 of the Seventh Schedule.

Issue (i): Whether a contract entered into in the name of the President of India is immune from the application of Section 12(5) of the Arbitration and Conciliation Act, 1996.

Analysis: Article 299 of the Constitution of India prescribes the formal requirements for contracts made in the exercise of executive power, but it does not create a substantive immunity from general statutory norms governing contractual relations. A contract executed in the name of the President of India remains subject to statutory prescriptions that govern the parties' rights and obligations, including rules designed to prevent conflicts of interest in arbitral appointments.

Conclusion: The contract is not immune from Section 12(5) of the Arbitration and Conciliation Act, 1996.

Issue (ii): Whether Clause 28 of the tender conditions, which empowers a serving officer to appoint a serving officer as sole arbitrator, is hit by Section 12(5) read with Paragraph 1 of the Seventh Schedule.

Analysis: Section 12(5) makes ineligible any person whose relationship with a party falls within the Seventh Schedule, notwithstanding any prior agreement to the contrary, unless there is a post-dispute written waiver. Paragraph 1 of the Seventh Schedule covers an arbitrator who is an employee of a party. Clause 28 authorises the Secretary of one department of the Union to appoint an officer of another department of the Union as sole arbitrator, while both remain employees of the same government entity. Such a unilateral appointment mechanism creates the very conflict of interest that the amended law seeks to prevent. The earlier decision upholding panels of retired officers in a multi-member context does not validate a clause permitting appointment of a serving employee as sole arbitrator by another serving employee of the same party.

Conclusion: Clause 28 is in conflict with Section 12(5) read with Paragraph 1 of the Seventh Schedule, and the proposed appointment cannot be sustained.

Final Conclusion: The application for appointment of an arbitrator is allowed, and an independent former judge is appointed as sole arbitrator to decide the disputes subject to the mandatory disclosures under Section 12.

Ratio Decidendi: A party to a contract cannot, by prior agreement, confer a valid power to appoint a sole arbitrator who is ineligible under Section 12(5) of the Arbitration and Conciliation Act, 1996, and a contract executed in the name of the President of India does not exempt the Government from this statutory bar.

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