Waiver Under Section 12(5) Of A&C Act Has To Be By An Express Agreement In Writing: Delhi High Court

The Single Bench of Justice Vibhu Bakhru dismissed the contention that since the petitioner had participated in the arbitral proceedings it was precluded from raising any objections towards the appointment of the Arbitrator. The Court reiterated that a person who is ineligible to act as an arbitrator would also be ineligible to appoint an arbitrator.

The respondent Delhi State Industrial Infrastructure Development Corporation Ltd. (DSIIDC) issued a tender for some construction work. The petitioner AK Builders submitted its bid and was awarded the Contract. After certain disputes arose between the parties under the said Contract, the petitioner invoked the Arbitration Clause. The Chief Engineer, DSIIDC appointed a Sole Arbitrator to adjudicate the disputes between the parties.

The petitioner AK Builders thereafter filed a petition under Sections 14 and 15 of the A&C Act before the Delhi High Court for terminating the mandate of the Arbitrator and for appointment of another Arbitrator.

The respondent DSIIDC submitted before the High Court that several hearings had been held before the Arbitral Tribunal and the petitioner had participated in the arbitral proceedings without any reservation.

The respondent averred that the petitioner had called upon the Chief Engineer of DSIIDC to appoint an Arbitrator as per the General Conditions of Contract and that an Arbitrator was appointed by the Chief Engineer, DSIIDC at the instance of the petitioner.

The respondent added that since the petitioner had participated in the arbitral proceedings for almost two years, it was not open to the petitioner to question the appointment of the Arbitrator and seek termination of its mandate on the ground that he was ineligible to act as an Arbitrator.

Section 12(5) of the Arbitration and Conciliation Act, 1996 provides that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject-matter of the dispute falls under any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator. The proviso to Section 12(5) provides that the parties may, subsequent to the disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing.

The Court refuted the contention that the Arbitrator was appointed at the instance and consent of the petitioner.

The Court observed that Chief Engineer, DSIIDC had appointed the Arbitrator in exercise of the powers conferred upon him under the given Clause of the General Conditions of Contract (GCC) and not by the consent of the petitioner. The Court added that the petitioner had requested the concerned authority to act in terms of the said Clause of GCC.

The Court observed that as per the law laid down by the Supreme Court in the case of TRF Ltd. versus Energo Engineering Projects Ltd. (2017), a person who is ineligible to act as an arbitrator would also be ineligible to appoint an arbitrator.

Thus, the Court ruled that the Chief Engineer of the respondent DSIIDC was not empowered to appoint an Arbitrator. The Court dismissed the contention that since the petitioner had participated in the arbitral proceedings it was precluded from raising any objections towards the appointment of the Arbitrator. The Court noted that as per Section 12(5) of the A&C Act, any right under Section 12(5) of the A&C Act can be waived of only by an Agreement in writing entered into after the disputes had arisen.

The Court noted that the Supreme Court in the case of Bharat Broadband Network Limited versus United Telecoms Limited (2019) had ruled that the proviso to Section 12(5) will only apply if subsequent to disputes having arisen between the parties, the parties waive the applicability of Section 12(5) by an express agreement in writing. The Supreme Court had held that there must be an "express" agreement in writing, whereby both the parties, with full knowledge of the fact that the Arbitrator so appointed is ineligible to be appointed as an arbitrator, still go ahead and express that they have full faith and confidence in the said Arbitrator to continue to arbitrate the disputes between the parties.

The Court thus refuted the contention that the petitioner had, by his conduct, impliedly waived its right under Section 12(5) of the A&C Act. The Court ruled that the waiver under Section 12(5) of the A&C Act has to be by an express agreement in writing. The Court thus dismissed the submissions of the respondent that the Arbitrator was appointed by the Chief Engineer, DSIIDC pursuant to the request for appointment of Arbitrator made by the petitioner and hence the petitioner could not challenge the appointment of the said Arbitrator.

The Court added that a petition under Section 14 of the A&C Act is maintainable on the ground that an Arbitrator is ineligible under Section 12(5) of the A&C Act to act as an arbitrator. The Court observed that the Supreme Court in the case of HRD Corporation (Marcus Oil and Chemical Division) versus GAIL (India) Limited (2018) had held that a petition under Section 14 of the A&C Act would be maintainable if the arbitrator was ineligible to act in terms of Section 12(5) of the A&C Act.

The Court thus allowed the petition and terminated the mandate of the Arbitrator who was unilaterally appointed. The Court appointed a new Sole Arbitrator to adjudicate the disputes between the parties.

Case Title: AK Builders versus Delhi State Industrial Infrastructure Development Corporation Ltd

Citation: 2022 LiveLaw (Del) 490

Dated: 25.02.2022 (Delhi High Court)

Counsel for the Petitioner: Mr Rajeev Kumar, Advocate

Counsel for the Respondent: Mr Nishant Datta, Mr Pradeep Bhardwaj and Mr Chirag, Advocates

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