Appointment Of Arbitrator In International Commercial Arbitration By HC Does Not Vitiate Award: Delhi High Court

The Delhi High Court Bench of Justice C. Hari Shankar has held that the appointment of the Arbitrator in an International Commercial Arbitration (“ICA”) by the Chief Justice of the High Court, does not vitiate the impugned award. The bench held that the objection to the appointment of the arbitrator should have been raised during the arbitration proceedings. Since the parties failed to do so, they were deemed to have waived their right to object. Brief Facts of the case: Cross petitions were filed under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award issued by an arbitrator. This award directed the petitioner to pay the respondent US $104,190 along with interest, consequent on which the respondent is required to transfer 6,43,865 equity shares of Petitioner 3, held by it, to Petitioners 1 and 2. The primary argument made by the petitioners against the award was that the arbitrator's appointment was invalid because it was made by the High Court, which, according to them, did not have the authority to do so. The petitioners argued that since the dispute was related to the ICA, only the Supreme Court had the jurisdiction to appoint the arbitrator. As a result, they claimed that the arbitrator's appointment was void from the beginning, and the award should be set aside. Observation of the Court: The High Court dealt with three key issues: Whether the appointment of the Arbitrator was in accordance with the 1996 Act?Whether the appointment of the Arbitrator by the High Court invalidates the impugned award?Whether the petitioners can raise this objection at this stage? The examination of the impugned award hinges on whether the award is vitiated due to the alleged illegality in the appointment of the arbitrator, particularly concerning Issue (3), which would only be pertinent if the award is already compromised due to such illegality. Regarding Issue (1), the appointment of the arbitrator, it was determined that it was not in accordance with the 1996 Act, as Section 11(6) clearly mandates that in the case of an ICA, the arbitrator must be appointed by the Supreme Court. However, in this instance, the appointment was made by the Chief Justice of the High Court, rendering the appointment technically flawed. The more significant Issue (2) focuses on whether the violation of Section 11(6) impacts the validity of the award. This was addressed primarily through the precedent set by the Supreme Court in Narayan Prasad Lohia v Nikunj Kumar Lohia, which dealt with the derogability of certain sections of the 1996 Act. The Court in Narayan Prasad Lohia discussed whether Section 10(1), which concerns the composition of the Arbitral Tribunal, is derogable and found that it was, meaning that parties could waive their right to object to the tribunal's composition if they did not raise the issue in a timely manner. Applying this reasoning to Section 11(6), the Court concluded that a party could similarly waive the right to object to the arbitrator's appointment by not raising the issue before submitting their statement of defense, effectively making Section 11(6) a derogable provision. The Court also addressed the challenge under Section 34(2)(a)(v) of the 1996 Act, which allows an award to be set aside if the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement between the parties. In this case, the agreement explicitly required the arbitrator to be appointed by the Chief Justice of the High Court, which was done, even though it conflicted with Section 11(6). However, since the appointment aligned with the parties' agreement, the award could not be challenged under this provision. Further, the argument that the petitioners were unaware of the arbitration proceedings and thus could not have raised an objection earlier was considered but ultimately dismissed. Even if accepted, the argument would not negate the fact that the appointment was in accordance with the agreement between the parties, thus aligning with the second principle in Narayan Prasad Lohia, which prioritizes the agreement over statutory provisions if the former does not conflict with non-derogable aspects of the 1996 Act. Finally, the amendment of Section 34 by the 2016 Amendment Act, which narrows the definition of “public policy of India,” was discussed. The Court found that the appointment of the arbitrator did not contravene this narrowed scope and thus did not render the award void on public policy grounds. In conclusion, the Court found that the appointment of the arbitrator, although technically in violation of Section 11(6), did not vitiate the award because it was in accordance with the arbitration agreement. Therefore, the challenge to the award on the grounds of the arbitrator's appointment was rejected. Case Title: HALA KAMEL ZABAL versus ARYA TRADING...

Appointment Of Arbitrator In International Commercial Arbitration By HC Does Not Vitiate Award: Delhi High Court

Soumya Chakrabarti

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