Participation In Arbitral Proceedings Does Not Imply Acceptance Of Unilateral Appointment Of Arbitrator Unless Objections Are Waived In Writing: Delhi HC
The Delhi High Court bench of Justice Subramonium Prasad has held that the mandate of the Arbitrator can be terminated under Section 14 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) if the Arbitrator was appointed unilaterally, which is explicitly prohibited under Section 12(5) of the Arbitration Act unless the ineligibility is expressly waived through a...
The Delhi High Court bench of Justice Subramonium Prasad has held that the mandate of the Arbitrator can be terminated under Section 14 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) if the Arbitrator was appointed unilaterally, which is explicitly prohibited under Section 12(5) of the Arbitration Act unless the ineligibility is expressly waived through a written agreement.
It also held that mere participation in the arbitration proceedings without expressly waiving any objections in writing cannot tantamount to acceptance of unilateral appointment of Arbitrator.
Brief Facts:
This petition has been filed under Section 14(1)(a) read with Section 14(2) & 15(2) of the Arbitration Act seeking termination of mandate of the Arbitrator on the ground that the appointment was done unilaterally.
Shakti Pump India Ltd (Petitioner) and Apex Buildsys Ltd (Respondent) entered into a Works Contract for Construction of PEB Project vide Letter of Intent (hereinafter referred to as the Letter of Intent) dated 24.08.2011. Pursuant to the said LOI the Petitioner issued two Purchase Orders dated 26.08.2011 and 04.11.2011 in favour of the Respondent.
After a lapse of more than five years, the Respondent by a legal notice dated 07.06.2017, invoked arbitration and unilaterally appointed Mr. Achin Goel, Advocate, as the Sole Arbitrator to adjudicate the disputes between the parties, which pertained to allegedly unpaid dues.
The Respondent vide Corrigendum Notice dated 10.07.2017 withdrew the proposed unilateral appointment of Mr. Achin Goel, Advocate, and replaced him by appointing Mr. J S Jangra, Additional District Judge (Retd.), the Sole Arbitrator. This appointment was also done unilaterally and the Sole Arbitrator entered into Reference on 17.07.2017. The petitioner has asserted that the learned Arbitrator entered reference without their consent.
Contentions:
The Petitioner submitted that the sole arbitrator was appointed unilaterally by the Director and Group Chairman of the Respondent and, therefore, the appointment is not permissible under Section 12(5) read with Seventh Schedule of the Act. The Arbitrator would be de jure ineligible and the mandate of the Arbitrator is liable to be terminated.
It was also argued that the Director and Group Chairman of the Petitioner, who has appointed the sole Arbitrator, has a substantial interest in the outcome of the dispute. Therefore, appointment of an Arbitrator by any person who is statutorily ineligible to himself act as an Arbitrator would fall foul of the dictum laid down by the Apex Court in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Limited (2020).
The Petitioner in O.M.P. (T) (Comm.) 134/2024 submitted that the Respondent was facing liquidation under the Insolvency & Bankruptcy Code (IBC), 2016 and the application under Section 29(A) could not have been filed in view of the statutory bar contained in Section 33(5) of the IBC.
Per contra, the Respondent submitted that the Petitioners herein, by virtue of their active participation in the arbitral proceedings have impliedly given their consent to the unilateral of the Sole Arbitrator.
Observations:
The court observed that a person's ineligibility to act as an Arbitrator strikes at the very root of the appointment. If the Arbitrator was ineligible to be appointed, anything and everything that flows from such illegal appointment is also non est in law.
It further added that the essence of Section 12(5) and the proviso thereto is that there must be an explicit agreement in writing which should be obtained after the dispute has arisen. For the proviso to apply, in this case there has been no such waiver on the part of either of the petitioners.
Based on the above, the court said that on the contrary, material on record indicates that the Petitioner in O.M.P. (T) (COMM.) 134/2024 & I.A. 44869/2024 had written an application whereby they had objected to the appointment of the Sole Arbitrator.
The Supreme Court in Ellora Paper Mills Ltd. v. State of M.P. (2022) has categorically held that mere participation in arbitral proceedings would not amount to waiver of objections in terms of the proviso to Section 12.
Similarly, the Supreme Court in Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd. (2017) held that “Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi-judicial proceedings.
It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstanding the same non-independence and non-impartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration.”
The Supreme Court further in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Co. 2024 held that equal participation of parties in the process of appointment of arbitrators ensures that both sides have an equal say in the establishment of a genuinely independent and impartial arbitral process.
The concluded that mere participation without a clear, written waiver under section 12(5) proviso of the Arbitration Act after the dispute having arisen between the parties does not imply acceptance of a unilateral appointment and such appointment is void ab initio and liable to be terminated.
Accordingly, the present petition was allowed and the mandate of the Arbitrator was terminated.
Case Title: SHAKTI PUMP INDIA LTD versus APEX BUILDSYS LTD and Anr.
Case Number:O.M.P. (T) (COMM.) 107/2024 & I.A. 42034/2024
Judgment Date: 19/03/2025
For Petitioners: Mr. Vasanth Rajasekaran and Mr. Harshvardhan Korada, Advocates And Mr. Mritunjay Kumar Singh, Mr. Rajiv Vijay Mishra, Mr. Rajeev Kumar Gupta, Mr. Prakash Kashyap & Mr. Shaikat Khatua, Advocates.
For Respondent: Mr. Sohel Sehgal, Mr. Rakesh Kumar, Mr. Ramesh Babu and Mr. Jainendra Maldhir, Advocates. And Mr. Sohel Sehgal, Mr. Rakesh Kumar, Mr. Ramesh Babu and Mr. Jainendra Maldhir, Advocates.
