There Cannot Be A Deemed Waiver Of Section 12(5) Of The A&C Act By Issuing A Letter To The Opposite Party: Gujarat High Court

The Single Bench of Chief Justice Aravind Kumar held that there cannot be a deemed waiver of Section 12(5) by merely issuing a letter or communication calling upon the opposite party to waive the embargo.

A tender was floated by the respondent Railways. The bid submitted by the petitioner M/S M N Trapasia was accepted and a contract was entered into between the parties. Thereafter, a dispute ensued between the parties and the petitioner issued a notice under Section 21 of the Arbitration and Conciliation Act, 1996 calling upon the respondent to appoint an Arbitrator. Since no steps were taken by the respondent, the petitioner filed a petition under Section 11(6) of the A&C Act, seeking appointment of a sole Arbitrator. Thereafter, the respondent called upon the petitioner to waive Section 12 (5) of the A&C Act, which was refused by the petitioner.

The Counsel for the petitioner M/S M N Trapasia submitted before the High Court that Section 12(5) of the A&C Act places an embargo on the respondent to appoint its officers as an Arbitrator. Thus, the Counsel contended that the petition filed by the petitioner must be allowed and an independent sole Arbitrator must be appointed by the Court to resolve the dispute between the parties. The Counsel for the respondent submitted that even if the petitioner had not waived the provisions of Section 12(5) of the A&C Act, as per the agreement entered into between the parties the respondent Railways had the right to appoint an Arbitrator as provided thereunder. The Counsel added that this right provided to the respondent under the Agreement could not be taken away. Hence, the Counsel averred that the petition must be dismissed.

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 High Court observed that the expression "notwithstanding any prior agreement to the contrary" occurring in Section 12(5) is a non-obstante clause. The Court ruled that even if there was any prior agreement to the contrary, allowing the appointment of any person as an arbitrator whose relationship with the parties or counsel or the subject-matter of the dispute fell under any of the categories specified in the Seventh Schedule, the said person would be disqualified to be an Arbitrator. However, the Court added, that if such an agreement was already existing and subsequently the parties wished to waive the provisions of Section 12 (5), they would be at liberty to do so.

The Court ruled that until the provisions of Section 12(5) of the A&C Act are waived by the parties, the embargo placed by Section 12(5) would continue. The Court held that there cannot be a deemed waiver by merely issuing a letter or communication calling upon the opposite party to waive the embargo of Section 12(5).

"Until and unless this waiver takes place or this exercise of waiving the embargo placed is undertaken by the parties, it cannot be gainsaid by either of the parties that even in such circumstances there is deemed waiver by merely issuing a letter or communication calling upon the opposite party to waive rigour/embargo found in Section 12(5)."

The Court held that the purpose of inserting Section 12 (5) to the A&C Act is to ensure neutrality of the Arbitrator. The Court added that a person who has or was having any relationship with the parties or the counsel, or who is having an interest in the subject-matter of the dispute, cannot be appointed as an arbitrator or continue to act as an arbitrator.

The Court thus allowed the petition of the petitioner M/S M N Trapasia and appointed a Sole Arbitrator.

Case Title: M/S M N Trapasia versus Divisional Railway Manager (WA)

Citation: 2022 LiveLaw (Guj) 119

Dated: 28.02.2022 (Gujarat High Court)

Counsel for the Petitioner: Mr Arpit P Patel

Counsel for the Respondent: Mr Siraj R Gori

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