Application Under Section 29(A) A&C Act Doesn't Constitute Express Waiver In Writing U/s 12(5) To Challenge Arbitrator's Ineligibility: Delhi High Court

Brief Facts:

The Petitioner filed a petition under Section 34 of the Arbitration & Conciliation Act, 1996 in Delhi High Court (“High Court”), seeking the setting aside of the final arbitral awards. These awards were delivered by a Sole Arbitrator and both relate to different projects involving the same parties.

First Award pertained to a Letter of Acceptance (LOA), issued to the Petitioner as the lowest bidder for a housing project near Jhajjar Village, Prem Nagar, Dehradun. The project involved the construction of 430 flats in eight towers with an estimated cost of Rs.98.01 crores. An agreement was executed on 10.06.2010.

Second Award, related to an LOA dated 30.11.2017, issued by the Respondent to the Petitioner for completing the balance work at a project site comprising 545 flats in eight towers, with an amount of Rs.38.33 crores. The Respondent initially awarded the project in 2010 to M/s Omaxe Infrastructure & Construction Ltd., but the contract was terminated, leading to the issuance of LOA in favor of the Petitioner.

The disputes between the parties resulted in the invocation of arbitration, leading to the issuance of the impugned Awards.

The Petitioner's primary ground for challenge was the de jure ineligibility of the Sole Arbitrator, citing the Seventh Schedule of the Arbitration Act. It contended that Section 12(5) of the Arbitration Act allowed challenging the proceedings conducted by an inherently ineligible arbitrator, and the Petitioner's participation does not waive this right unless there is an express agreement in writing post-dispute. The Respondent refuted this, arguing that waiver could be implicit through conduct, pointing out the Petitioner's active steps in the arbitral proceedings, such as filing an application under Section 29(A) seeking an extension of the mandate of the arbitral tribunal.

Observations by the High Court:

The High Court noted that the arbitrator was unilaterally appointed by the Respondent, in accordance with Clause 18.2 of the General Conditions of Contract (GCC) forming part of the Agreement and Clause 22 of the Agreement. These clauses did not afford the Petitioner any say in the appointment process.

The High Court held that the chairman-cum-managing director of a party ineligible himself was also not eligible to appoint another arbitrator. Further, it held that participation in arbitral proceedings without objecting to the arbitrator's appointment did not constitute a waiver of the right under Section 12(5) of the Arbitration Act.

The High Court referred to the decision in Larsen & Toubro Ltd. v. HLL Lifecare and held that filing an application under Section 29A of the Arbitration Act for an extension of the mandate did not amount to an express waiver in writing under Section 12(5). It held that the mere act of participation, without clear indication that the party is cognizant of the ineligibility and has consciously chosen to waive the right to object, is insufficient.

Consequently, the High Court allowed the petitions, setting aside the Awards.

Case Title: Umaxe Projects Private Limited vs Air Force Naval Housing Board

Citation: 2024 LiveLaw (Del) 226

Case Number: O.M.P. (COMM) 470/2023.

Advocate for the Petitioner: Mr. Anirudh Bakhru, Mr. Ayush Puri, Mr. Kanav Madnani, Ms. Pragya Choudhary, Mr. Vijay L. Rathi and Mr. Sultan Haider.

Advocate for the Respondent: Mr. Yoginder Handoo, Mr. Ashwin Kataria and Ms. Medha Gaur, Advocates with GP Captain K.K. Sharma and Mr. B.S. Nirola.

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