Party That Unilaterally Appointed Arbitrator Not Barred From Challenging Appointment U/S 12(5) Of Arbitration Act: Delhi High Court

The Delhi High Court bench of Justice Tejas Karia and Justice Vibhu Bakhru has held that a party that unilaterally appoints an arbitrator is not prohibited from challenging the award on the ground that it violates Section 12(5) read with the Seventh Schedule of the Arbitration Act. Mere exercise of the power to make such an appointment does not constitute an express written waiver as required under the proviso to Section 12(5) of the Arbitration Act. Brief Facts: The present appeal has been filed under section 37 of the Arbitration and Conciliation Act, 1996 challenging the order dated 23.05.2023 passed by the Commercial Court, which allowed a Section 34 application and set aside the arbitral award dated 12.10.2020 awarding ₹1,76,01,359/- with 10% interest. The award was set aside on the ground that the Sole Arbitrator was unilaterally appointed by the Respondent, violating Section 12(5) read with the Seventh Schedule, rendering the award contrary to public policy. The dispute arose from a contract between the Appellant and Respondent for strengthening Road No. 58 (Maharaja Surajmal Marg). The Appellant, awarded the ₹5.16 crore work order on 25.11.2014, began work on 09.12.2014 and completed it by 21.05.2015. However, a post-completion inspection by the Quality Assurance Unit of GNCTD revealed that some road layers were significantly below the required 165mm thickness. The Appellant's final bill was withheld due to alleged road thickness deficiencies. A third-party audit by IIT Roorkee and PWD, however, found the work within permissible limits. Despite this, the Respondent directed additional work and refused final payment. The Appellant invoked arbitration; the Sole Arbitrator, finding the audit report reliable, awarded ₹1.76 crore to the Appellant. The Respondent challenged the Award under Section 34, and it was set aside for violating Section 12(5) of the Arbitration Act due to improper arbitrator appointment. The Appellant has appealed. The Appellant submitted that the Respondent did not object to the Sole Arbitrator's appointment during arbitration and even agreed to extend his mandate under Section 29A of the Act. The issue of unilateral appointment was neither raised during arbitration nor pleaded in the Section 34 application. It was only upon the Commercial Court's query that the Respondent, for the first time, challenged the Arbitrator's jurisdiction. It was further submitted that as the learned Sole Arbitrator was appointed by the Respondent itself, the Respondent cannot object to the appointment. In reply, the Respondent submitted that the Sole Arbitrator was unilaterally appointed by the Respondent's Chief Engineer, rendering him ineligible under Section 12(5) read with the Seventh Schedule of the Arbitration Act. No written waiver was provided by the Appellant as required under the proviso to Section 12(5). As a result, the Award is claimed to be null, void, and unenforceable, violating public policy under Section 34(2)(b) of the Act and liable to be set aside. It was further submitted that mere participation in the arbitral proceedings or filing applications under Section 29A of the Act does not amount to an express waiver under the proviso to Section 12(5) of the Act. Observations: The court noted that unilateral appointment of an arbitrator by one party is impermissible under Section 12(5) of the Arbitration Act, read with the Seventh Schedule, as it raises justifiable doubts regarding the arbitrator's independence or impartiality. Such an appointment is void ab initio, and any award passed by an ineligible arbitrator is unenforceable in law. It further observed that Section 12(5) of the Arbitration Act overrides Section 4 and requires an express written waiver to validate an otherwise ineligible arbitrator's appointment. Waiver by conduct or participation is not sufficient. The Supreme Court in Bharat Broadband held such ineligibility is de jure, and the arbitrator's mandate terminates automatically under Section 14(1)(a).Consenting to the extension of the mandate of the arbitrator under Section 29A(3) of the Act does not constitute a valid express waiver in writing as required under the proviso to Section 12(5) of the Act. It held that in the absence of an express written waiver, a party may object to a unilateral arbitrator appointment even at the Section 34 or 36 stage. Under Section 34(2)(b), the Court must ensure the award does not violate the Public Policy of India, and can set aside the award suo motu if based on an ineligible arbitrator, regardless of whether parties raised the issue. It held that “the objection with regard to award being nullity due to unilateral appointment can be raised for the first time at the stage of Section 34 of the Act and even in absence of the objection, if the Court while deciding the application under Section 34 of the Act finds that the ...

Party That Unilaterally Appointed Arbitrator Not Barred From Challenging Appointment U/S 12(5) Of Arbitration Act: Delhi High Court

Mohd Malik Chauhan

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