Award Cannot Be Set Aside When No Objections Were Raised Before Arbitrator Or Court U/S 12(5) Of Arbitration Act: Delhi High Court

Brief Facts:

The dispute arose from a license agreement executed between Bhadra International India Pvt. Ltd.(appellant) and Airport Authority of India (AAI/respondent) on November 29, 2010, under which the AAI granted the appellants a license for ground handling services. The arbitration agreement allowed AAI to appoint the arbitrator, which the appellants never objected to, and they actively participated in the arbitration proceedings.

During arbitration, Section 12(5) of the Arbitration Act was introduced, prohibiting the unilateral appointment of arbitrators. However, the appellants did not raise any objections to the arbitrator's appointment at that time. The validity of the arbitrator's appointment based on section 12(5) of the Arbitration Act was challenged later during the petition under Section 34 of the Arbitration Act. The Single Judge rejected these objections, leading to the present appeal.

Contentions:

The appellants submitted that the appointment of the learned Arbitrator was completely violative of Section 12(5) of the Arbitration Act, read with the judgments of the Supreme Court in Bharat Broadband Network Limited v United Telecoms Ltd (2019), Perkins Eastman Architects DPC v HSCC (India) Ltd (2020) and TRF Limited v Energo Engineering Projects Ltd (2017). Waiver of the application of Section 12(5) of the Arbitration Act under the proviso to this section, can only be by an agreement in writing.

It was further argued that at the time when Section 21 notice had been addressed by the appellants to AAI, sub-section (5) was yet to be introduced in Section 12 of the Arbitration Act. As such, knowledge of the fact that the appointment of the learned Sole Arbitrator in terms of the notice issued by them to AAI would be invalid as unilateral, was unknown to the appellants at that time.

It was also submitted that mere recording in the first Procedural Order dated 22 March 2016, of the fact that the parties had no objection to the learned Sole Arbitrator arbitrating on the dispute, could not constitute an express waiver, in writing, of Section 12(5) of the Arbitration Act.

Observations:

The court noted that if the arbitrator was legally incompetent to act as an arbitrator, mere acquiescence of the appellants would not render him competent. However, the court while setting aside the award solely on this ground must also consider the broader objective of the Arbitration Act that is to promote Arbitration as the preferred mode of dispute resolution mechanism.

It also observed that despite the introduction of section 12(5), the arbitration continued for two more years and the award came to be passed. But the appellants never raised a whisper before the Arbitrator or the court under section 34 that the arbitrator was incompetent to act as an arbitrator based on section 12(5).

It also observed that even in the petition filed under section 34 of the Arbitration Act challenging the award, no objections as to the appointment of the Arbitrator being barred by section 12(5) were raised therefore at that stage the appellants had no grievance that the arbitrator was appointed unilaterally.

The court held that objections to the appointment of the Arbitrator were raised only when a Miscellaneous Application seeking amendment to the petition under section 34 of the Arbitration Act was filed in which grounds based on section 12(5) of the Arbitration Act were incorporated. Before this, no objections were raised.

The court concluded that “this case is, therefore, unique in that respect, and cannot be equated with cases in which, at one stage or the other, an objection to the appointment of the Arbitrator was voiced.”

Accordingly, the present appeal was dismissed on the ground that no objections as to the appointment of the arbitrator were raised before the arbitrator or the court under section 34 of the Arbitration Act.

Case Title: BHADRA INTERNATIONAL INDIA PVT LTD AND ORS. versus AIRPORTS AUTHORITY OF INDIA

Citation: 2025 LiveLaw (Del) 173

Case Number: FAO(OS) (COMM) 23/2025, CM APPLs. 7934/2025 & 7935/2025

Judgment Date: 11/02/2025

For Appellants: Mr. Ashish Mohan, Sr. Adv. with Mr. Akshit Mago, Adv.

For Respondent: Mr. Sonal Kumar Singh, Ms. Sukanya Lal, Mr. Shivang Singh, Ms. Shivani Chaudhary and Mr. Anmol Adhrit, Advs.

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