All Unilateral Appointments Are Not Invalid Unless The Appointed Arbitrator Falls Within 7th Schedule: Calcutta High Court

The High Court of Calcutta has held that all unilateral appointment of arbitrator are not invalid per se unless the arbitrator’s relationship falls within the Seventh Schedule to the A&C Act. The bench of Justice Moushumi Bhattacharya distinguished between an arbitration clause that permits unilateral appointment of arbitrator and a clause that provides for arbitration before some person in charge of one of the parties or right of that person to delegate his function to a third party. The Court held that only in the latter scenario the persona designata would not just himself be ineligible to act as an arbitrator but would also be precluded from appointing someone else on its behalf. The Court further held that filing of pleadings before the arbitral tribunal and agreeing to the jurisdiction of the tribunal therein satisfies the requirement of ‘express agreement’ given under proviso to Section 12(5) of the A&C Act. The Court also held that a party, which was aware of the position of law qua the invalidity of the unilateral appointment of arbitrator, if participate in the arbitral proceedings for a considerable period of time and obtain the benefit of the order of the tribunal cannot later turn around and challenge the appointment of the arbitrator. Facts The parties entered into an agreement dated 24.03.2018. Clause 3 of the agreement was the arbitration clause and it conferred a unilateral right of appointment of arbitrator on the respondent. A dispute arose between the parties, accordingly, the respondent invoked the arbitration notice and appointed the arbitrator vide letter dated 11.05.2019. The arbitrator filed its disclosure on 12.05.2019. Thereafter, the petitioner filed its statement of defence and offered to provide security for disposal of the proceedings subject to consent by the respondent no. 1 for vacating of the injunction order dated 19.6.2019 (granted by the High Court under Section 9 of the Act). Subsequently, the arbitrator passed a consent order dated 15.07.2019 and directed the petitioner to provide the securities to the respondent. In compliance of the consent order, the petitioner executed Registered Agreement to Mortgage dated 15.07.2019 along with a Memorandum of Entry in favour of the respondent. Thereafter, the petitioner filed an application dated 09.12.2019 under Section 16(3) wherein it admitted to the jurisdiction of the tribunal by specifically stating that “the jurisdiction of this Hon’ble Tribunal is limited to disputes that had risen either on or before 11.5.2019”. Thereafter, the petitioner challenged the appointment of the arbitrator as being in teeth of Section 12(5) of the Act r/w entry 12 to the 7th Schedule. The petitioner also challenged the order under Section 13 of the Act. Contention of the Parties The petitioner challenged the appointment of the arbitrator on the following grounds: The arbitrator was unilaterally appointed by the respondent, therefore, his appointment is void ab initio and he lacks inherent jurisdiction to decide the dispute between the parties.Mere participation in the arbitration proceedings would not translate into an express agreement to waive the applicability of Section 12(5) of the Act (reliance placed on Ellora Paper Mills Limited vs. State of Madhya Pradesh; (2022) 3 SCC 1).Agreement to waive of the applicability of Section 12(5) has to be express and in writing it cannot be inferred from the conduct of the parties (reliance placed on Bharat Broadband Network Ltd. Vs. United Telecoms Ltd.; (2019) 5 SCC 755).A person ineligible to be appointed as an arbitrator cannot also appoint a sole arbitrator (Perkins Eastman Architects DPC vs. HSCC (India) Limited; (2020) 20 SCC 760 and TRF Ltd. vs. Energo Engineering Projects Ltd.; (2017) 8 SCC 377). The respondent raised following arguments against the maintainability and merit of the application: The petitioner has acquiesced its right to object to the appointment of arbitrator as it has participated in the arbitral proceedings for a considerable period of time. The petitioner has itself in its pleadings admitted to the jurisdiction of the arbitral tribunal which satisfy the requirement of ‘express agreement’ to waive the applicability of Section 12(5) of the Act. The petitioner has obtained a consent order from the tribunal and has acted on that order.The objection to the appointment is an afterthought to wriggle out of the arbitral proceedings. Analysis by the Court Express Agreement in Writing The Court held that Section 12(5) nullifies any agreement made between the parties before the appointment of an arbitrator where the person appointed comes within any of the relationships and categories specified in the Seventh Schedule. The person appointed as an arbitrator shall be rendered ineligible if he or she falls within any of the categories...

All Unilateral Appointments Are Not Invalid Unless The Appointed Arbitrator Falls Within 7th Schedule: Calcutta High Court

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