Airports Authority of India v. Travel Food Services Pvt Ltd

1. This petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short „the Act‟) seeking setting aside of award dated 26.09.2022.

2. The brief facts are that a concession agreement (for short „CA‟) was executed between the parties to the lis on 24.09.2018 for concession to develop, market setup, operate, maintain and manage the F&B outlet at Goa Airport. The term of the agreement was for four years. Article 22 of the CA provides for dispute resolution through arbitration. The dispute arose between the parties regarding nonsupply of electricity at the outlets by the petitioner and the respondent issued notice invoking arbitration on 21.11.2019 claiming an amount of Rs.15,40,93,629/-. The petitioner appointed a former Director General CPWD as the sole arbitrator to adjudicate the disputes. The proceedings culminated in the impugned award.

3. Before proceeding further it would be relevant to quote Article 22 of the CA: ARTICLE-22 [DISPUTE RESOLUTION] “22.[1] Dispute resolution 22.1.[1] Any dispute, difference or controversy of whatever nature howsoever arising under or out of or in relation to this Agreement (including its interpretation) between the parties, and so notified in writing by either party to the other party (except those the decision whereof is otherwise herein before expressly provided for or to which the public premises (eviction of Unauthorized Occupants) Act, 1971 and the rules framed thereunder which are now enforced or which may hereinafter come into force are applicable) (the "Dispute") shall, in the first instance, be attempted to be resolved amicably through mutual consensus for the disputes with financial implication up to Rs.7,00,000/- (Rupees seven lakhs). 22.1.[2] The parties agree to use their best efforts for resolving all disputes arising under or in respect of this Agreement promptly, equitably and in good faith, and further agree to provide each other with reasonable access during normal business hours to all nonprivileged records, information and data pertaining to any dispute.

22.2. Arbitration 22.2.[1] Any dispute with financial implication above Rs.7,00,000/- (Rupees seven lakhs, as provided in clause 22.1.1, shall be finally decided by reference to arbitration by a Sole Arbitrator to be appointed by the tender approving authority as per AAl delegation of Power in vogue. Such arbitration shall be subject to the provisions of the Arbitration and Conciliation Act, 1996 and shall include amendments to or any reenactments thereof, as in force from time to time. The venue of such arbitration shall be CHQ/concerned RHQ and the language of arbitration proceedings shall be English. The cost of arbitration shall be borne equally by both the parties. 22.2.2. The Arbitrator shall make an award (the "Award") for each dispute and / or claim and shall give reasons for the Award. Any award made in any arbitration held pursuant to this Article 22 shall be final and binding on the parties. For avoidance of doubt, the parties hereto agree that the adjudication hereunder shall not be final and binding until an appeal against such adjudication has been decided by an appellate tribunal or judicial court, as the case may be, or no such appeal has been preferred within the time specified in the Applicable Law. 22.2.[3] The Concessionaire and the Authority agree that an Award may be enforced against the concessionaire and / or the Authority, as the case may be, and their respective assets wherever situated. 22.2.[4] This Agreement and the rights and obligations of the parties shall remain in full force and effect, pending the Award in any arbitration proceedings hereunder. For the avoidance of doubt, the Concessionaire hereto agree that the concessionaire shall pay to the Authority, the Concession Fee, the Space Rent, Common Area Maintenance Charges, Utility Charges and any other payments that may become due and payable, pending the Award in any arbitration proceedings hereunder 22.[3] Adjudication by Regulatory Authority or Commission In the event of constitution of a statutory Regulatory Authority or Commission with powers to adjudicate upon disputes between the concessionaire and the Authority, all disputes arising after such constitution shall, instead of reference to adjudication under clause 22.3, be adjudicated upon by such Regulatory Authority or Commission in accordance with the Applicable Law and all references to Dispute Resolution Procedure shall be construed accordingly. For the avoidance of doubt, the parties hereto agree that the adjudication hereunder shall not be final and biding until an appeal against such adjudication has been decided by an appellate tribunal or judicial court, as the case may be, or no such appeal has been preferred within the time specified in the Applicable- Law:”

4. Learned counsel for the petitioner submits that the appointment of the arbitrator is in violation of Section 12(5) of the Act and the impugned award is liable to be set aside. Reliance is placed upon the decision of the Supreme Court in Bhadra International (India) Pvt. Ltd. & Ors. v. Airports Authority of India, 2026 INSC 6 and on the decision of this court in Railways Board, Ministry of Railways vs. Titagarh Rail Systems Limited, 2026:DHC:1720.

5. Per contra, it is not a case of unilateral appointment and the parties participated in the arbitral proceedings and the decisions relied upon is not applicable to the facts of the present case. 5.[1] The submission is that petitioner having appointed the arbitrator and on failing is now taking a u-turn. The contention is that the consent of the petitioner is evident having appointed the sole arbitrator. Reliance is placed upon the decision of the Supreme Court in Bhadra International (supra).

