De-Jure Ineligibility To Act As Arbitrator U/S 12(5) Of Arbitration Act Can Be Waived Only By Express Agreement In Writing: Delhi High Court

Brief Facts

The present petition assails an arbitral award dated 10.01.2022 (hereinafter 'the Award') passed in arbitral proceedings between the parties. As noticed in order dated 21.10.2024, two preliminary/ jurisdictional objections had been raised by the learned counsel for the respondent. Firstly, it is contended on behalf of the respondent that the present proceedings are without jurisdiction, inasmuch as, the seat of arbitration is at Kanpur.

It was further contended on behalf of the respondent that the present case is a case of unilateral appointment of the Arbitrator and in terms of various judgments rendered by Co-ordinate Benches of this Court, and also by Division Bench of this Court in Govind Singh v. M/s Satya Group Pvt. Ltd. And Anr. 2023, the arbitral proceedings are nullity and/or non est and, therefore, the resultant award is liable to be set aside on this score.

Court's Analysis

The court, at the outset, rejected the contention with respect to jurisdiction and observed that It can be seen from a perusal of Clause 4 of the Contract Agreement relied upon by the respondent that the same does not control, or have any bearing on the seat of arbitration.

The court further noted that in the present case, the appointment letter dated 14.11.2019 whereby the concerned Executive Director (Engineering) appointed the learned Sole Arbitrator, it was specifically mentioned that “the arbitration proceedings shall be held at New Delhi only”. Admittedly, the entire arbitral proceedings have been held at New Delhi and the award has also been rendered at New Delhi.

The court referred to the Delhi High Court judgment in Reliance Infrastructure Limited v. Madhyanchal Vidyut Vitran Nigam Limited, 2023 wherein it was held that when the contract contains an arbitration clause that specifies a "venue", thereby anchoring the arbitral proceedings thereto, then the said "venue" is really the "seat" of arbitration. In such a situation the courts having supervisory jurisdiction over the said "seat" shall exercise supervisory jurisdiction over the arbitral process, notwithstanding that the contract contains a clause seeking to confer "exclusive jurisdiction" on a different court.

Based on the above, the court came to the conclusion that no merit is found in the objection raised by learned counsel for the respondent as regards territorial jurisdiction of this Court to entertain the present petition.

The court while addressing second contention with regard to the consequences of the unilaterally appointed arbitrator, observed that there can be no cavil with the proposition that unilateral appointment of arbitrator renders the entire arbitral proceedings non est in view of the inherent lack of jurisdiction and de jure inability of a unilaterally appointed arbitrator. This position has been expressly noticed by this Court in catena of judgments.

The court further referred to its own judgment in Kotak Mahindra Bank Ltd. v. Narendra Kumar Prajapat, 2023 wherein it was held that A person who is ineligible to act an Arbitrator, lacks the inherent jurisdiction to render an Arbitral Award under the A&C Act. It is trite law that a decision, by any authority, which lacks inherent jurisdiction to make such a decision, cannot be considered as valid.

The court further referred to the Supreme Court judgment in 'Bharat Broadband Network Limited v. United Telecoms Limited', (2019) wherein it was held that What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the Seventh Schedule, he is, as a matter of law, ineligible to be appointed as an arbitrator.The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes have arisen between them, waive the applicability of this sub-section by an "express agreement in writing" as per proviso to section 12(5) of the Act.

The court while applying the above ration to the facts of the present case observed that the letter dated 04.12.2019 and the proceedings dated 24.12.2019 clearly do not qualify as an 'express agreement in writing'.

The court further observed that the petitioner seeks to infer the existence of an agreement waiving Section 12(5) of the A&C Act, based on what is stated in letter dated 04.12.2019 and recorded in the proceedings dated 24.12.2019. This is clearly impermissible inasmuch as the statutory requirement for overcoming de jure inability is “an express agreement in writing” and not an agreement to be inferred from the conduct of the parties.

Accordingly, the present petition was allowed and the impugned award was set aside.

Case Title:N.S. ASSOCIATES PVT. LTD. versus THE LIFE INSURANCE CORPORATION OF INDIA

Case Reference: O.M.P. (COMM) 208/2022

Judgment Date: 29/10/2024

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