Full Text
HIGH COURT OF DELHI
Date of Decision: 28.05.2024
AIRPORTS AUTHORITY OF INDIA ..... Petitioner
AIRPORTS AUTHORITY OF INDIA ..... Petitioner
Appearances:
Mr. K.K. Rai, Mr. Vaibhav Kalra, Ms. Neha Bhatnagar, Advocates for petitioners.
Mr. Ashish Mohan, Mr. Akshit Mago, Mr. Digvijay Singh, Advocates for respondent.
PRATEEK JALAN, J. (ORAL)
JUDGMENT
1. By way of these petitions under Section 34 of the Arbitration and Conciliation Act, 1996 [“the Act”], the petitioner – Airports Authority of India [“AAI”] - assails two arbitral awards, dated 01.08.2020 and 17.10.2020, by which a learned sole Arbitrator has adjudicated claims and counterclaims arising under a Supplementary License Agreement dated 23.03.2007.
2. By the award dated 01.08.2020, certain claims of the respondent herein – TDI International India Pvt. Ltd. [“TDI”] have been awarded and by the award dated 17.10.2020, certain claims raised by AAI have been rejected. Both the awards were rendered by the same learned Arbitrator.
3. Before going into the merits of the disputes, Mr. K.K. Rai, learned Senior Counsel for AAI, raises a preliminary point that the learned Arbitrator was unilaterally appointed, and the awards are, therefore, void ab initio. He submits that an arbitrator unilaterally appointed is de jure unable to act, in terms of the judgments of the Supreme Court in TRF Limited vs. Energo Engineering Projects Limited[1] and Perkins Eastman Architects DPC vs. HSCC (India) Limited,[2] and the judgments following them. He cites the Division Bench judgments of this Court in Ram Kumar v. Shriram Transport Finance Co. Ltd.3, Govind Singh v. Satya Group Pvt. Ltd.4, Kotak Mahindra Bank Ltd. v. Narendra Kumar Prajapat[5] and Babu Lal v. Cholamandalam Investment & Finance Co. Ltd,[6] to submit that an award made by such an arbitrator is of no legal effect.
4. Mr. Rai draws my attention to a letter dated 09/14.05.2018, addressed by the Chairman, AAI, to the parties, by which the learned Arbitrator was appointed in respect of TDI’s claims. By a similar communication dated
16/21.10.2019, the same learned Arbitrator was appointed by the Chairman, AAI, to adjudicate the claims of AAI. This factual position is not in dispute.
5. Mr. Ashish Mohan, learned counsel for TDI, does not dispute the general principle that an award of an arbitrator appointed unilaterally by one of the parties is void. However, he submits that the present case ought to be excepted from this general principle for the following reasons: a. Mr. Mohan submits that the principles governing the validity of an award made by a unilaterally appointed arbitrator, ought not to prevail in a case when the arbitrator had been appointed by the party seeking to challenge the award. He submits that Section 12(5) of the Act itself incorporates a proviso for wavier by express agreement in writing, and that the appointment of the learned Arbitrator by a party, constitutes such an express waiver. b. Mr. Mohan further submits that Section 12(5) of the Act, which was inserted by the Arbitration and Conciliation Act (Amendment) Act, 2015 [“Amendment Act”] with effect from 23.10.2015, would be inapplicable to the present case, as the arbitration proceedings in fact commenced under Section 21 of the Act well before the Amendment Act came into force. c. Mr. Mohan further submits that the parties both submitted their respective disputes before the learned Arbitrator for adjudication and no such plea ought to be entertained at this stage. He also submits that, in the course of proceedings, the learned Arbitrator has recorded that the parties do not object to the constitution of the tribunal. He cites the decision of the Division Bench in Arjun Mall Retail Holdings (P) Ltd. v. Gunocen Inc.,[7] in this connection.
6. The ineligibility of a unilaterally appointed arbitrator to act as an arbitrator, derives from Section 12 of the Act, which is set out below:
dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.]” In TRF Limited[8] and Perkins Eastman,[9] the Supreme Court held that appointment of arbitrators by persons who are themselves ineligible to act, cannot be permitted. Such an appointee would be de jure ineligible to act as an arbitrator. The judgment of the Supreme Court in Bharat Broadband Network Ltd. v. United Telecom Limited,10 further held that waiver under the proviso to Section 12(5) of the Act requires an express agreement in writing to that effect, and that the conduct of the parties, including participation in the arbitral proceedings, would be insufficient to infer such waiver.
