Party Can Waive Arbitrator's Ineligibility U/S 12(5) Of Arbitration Act By Express Agreement In Writing: Bombay High Court

The Bombay High Court bench of Justice Rajesh S. Patil affirmed that once an ineligibility to act as Arbitrator is waived by an express agreement in writing under proviso to section 12(5) of the Arbitration Act, waiving party is prohibited from claiming ineligibility of the Arbitrator for the first time under section 34 of the Arbitration Act. In this case, the petitioner had waived the ineligibility of the arbitrator by sending a signed letter. Brief Facts The present petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short 'the Arbitration Act'), by the original claimant seeking to quash and set aside the arbitral award dated 4th February 2022, passed by the sole arbitrator. On 5th May 2016, a tender was published by the Divisional Railway Manager (Mechanical), Central Railway, Mumbai (for short 'Railways') towards the work of Pest and Rodent Control, in railway passenger coaches maintained at CSTM, WB, MZN, DRT and LDT, Coaching Depots and Rodent Control in Coaching Depots yard and premises. The petitioner participated in the tender process and on 7th June 2016, was declared as the successful bidder. Accordingly, the contract work of the said tender was awarded to the petitioner, for an amount of Rs.1,96,32,255/-. The contract period was for three years i.e. from 30th November 2016 to 29th November 2019. Meanwhile, Government issued Notification on 19th January 2017, by which the rates of minimum wages payable to labourers were increased.Additionally, the railways issued a Joint Procedure Order (for short 'JPO') dated 20th December 2017, wherein all the contractors were permitted to foreclose their contracts on the condition that the contractors would continue the ongoing work till the finalisation of a new contract, and the minimum wages would be paid to the labourer till the foreclosure of the contract and no dues financial or otherwise shall be staked by the contractor. The petitioner vide their letter dated February 2018 and a further letter dated January 2019 communicated their intention to withdraw from the contracted work as per the terms of the JPO. The railways accordingly on 8th January 2019 issued a new contract for the balance work and foreclosed the contract with the petitioner. The petitioner claimed an additional manpower expense of Rs.20,91,522/- along with interest from the railways. As the said amount was disputed, the petitioner, on 7th December 2020, issued a legal notice to the railways and invoked Arbitration Clause. The proceedings before the Arbitral Tribunal, consisting of Sole Arbitrator went ahead and after hearing both the sides the Sole Arbitrator, on 4th February 2022 passed an Award, thereby dismissing the claim of the petitioner. Contentions The petitioner submitted that the sole Arbitrator was appointed by the Railways, therefore, under the provisions of Section 12 (5) read with Schedule VII of the Arbitration Act, the award passed by the Sole Arbitrator who was himself de jure ineligible to be an Arbitrator, hence, the Award is void ab initio. That the Waiver as mentioned under Section 12(5) of the Arbitration Act, was sought by the Railways, as per their demand. The Railways had by their letter dated 22nd February 2021 enclosed a standard proforma of the Waiver agreement which was made mandatory to be signed by both the parties. Therefore, the petitioner had no other option but to sign the Waiver Agreement under Section 12(5) of the Arbitration Act and thereafter, to proceed with the arbitration. Reliance was placed upon the the judgment of the Supreme Court passed in Ellora Papermills Limited vs. State of Madhya Pradesh (2022). That the Railways deliberately neglected the representations made by the petitioner, requesting to invoke the price variation clause in the Contract Agreement and reimburse the increased amount payable in the form of wages to the workers. Per contra, the respondent submitted that a bare reading of Section 34 of the Arbitration Act makes it clear that the grounds for raising a challenge to the Arbitral Award are restricted to those in Section 34(2). The petitioner in the present case except for making a feeble attempt to raise an objection to the appointment of the Arbitrator has not made out any case to set aside the award on any of the grounds under Section 34(2) of the said Act. That the letter dated 18th December 2020 addressed to Senior Diksha Rane Divisional Mechanical Engineer (Coaching), Divisional Railway Manager (Mechanical) forwarded an Agreement signed by the petitioner and the respondent expressly waiving the applicability of Section 12(5) of the said Act. The documents of waiver are in writing and the same are executed post the dispute having arisen. Court's Analysis The court, at the outset, noted that in the present proceedings, the petitioner/claimant invoked the arbitration clause by...

Party Can Waive Arbitrator's Ineligibility U/S 12(5) Of Arbitration Act By Express Agreement In Writing: Bombay High Court

Mohd Malik Chauhan

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