Commissioner UADD Disqualified as Arbitrator Due to Conflict of Interest; Justice K.K. Lahoti Appointed
In a significant judgment delivered on March 31, 2026, the Madhya Pradesh High Court at Jabalpur intervened in a contentious arbitration dispute between M/s Hewlett Packard Enterprise India Private Limited and Bhopal Smart City Development Corporation Limited. The court ruled against the appointment of the Commissioner of Urban Administration and Development Department (UADD) as an arbitrator due to a conflict of interest, invoking provisions of the Arbitration and Conciliation Act, 1996.
The dispute arose from a Master Service Agreement (MSA) executed on December 7, 2017, for IT-related services. When Hewlett Packard initiated arbitration proceedings, the Bhopal Smart City appointed the Commissioner, UADD, as their arbitrator, which was contested by Hewlett Packard citing bias and conflict of interest as per Section 12(5) and the Seventh Schedule of the Arbitration and Conciliation Act, 1996.
Justice Vivek Jain, presiding over the case, underscored the necessity for impartiality and independence in arbitration appointments, regardless of the arbitrator's position within a three-member tribunal. The judgment referenced the Constitution Bench decision in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), which emphasized automatic disqualification of arbitrators under the Seventh Schedule without investigating the likelihood of bias.
The court noted the interplay between the intercity agreement, involving multiple smart city corporations and municipal bodies, and the master service agreement, making the Commissioner UADD a party with vested interests. Consequently, the court deemed the appointment invalid, asserting that the respondents could have appointed an independent arbitrator but failed to do so.
In exercising its jurisdiction under Section 11(6), the court appointed Justice K.K. Lahoti, former Acting Chief Justice of the Madhya Pradesh High Court, as the sole arbitrator to ensure fair and unbiased adjudication of the disputes. The parties are directed to appear before the newly appointed arbitrator on April 16, 2026.
This judgment reinforces the principle of unbiased arbitration and highlights the judiciary's role in safeguarding impartiality in dispute resolution processes.
Bottom Line:
Arbitration and Conciliation Act, 1996 - Appointment of arbitrator - Commissioner UADD, being a party to the intercity agreement and having direct involvement in the case, is ineligible to act as an arbitrator under Section 12(5) and the Seventh Schedule to the Act - Court steps in to appoint an impartial sole arbitrator.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 11, 12(5), 14(2), Seventh Schedule