7. Several judgments of this Court have followed this line of authority, to conclude that an award made by a unilaterally appointed arbitrator is itself a nullity and void ab initio. The Division Bench judgments in Ram Kumar,11 Govind Singh,12 Kotak Mahindra13 and Babu Lal14 make this position clear.
8. In Ram Kumar,15 the Court, holding that an award rendered by a person ineligible to act as an arbitrator would not be an award under the Act, observed as follows:
Supra note 1. Supra note 2.
Supra note 3. Supra note 4. Supra note 5. Supra note 6. requires to be in writing. In Proddatur Cable TV Digi Services v. Siti Cable Network Limited: (2020) 267 DLT 51, the learned Single Judge of this Court, following the decision in TRF Ltd. v. Energo Engineering Projects Ltd. (supra) and Perkins Eastman Architects DPC v. HSCC (India) Ltd. (supra), held that unilateral appointment of an arbitrator by a party is impermissible.”16
9. In Govind Singh,17 the Court, following TRF Limited18 and Perkins Eastman,19 held as follows:
10. In the Division Bench judgment in Kotak Mahindra,21 this Court took the view that proceedings for execution of an award made by a unilaterally appointed arbitrator are not maintainable. This was carried to the Supreme Court.22 The Supreme Court, by an order dated 12.12.2023, rejected Special Leave to Appeal with the following observations: “Heard the learned senior counsel appearing for the petitioner. Delay condoned. From paragraph 6 of the impugned order, it appears to be an admitted position that the Arbitrator unilaterally appointed by the petitioner was ineligible to be appointed as an arbitrator by virtue of Section 12(5) of the Arbitration and Conciliation Act, 1996. Hence, in view of this peculiar factual position, no case for interference is Emphasis supplied. Special Leave Petition under Diary No. 47322/2023. made out in exercise of our jurisdiction under Article 136 of the Constitution of India. The Special Leave Petition is accordingly dismissed. Pending application also stands disposed of.”
11. The judgment in Babu Lal,23 following Kotak Mahindra,24 held as follows:
12. Several judgments of coordinate benches have also proceeded on the same basis, including in JMC Projects (India) Ltd. v. Indure (P) Ltd.,26 Delhi Buildtech (P) Ltd. v. Satya Developers (P) Ltd.,27 Telecommunication Consultants India Ltd. v. Shivaa Trading,28 MS Bridge Building Construction Co. (P) Ltd. v. BHEL,29 Man Industries (India) Limited v. Indian Oil Corporation Limited,30 and Smaaash Leisure Ltd. v. Ambience Commercial Developers (P) Ltd.31
13. It is in the background of these principles that the various grounds
Judgment dated 09.03.2024 in OMP (COMM) 311/2022. raised by Mr. Mohan must be considered. b. Can the objection taken by the appointing party?
14. Mr. Mohan submitted that, in the present case, it is AAI which has appointed the arbitrator, and an objection as to ineligibility ought not to be entertained at its instance.
15. I am of the view that this issue is covered in favour of AAI, having regard to the judgment in Telecommunication Consultant India. Ltd.32 cited by Mr. Rai. In the said judgment also, the challenge to an award was laid by the very same party which had unilaterally appointed the arbitrator. Citing the judgment of the Supreme Court in Bharat Broadband,33 the Court held as follows:
Supra note 28. Supra note 10. (2023) SCC OnLine Del 37 at paras 20,21,22 and 23. 2022 SCC OnLine Del 740 at paras 7 and 19. (2021) SCC OnLine Del 4465 at paras 7,9,10,12 and 13. Board37 in support of his proposition. xxxx xxxx xxxx
19. Counsel for the respondent submits that it is against all tenets of fairness and justice, that a party which has appointed the learned Arbitrator without challenging his jurisdiction, should now be permitted to challenge the award on the ground that the arbitrator who they appointed inherently lacked jurisdiction to render the award. xxxx xxxx xxxx
23. Upon a conspectus of the averments contained in the petition and in the reply; and having heard learned counsel for the parties, this court is of the view that the present case is squarely covered by the decision of the Supreme Court in Bharat Broadband Network Ltd. vs. United Telecoms Ltd. (supra). Just as in Bharat Broadband, in the present case as well, the party that had appointed the Arbitrator had itself subsequently challenged the award on the ground that the Arbitrator was ineligible to act as such, in light of section 12(5) of the A&C Act.
