Airports Authority of India v. Ahluwalia Contracts India Limited

1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 (for short „the Act‟) is filed against the arbitral award dated 10.08.2023.

2. The brief facts are that the petitioner/Airports Authority of India (for short „AAI‟) awarded the work of construction of the New Integrated Passenger Terminal Building at Birsa Munda Airport, Ranchi to the respondent vide Letter of Award dated 21.01.2009. Subsequently, an agreement dated 02.02.2009 was entered into between the parties to the lis. The time for completion of the work was twelve months. 2.[1] Clause 57 of the General Conditions of Contract (for short „GCC‟) provides for resolution of disputes by arbitration. As per clause 57(c) disputes are to be referred to the sole arbitration of a person appointed by the authority mentioned in Schedule E and no objection shall lie if the appointed arbitrator is an employee of AAI. The relevant portion of clause 57 is reproduced below: Dispute Resolution Mechanism (Arbitration) “Clause 57(b) when the dispute could not be resolved through the Dispute Resolution Board, the Arbitration clause may be invoked within 30days of receiving the decision of the Dispute Resolution Board. 57(c) Except where otherwise provided for in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same weather arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitrator as may be appointed by authority mentioned at serial number 32 in schedule E. There will be no objection if the arbitrator so appointed is an employee of AAI and that he had to deal with the matters to which the contract relates and that in the course of his duties as such he had expressed views on all or any of the matters is dispute or difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, the appointing authority for arbitrator, as aforesaid at the time of such transfer, vacation of office or inability to act, shall appoint another person to act as arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by the authority mentioned in schedule E, should act as arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all.” 2.[2] Disputes arose between the parties with regard to delay in execution of the work, levy of liquidated damages and release of pending amounts. The respondent invoked arbitration by issuing a notice under Section 21 of the Act on 16.04.2019. The petitioner appointed the sole arbitrator vide order dated 13.05.2019. The arbitral proceedings culminated in the impugned award whereby claims no. 1, 4 & 5 were allowed in favour of the respondent. Hence, the present petition.

3. Learned counsel for the petitioner submits that the appointment of the sole arbitrator is in violation of amended Section 12(5) read with Seventh Schedule 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 the decisions of this Court in Railways Board, Ministry of Railways vs. Titagarh Rail Systems Limited, 2026:DHC:1720 and Engineering Projects (India) Ltd. v. Allied Construction, 2026:DHC:2540 to contend that unilateral appointment of an arbitrator is void ab-initio and objection to such appointment can be raised even in proceedings under Section 34 of the Act.

4. Per contra, the petitioner having appointed the arbitrator, participated in the arbitral proceedings, awaited for the outcome and having failed therein cannot challenge the appointment. It is submitted that the appointment was not unilateral but joint as the petitioner appointed arbitrator on request of the respondent. Further that no objection with regard to the appointment of the arbitrator was raised before the arbitral tribunal and the same cannot be permitted to be raised in the present proceedings under Section 34 of the Act.

5. Before proceeding further, it would be apposite to quote the following decisions: 5.[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.” 5.[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.”

6. 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. In the case in hand, the arbitrator was appointed by the petitioner in terms of clause 57(c) of the GCC.

7. The contention that the appointment of the arbitrator was never objected to and that this issue was not pleaded in the petition under Section 34 of the Act is of no avail. The Supreme Court in Bhadra International (supra) held that the issue goes to the root of jurisdiction and can be raised for the first time under Section 34 of the Act. Moreover, the issue of jurisdiction can be raised at any stage, including the stage of execution. It is also held that there should be express written consent by the parties for waiver of the applicability of Section 12(5) of the Act. The relevant paragraphs are reproduced below:

8. In view of the law laid down by the Supreme Court in Bhadra International (supra) and the decisions of this Court in Titagarh Rail Systems Limited (supra) & Allied Construction (supra) affirmed by the Division Bench of this court, the appointment of the arbitrator is in violation of the amended provisions of Section 12(5) of the Act.

9. 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.

10. The Supreme Court in Bhadra International (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.

11. 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 (supra):