Participation In The Arbitration Proceedings Cannot Be Considered To Be A Waiver Of Section 12(5) Of The A&C Act: Delhi High Court

The bench of Justices Vibhu Bakhru and Amit Mahajan held that applicability of Section 12(5) can only be waived off by an express agreement and not by the conduct of parties. The Court held that the objection to challenge an arbitration award on the ground of ineligibility of arbitrator due to his unilateral appointment can be raised regardless of no such objection being taken before the arbitrator.

The Court held that the judgment of SC in Bharat Broadband Network Limited, which provided that Section 12(5) could only be waived only by an express agreement and distinguished it from the general waiver under Section 4 of the Act, cannot be held to apply to situations where objection was taken during the arbitration proceedings.

The Court reiterated that appointment of unilateral arbitrator is not valid in law and any award passed by such tribunal cannot be considered to be valid.

Facts

The parties entered into a buyer agreement dated 30.06.2014 wherein the appellant agreed to purchase a flat in a building being developed by the respondent. A dispute arose between the parties that was referred to arbitration before a sole arbitrator appointed by the respondent.

The appellant appeared before the tribunal and objected to its jurisdiction and later left the proceedings. The tribunal continued ex-parte and passed an award in favour of the respondent. Aggrieved by the award, the petitioner challenged the award under Section 34 of the Act.

The Commercial Court rejected the petition. Aggrieved by the rejection of petition, the petitioner preferred an appeal under Section 37 of the Act.

Grounds of Appeal

The appellant, inter alia, challenged the award on the ground that the award was passed by a sole arbitrator unilaterally appointed by the respondent, thus, the award was invalid. It also submitted that it had raised the objection before the arbitrator also before withdrawing from the proceedings.

The respondent contended that an objection as to the invalidity of the award on the ground of unilateral appointment of arbitrator would not be available if it was not raised either at the stage of appointment of arbitrator or during the arbitral proceedings either before the tribunal or before the Court. [Relied on Kanodia Infratech Limited v. Dalmia Cement (2021)]

Analysis by the Court

The Court observed that admittedly the arbitrator was appointed by the Managing Director of the respondent and there is no agreement that appellant had concurred with his appointment.

The Court relied on the judgements of the Supreme Court in TRF Ltd v. Energo Engineering (2017) & Perking Eastmand v. HSCC (2020) and its judgment in Proddatur Cable v. Citi Cable (2020) to hold that unilateral appointment of sole arbitrator is impermissible in law and attract Section 12(5) of the Act.

The Court next considered the objection regarding the effect of participation in arbitration proceedings and not raising the objection before the passing during the arbitration proceedings.

The Court held that mere participation in the arbitration proceedings cannot be considered to be waiver of Section 12(5) that provides for ineligibility of arbitrator.

The Court held that applicability of Section 12(5) can only be waived off by an express agreement and not by the conduct of parties. The Court held that the objection to challenge an arbitration award on the ground of ineligibility of arbitrator due to his unilateral appointment can be raised regardless of no such objection being taken before the arbitrator.

The Court held that the judgment of SC in Bharat Broadband Network Limited, which provided that Section 12(5) could only be waived only by an express agreement and distinguished it from the general waiver under Section 4 of the Act, cannot be held to apply to situations where objection was taken during the arbitration proceedings. Moreover, the Court observed that the appellant had raised the objection before the arbitrator also.

The Court reiterated that appointment of unilateral arbitrator is not valid in law and any award passed by such tribunal cannot be considered to be valid. Accordingly, the Court set aside the award.

Case Title: Govind Singh v. Satya Group Pvt. Ltd, FAO (COMM) 136 of 2022

Citation: 2023 LiveLaw (Del) 14 

Date: 06.01.2023

Counsel for the Petitioner: Mr. Abhinav Sharma

Counsel for the Respondent: Ms. Kaadambari, Mr. Sonu Kumar, Mr. Amitender Tiwari, Mr. Sahil Khanna and Ms. Ayushi, Advocates.

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