24. The enunciation of the law by the Supreme Court on the point is clear and unequivocal, inasmuch as the challenge under section 12(5) is attracted in a case where the arbitrator becomes de jure ineligible to perform his function by reason of falling in one or more of the categories specified in the Seventh Schedule to the A&C Act. In such circumstances, the Supreme Court has held, that since an arbitrator so appointed inherently lacks jurisdiction to act as an arbitrator, the very appointment of the arbitrator and the arbitral proceedings conducted are rendered void ab-initio. The Supreme Court has also held that any waiver in terms of the proviso to section 12(5) of the A&C Act must be “express” and “in writing” and must have been granted “subsequent” to disputes having arisen between the parties. These have been held to be necessary prerequisites for the waiver to section 12(5) being valid.
25. The judgments of the Division Bench of this court and of other Coordinate Benches referred to above, also make for a consistent and unbroken line of case-law on the point.
26. Admittedly, no such waiver was granted by the parties to the appointment of the arbitrator in the present case.
27. There also cannot be any cavil with the proposition of law that a defect of jurisdiction, which renders a decision void, can be challenged at any stage, since such defect strikes at the very foundation of the power of the court or tribunal to decide a dispute.
28. It may also be observed that in the present case, both the claims as (2024) SCC OnLine Del 1841 at paras 7,11 and 17. well as the counter-claims filed by the parties, have been rejected by the learned Arbitrator.”38
16. The coordinate bench has considered the very same argument now made by Mr. Mohan, and held to the contrary. I therefore accept Mr. Rai’s contentions that the award can be challenged on this account, even though the learned Arbitrator was appointed by AAI itself. c. Is Section 12(5) applicable to the present case?
17. Mr. Mohan’s next submission pertains to the applicability of Section 12(5) of the Act itself, in the facts of this case. He submits that the proceedings before the learned Arbitrator were a continuation of proceedings first invoked by TDI on 04.07.2008. Those proceedings culminated in an award dated 19.04.2011, which was set aside by this Court on 15.02.2017 [order dated 15.02.2017 in O.M.P. 490/2011]. This order was upheld by the Division Bench [judgment dated 09.02.2018 in FAO(OS) 115/2017]. According to Mr. Mohan, the arbitral proceedings thus “commenced”, in terms of Section 21 of the Act, much prior to the Amendment Act coming into force, and would not be susceptible to challenge on a ground incorporated by the said amendment.
18. I am not inclined to accept this submission, as the order of this Court dated 15.02.2017, while setting aside the earlier award, specifically permitted the parties “to go in for fresh arbitration proceedings”. In any event, it has been held in a decision of a coordinate bench in Ram Kripal Singh Construction Pvt. Ltd. v. NTPC39 that even where arbitration proceedings commenced prior to coming into force of the Amendment Act, Section 12(5) of the Act would govern an appointment made thereafter.
(d) Has AAI waived its right to object on this ground?
19. Mr. Mohan submits that the petitioner ought to be held to have waived the objection to the appointment of the arbitrator on the facts of the case, as also because it seeks to raise this objection for the first time in the course of arguments in this petition.
20. Mr. Mohan’s first contention is that the parties submitted their respective claims for adjudication before the learned Arbitrator and raised no objection to the adjudication by the learned Arbitrator. He also submitted that the parties’ consent to the jurisdiction of the learned Arbitrator was specifically recorded in an order of the learned Arbitrator dated 12.03.2020.
21. This argument does not commend to me, as the requirements of an express agreement in writing have been emphasised by the Supreme Court in Bharat Broadband40 and by the Division Bench of this Court in Govind Singh.41 Participation in arbitration proceedings, even filing of claims or counterclaims, thus submitting to jurisdiction without objection or demur, have been held to be insufficient for the purposes of the proviso to Section 12(5) of the Act. In the judgment of a coordinate bench in Smaaash Leisure,42 it has also been held that recording of consent in the order of an arbitral tribunal does not satisfy the requirement of the proviso to Section 12(5) of the Act.
