Plea That The Arbitrator Is De Jure Ineligible Can Be Raised As An Additional Ground To Challenge Award, Even Without Amendment Of S. 34 Petition: Delhi High Court

The Delhi High Court has ruled that the plea that the Arbitrator is de jure ineligible to act as an Arbitrator is a plea of lack of jurisdiction. This plea can be allowed to be raised as an additional ground in a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act), by way of an amendment and even without the same, the court has held.

The bench of Justice Navin Chawla made the observation while allowing the amendment application seeking to add an additional ground to challenge the arbitral award, even though the said application was filed much beyond the limitation period prescribed in Section 34(3) of the A&C Act. In its amendment application, the petitioner sought to raise the additional ground that the Arbitrator was de jure ineligible to act as such in view of Section 12(5) of the A&C Act.

The court also reiterated that filing of applications under Section 29A of the A&C Act for extension of mandate of the Sole Arbitrator by the petitioner, does not constitute an “agreement in writing” under the proviso to Section 12(5). Thus, the petitioner cannot be said to have waived the ineligibility of the Sole Arbitrator by filing the applications under Section 29A, the court remarked.

Section 12 (5) of the A&C Act provides that 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 petitioner, Man Industries (India) Limited, filed a petition under Section 34 of the A&C Act challenging the arbitral award passed by the Sole Arbitrator. The Sole Arbitrator had awarded damages in favour of the respondent, Indian Oil Corporation Limited (IOCL), while adjudicating the disputes between the parties in relation to a Purchase Order placed by IOCL on the petitioner.

During the pendency of the Section 34 petition, the petitioner filed an application for amendment of the petition by adding an additional ground of challenge to the arbitral award. The petitioner sought to challenge the award on the additional ground that the Sole Arbitrator was de jure ineligible to adjudicate the disputes between the parties in terms of Section 12(5) of the A&C Act.

The petitioner claimed that although the Sole Arbitrator was appointed on the request of the petitioner and in terms of the Arbitration Agreement between the parties, he was appointed by the respondent alone. Thus, he was de jure ineligible to act as an Arbitrator in view of Section 12(5). It added that there was no express waiver of the ineligibility of the Arbitrator by the petitioner in terms of the proviso to Section 12(5).

The respondent, IOCL, objected to the application for amendment on the ground that the limitation period for filing the Section 34 petition under the A&C Act had passed. IOCL argued that though a new ground can be allowed to be raised in challenge to the Arbitral Award at a later stage. However, in the garb of an amendment application, an absolutely new ground of challenge which has no foundation in the original petition, cannot be allowed to be raised.

IOCL submitted that the petitioner had twice filed applications under Section 29A of the A&C Act seeking extension of the mandate of the Sole Arbitrator. The filing of the said application, it claimed, would satisfy the requirement of the proviso to Section 12(5). Thus, the ineligibility, if at all, attached to the Sole Arbitrator would be waived.

The High Court reiterated that in view of the Supreme Court’s decision in Perkins Eastman Architects DPC & Anr. vs HSCC (India) Ltd., (2020) 20 SCC 760, a party to the Agreement would be disentitled to make any appointment of an Arbitrator.

The bench observed that Section 12(5) of the A&C Act provides for de jure inability of an Arbitrator to act as such. The only way in which this ineligibility can be removed is by fulfilling the conditions in the proviso to Section 12(5) of the Act, the court noted.

The court referred to its decision in JMC Projects (India) Ltd. vs Indure Private Limited, 2020 SCC OnLine Del 1950, where it was held that filing of applications seeking extension of time for continuance and completion of arbitral proceedings, cannot constitute an “agreement in writing” under the proviso to Section 12(5) of the Act.

“In view of the above authorities, there can be no doubt that the learned Arbitrator appointed by the respondent was de jure ineligible to act as such. The petitioner by its participation in the arbitration proceedings or by its filing of applications under Section 29A of the Act seeking extension of the mandate of the learned Arbitrator, cannot be said to have waived the ineligibility of the learned Arbitrator under Section 12(5) of the Act, and, therefore, the Arbitral Award passed by the learned Arbitrator is invalid,” the court held.

The bench further ruled that the plea of the Arbitrator being de jure ineligible to act as such, is a plea of lack of jurisdiction. This plea can be allowed to be raised by way of an amendment and even without the same, the court said.

Thus, the court concluded that the petitioner can be allowed to agitate the said ground by way of an amendment application, even though the said application was filed much beyond the period prescribed in Section 34(3) of the Act.

“In view of the above, it has to be held that the learned Arbitrator was de jure ineligible to act as such and the Award passed by the learned Arbitrator is void and unenforceable. The same is, therefore, set aside,” the bench held.

The court thus allowed the amendment application and the Section 34 petition, and set aside the award.

Case Title: Man Industries (India) Limited vs Indian Oil Corporation Limited

Citation: 2023 LiveLaw (Del) 502

Counsel for the Petitioner: Mr. Jayant Mehta, Sr. Adv. with Ms. Amrita Singh & Mr. Raghav Bhatia, Advs.

Counsel for the Respondent: Mr. Dhruv Malik, Ms. Sharmistha Ghosh, Ms. Aditi Sinha & Ms. Palak Nenwani, Advs.

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