6. Before proceeding further, it would be apposite to quote the following decisions: 6.[1] The Supreme Court in Bhadra International (supra) dealt with the following three issues: “29….i. Whether the sole arbitrator could be said to have become “ineligible to be appointed as an arbitrator” by virtue of sub-section (5) of Section 12 of the Act, 1996? ii. Whether the parties could be said to have waived the applicability of sub-section (5) of Section 12 of the Act, 1996, by way of their conduct, either expressed or implied? iii. Whether the appellants could have raised an objection to the appointment of the sole arbitrator for the first time in an application under Section 34 of the Act, 1996?” Held: “123…i. The principle of equal treatment of parties provided in Section 18 of the Act, 1996, applies not only to the arbitral proceedings but also to the procedure for appointment of arbitrators. Equal treatment of the parties entails that the parties must have an equal say in the constitution of the arbitral tribunal. ii. Sub-section (5) of Section 12 provides that any person whose relationship with the parties or counsel, or the dispute, whether direct or indirect, falls within any of the categories specified in the Seventh Schedule would be ineligible to be appointed as an arbitrator. Since, the ineligibility stems from the operation of law, not only is a person having an interest in the dispute or its outcome ineligible to act as an arbitrator, but appointment by such a person would be ex facie invalid. iii. The words “an express agreement in writing” in the proviso to Section 12(5) means that the right to object to the appointment of an ineligible arbitrator cannot be taken away by mere implication. The agreement referred to in the proviso must be a clear, unequivocal written agreement. iv. When an arbitrator is found to be ineligible by virtue of Section 12(5) read with the Seventh Schedule, his mandate is automatically terminated. In such circumstance, an aggrieved party may approach the court under Section 14 read with Section 15 for appointment of a substitute arbitrator. Whereas, when an award has been passed by such an arbitrator, an aggrieved party may approach the court under Section 34 for setting aside the award. v. In arbitration, the parties vest jurisdiction in the tribunal by exercising their consent in furtherance of a valid arbitration agreement. An arbitrator who lacks jurisdiction cannot make an award on the merits. Hence, an objection to the inherent lack of jurisdiction can be taken at any stage of the proceedings.” 6.[2] The Division Bench of this court in Mahavir Prasad Gupta and Sons v. Govt. of NCT of Delhi, 2025 SCC OnLine Del 4241 dealt with the following issues: “74…a) When a party itself has unilaterally appointed the arbitrator, whether that party can object to the unilateral appointment of the arbitrator at any stage during or after the arbitration proceedings? b) If a party has unilaterally appointed an arbitrator, can that party be deemed to have given express waiver in writing under Section 12(5) of the Act while making the appointment itself?” The court concluded: “84….a) Mandatory Requirement: Any arbitration agreement providing unilateral appointment of the sole or presiding arbitrator is invalid. A unilateral appointment by any party in the arbitrations seated in India is strictly prohibited and considered as null and void since its very inception. Resultantly, any proceedings conducted before such unilaterally appointed Arbitral Tribunal are also nullity and cannot result into an enforceable award being against Public Policy of India and can be set aside under Section 34 of the Act and/or refused to be enforced under Section 36 of the Act. b) Deemed Waiver: The proviso to Section 12(5) of the Act requires an express agreement in writing. The conduct of the parties, no matter how acquiescent or conducive, is inconsequential and cannot constitute a valid waiver under the proviso to Section 12(5) of the Act. The ineligibility of a unilaterally appointed arbitrator can be waived only by an express agreement in writing between the parties after the dispute has arisen between them. Section 12(5) of the Act is an exception to Section 4 of the Act as there is no deemed waiver under Section 4 of the Act for unilateral appointment by conduct of participation in the proceedings. The proviso to Section 12(5) of the Act requires an „express agreement in writing‟ and deemed waiver under Section 4 of the Act will not be applicable to the proviso to Section 12(5) of the Act. c) Award by an Ineligible Arbitrator is a Nullity: An award passed by a unilaterally appointed arbitrator is a nullity as the ineligibility goes to the root of the jurisdiction. Hence, the award can be set aside under Section 34(2)(b) of the Act by the Court on its own if it „finds that‟ an award is passed by unilaterally appointed arbitrator without even raising such objection by either party. d) Stage of Challenge: An objection to the lack of inherent jurisdiction of an arbitrator can be taken at any stage during or after the arbitration proceedings including by a party who has appointed the sole or presiding arbitrator unilaterally as the act of appointment is not an express waiver of the ineligibility under proviso to Section 12(5) of the Act. Such objection can be taken even at stage of challenge to the award under Section 34 of the Act or during the enforcement proceedings under Section 36 of the Act.”

7. After amendment of Section 12(5) of the Act an employee of a party in dispute can neither be appointed arbitrator nor can nominate or appoint any other person as an arbitrator. The unilateral appointment in absence of an express agreement in writing between the parties to waive applicability of Section 12(5) of the Act is void ab initio. The filing of the statement of claim or participation in the arbitral proceedings cannot be construed as waiver under the proviso to Section 12(5) of the Act. The unilateral appointment of the arbitrator can be objected to for the first time under Section 34 of the Act.

8. Article 22.1.[1] of the CA provides that parties shall resolve their disputes amicably through mutual consensus. Article 22.2.[1] states that any dispute with financial implication above seven lakhs shall be decided by reference to arbitration by a sole arbitrator to be appointed by the tender approval authority as per AAI delegation of power in vogue.

9. The law is well settled that the official of a party to the dispute can neither be appointed as an arbitrator nor can appoint an arbitrator. In the case in hand, the arbitrator was appointed by the petitioner.

10. In view of the law laid down by the Supreme Court in Bhadra International (supra) and the decision of this Court in Mahavir Prasad Gupta (supra), the appointment of the arbitrator is in violation of the amended provisions of Section 12(5) of the Act.

11. The issue now to be determined is as to whether after the dispute arose was there an express waiver in writing between the parties that the provisions of Section 12(5) of the Act shall not apply.

12. The Supreme Court in Bhadra International (India) Pvt. Ltd (supra) held that waiver involves a conscious decision to abandon the existing legal right and can be made only by a person fully aware of such right. A legal right cannot be taken away by implications. The waiver has to be an unequivocal expression and it cannot be lost sight of that by such waiver the restriction imposed by Section 12(5) of the Act is sought to be overcome.

13. There is no prescribed format under the proviso to Section 12(5) of the Act for an express agreement in writing but it shall not mean that the waiver can be inferred by implication or through conduct. It would be relevant to quote the following paragraph from Bhadra International (India) Pvt. Ltd. (supra):