22. The final point for consideration, which emerges from the arguments of Mr. Mohan, is whether the award ought to be set aside in the absence of an objection having been raised by AAI before the Arbitral Tribunal, or even in the petition filed under Section 34 of the Act. Supra note 10.
23. The question as to whether this ground can be raised for the first time in the course of oral arguments in a petition under Section 34 of the Act, has been decided in AAI’s favour, specifically in the judgment of a coordinate bench in Man Industries.43 In paragraph 27 of the judgment, the Court held that the question was one of jurisdiction and de jure ineligibility to act, which can be raised “by way of an amendment and even without the same.” In reaching this conclusion, this Court relied inter alia upon the judgments of the Supreme Court in Lion Engineering Consultants v. State of M.P.44 and Hindustan Zinc Ltd. v. Ajmer Vidyut Vitran Nigam Ltd.,45 which emphasise that challenges to the jurisdiction of an arbitrator can be raised for the first time in Section 34 proceedings, and even in collateral proceedings.
24. As noted above, this Court has thus developed a line of authority with regard to the strict requirements to establish waiver within the meaning of the proviso to Section 12(5) of the Act, and the effect of ineligibility of the arbitrator upon the validity of the award. These include four judgments of the Division Bench - Ram Kumar,46 Govind Singh,47 Kotak Mahindra48 and Babu Lal49
25. Mr. Mohan, however, draws my attention to a judgment in Arjun Mall,50 wherein the Division Bench has taken the view that this ground cannot be raised for the first time in a petition under Section 34 of the Act, if it was not raised in arbitral proceedings. It may first be noticed that the prior Supra note 31. Supra note 30.
Supra note 7. judgments of the Division Bench of this Court in Govind Singh,51 Ram Kumar52, Kotak Mahindra53, and Babu Lal54 do not appear to have been brought to the attention of the Bench in Arjun Mall.55 It may also be noticed that the Division Bench relied upon the decision of the Supreme Court in Delhi Airport Metro Express (P) Ltd. v. DMRC,56 which has specifically been set aside by the Supreme Court in Curative Petition Nos. 108- 109/2022.57
26. The question before this Court is, therefore, whether to follow the earlier judgments in Govind Singh,58 Ram Kumar59, Kotak Mahindra60 and - Babu Lal61, or the later view taken in Arjun Mall.62 This question is answered by reference to the judgment of the Supreme Court in Sundeep Kumar Bafna v. State of Maharashtra,63 which holds that, in the event of mutually irreconcilable decisions of the Supreme Court being cited before the High Court, “the inviolable recourse is to apply the earliest view.”64 No authority to the contrary has been cited before me, and I see no reason to depart from this principle when it comes to mutually irreconcilable decisions of the Division Bench, placed before a Single Judge.
27. This, in fact, appears also to be the procedure which has been followed by a coordinate bench in M/s Upper India Trading Co. Pvt. Ltd. v.
M/s Hero Fincorp Ltd.65 An award was set aside on the ground of unilateral appointment, following the judgments in TRF Limited66 and Perkins Eastman67 and the Single Bench judgment in Geeta Poddar v. Satya Developers Private Limited,68 even though a similar objection was raised by the respondent therein on the basis of Arjun Mall.69
28. I am, therefore, of the view that Mr. Mohan’s objection on the ground of waiver cannot be sustained.
29. As a result, the petitions are allowed, and the impugned awards are set aside. The parties will be free to agitate their respective claims and counterclaims by invoking the arbitration clause afresh.
30. There will be no orders as to costs.
31. The petitioner had furnished a bank guarantee pursuant to the order dated 17.03.2023 in OMP (COMM) 573/2020. As the petitions have been allowed, the bank guarantee is discharged. The original may be returned to the petitioner.
PRATEEK JALAN, J MAY 28, 2024/‘Bhupi’/ Id at paragraph 19. Judgment dated 23.02.2024 in OMP (COMM) 399/2022. Judgment dated 31.08.2022 in Arb. P. 133/2019.