Participation In Arbitral Proceedings Does Not Constitute Waiver Of Right To Challenge Appointment Of Ineligible Arbitrator: Delhi High Court
The Delhi High Court recently terminated the mandate of a sole arbitrator appointed unilaterally at the instance of one of the contracting parties. Justice Vikram Bakhru held that the mere fact that the petitioner did not object to the appointment at the material time and participated in the arbitral proceedings, would not stand in the way of terminating the mandate of such an arbitrator, for...
The Delhi High Court recently terminated the mandate of a sole arbitrator appointed unilaterally at the instance of one of the contracting parties.
Justice Vikram Bakhru held that the mere fact that the petitioner did not object to the appointment at the material time and participated in the arbitral proceedings, would not stand in the way of terminating the mandate of such an arbitrator, for the reason that the appointment was made by a person ineligible to be appointed as an arbitrator.
Reliance was placed on Bharat Broadband Network Limited v. United Telecoms Limited, where it was held that appointment of arbitrator by a person who himself is ineligible to be an arbitrator as per Section 12(5) of the Arbitration and Conciliation Act 1996 is void ab initio.
Section 12(5) provides that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties, or counsel, falls within any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator.
The Court further clarified that Section 4 of the Arbitration Act, which deals with deemed waiver of the right to object by conduct, would have no application in this case. It held,
"The language of the proviso to Section 12(5) of the A&C Act makes it amply clear that any waiver is required to be made by an agreement in writing and that too, after the disputes have arisen. This is a distinct departure from the language of Section 4 of the A&C Act. Thus, the contention that the petitioner has waived its right to object to the appointment of the learned Arbitrator, cannot be accepted."
The petitioner had entered into a contract with the Respondent, IRCTC, to publish and distribute a magazine. However, following certain disputes, the contract was terminated by the respondent, which led the petitioner to invoke the arbitration clause of the contract by issuing notice under Section 21 of the Arbitration Act.
Pursuant to the notice invoking arbitration, the Chairman-cum-Managing Director of the respondent proceeded to appoint the Arbitrator, a former employee of the Railways.
The petitioner did not file any application under Section 13 of the Act to challenge the appointment of the Arbitrator.
Subsequently, the present petition under Sections 14 and 15 of the Arbitration came to be filed, seeking appointment of a new arbitrator and termination of the mandate of the present one, on the ground that the latter was appointed unilaterally.
Reliance was placed on Perkins Eastman Architects DPC vs. HSCC (India) Ltd., where it was held that a person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator.
The Respondent argued that since the Arbitrator was appointed before the decision of the Supreme Court in Perkins (supra), the appointment cannot be challenged.
The Court however held that the case of Bharat Broadband (supra) squarely covered the present controversy.
In that case, the respondent had invoked the arbitration clause and the respondent, BBNL appointed one Mr. Khan as the sole arbitrator to adjudicate the disputes. The parties had thereafter, participated in the arbitral proceedings without any reservation. However, subsequently, BBNL filed an application before the arbitral tribunal requesting the arbitrator to withdraw from the proceedings. BBNL contended that the arbitrator had become de jure unable to perform his functions as he was ineligible to do so in view of the decision of the Supreme Court in TRF Limited (supra).
"The ineligibility of an arbitrator considered in Bharat Broadband Network Limited v. United Telecoms Limited (supra) was solely on the basis that the arbitrator had been appointed by the CMD of BBNL and was thus, ineligible to act as an arbitrator. In this case as well, the Arbitrator has been unilaterally appointed by the Principal Officer of the respondent company," the High Court observed.
Thus, the petition was allowed mandate of the Arbitrator was terminated for the reason that he is ineligible to act as an arbitrator as he was appointed by a person who is otherwise ineligible to act as an arbitrator.
Case Title: BW Businessworld Media Pvt. Ltd. v. India Railway Catering and Tourism Corporation Ltd.
Case No: OMP (T) (Comm.) 3/2020
Citation: 2022 LiveLaw (Del) 123
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