Saroj Pandey v. Aaryavrat Products India Pvt. Ltd

13. Therefore, there can be no doubt that unilateral appointment by the Respondent violates the principle of party autonomy elucidated by the Supreme Court and cannot be sustained in law. This Court also does not find merit in the contention of the Respondent that the Petitioner is precluded from raising any objection to the appointment of the Arbitrator as he participated in the arbitral proceedings. Firstly, from the factual perspective, this position adopted by the Respondent is incorrect. Letter dated 20.06.2022 and legal notice dated 06.07.2021 sent by the Petitioner to the learned Arbitrator and the order sheets reveal that Petitioner never subjected himself to the jurisdiction of the Arbitrator and repeatedly voiced his objections and protest in one form or the other to his appointment. Even assuming that there was participation, the right of the Petitioner to seek termination of the mandate cannot be taken away or treated as implied waiver under Section 12(5) of the 1996 Act. Reading of the said provision clearly shows that waiver of any right is required to be by an ‘Agreement in writing’, entered into after the disputes have arisen. Section 12(5) reads as follows:- “12. Grounds for Challenge- (5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the 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.”

14. Law on this issue is no longer res integra. In Bharat Broadband Network Limited v. United Telecoms Limited, (2019) 5 SCC 755, the Supreme Court held as follows:-

15. Following the said judgment, this Court in A.K. Builders v. Delhi State Industrial Infrastructure Development Corporation Ltd., 2022 SCC OnLine Del 627, held as follows:-

16. Subsequently, another Co-ordinate Bench of this Court in Osho G.S. and Company v. Wapcos Limited, 2022 SCC OnLine Del 4598, observed as under:-

17. Recently, a Division Bench of this Court in Govind Singh v. Satya Group Pvt. Ltd. and Another, 2023 SCC OnLine Del 37, was dealing with an appeal under Section 37 of the 1996 Act, impugning an order passed by learned Commercial Court, whereby Appellant’s application under Section 34 of the 1996 Act, seeking setting aside of the arbitral award was rejected. The principal question that fell for consideration before the Division Bench was whether the impugned award was liable to be set aside on the ground that the learned Arbitrator was ineligible to be appointed as an Arbitrator. The learned Commercial Court had found that the Arbitrator had complied with provisions of Section 12 of the 1996 Act by making necessary disclosures before accepting the appointment and the Appellant had not challenged the appointment. Dealing with the question and relying on the judgment of the Supreme Court in TRF Limited v. Energo Engineering Projects Limited, (2017) 8 SCC 377 and Perkins (supra), amongst other judgments, the Division Bench held that the contention that the Appellant by its conduct has waived the right to object to the appointment of the learned Arbitrator was without merit. The question whether a party can, by its conduct, waive its right under Section 12(5) of the Act is no longer res integra. The Court observed that under Section 12(5) any waiver would be valid only if it is by an express agreement in writing and there is no scope for imputing any implied waiver under the said provision. It was further observed that even if it is assumed that Appellant had participated in the arbitral proceedings without raising any objection to the appointment of the learned Arbitrator, it is not open to hold that it had waived its right under Section 12(5). Relevant paragraphs from the judgment are as under:-

15. In Perkins Eastman Architects DPC v. HSCC (India) Ltd.: (2020) 20 SCC 760, the Supreme Court referred to the earlier decision in TRF Ltd. v. Energo Engineering Projects Ltd. (supra) and held that in the cases where the arbitration clause provided that the party or its official would appoint an arbitrator, the element of ineligibility would also extend to the persons so appointed. The relevant extract of the said decision reads as under:— “21. But, in our view that has to be the logical deduction from TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377: (2017) 4 SCC (Civ) 72] Para 50 of the decision shows that this Court was concerned with the issue, “whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator” The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counterbalanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377: (2017) 4 SCC (Civ) 72]” “28. In TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377: (2017) 4 SCC (Civ) 72], the Managing Director of the respondent had nominated a former Judge of this Court as sole arbitrator in terms of the aforesaid Clause 33(d), after which the appellant had preferred an application under Section 11(5) read with Section 11(6) of the Act. The plea was rejected by the High Court and the appeal therefrom on the issue whether the Managing Director could nominate an arbitrator was decided in favour of the appellant as stated hereinabove. As regards the issue about fresh appointment, this Court remanded the matter to the High Court for fresh consideration as is discernible from para 55 of the judgment. In the light of these authorities there is no hindrance in entertaining the instant application preferred by the applicants.”

17. Following the aforesaid decision of the Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd. (supra), a learned Single Judge of this Court in Proddatur Cable TV Digi Services v. Citi Cable Network Limited: (2020) 267 DLT 51 held that it would be impermissible for a party to unilaterally appoint an arbitrator. In terms of Section 12(5) of the A&C Act read with the Seventh Schedule of the A&C Act, an employee would be ineligible to act as an arbitrator by virtue of the law as explained by the Supreme Court in TRF Ltd. v. Energo Engineering Projects Ltd. (supra) and Perkins Eastman Architects DPC v. HSCC (India) Ltd. (supra). Such ineligibility would also extend to a person appointed by such officials who are otherwise ineligible to act as arbitrators.

18. In view of the law as noted above, the learned Arbitrator unilaterally appointed by the respondent company was ineligible to act as an arbitrator under Section 12(5) of the A&C Act.

19. The contention that the appellant by its conduct has waived its right to object to the appointment of the learned Arbitrator is also without merit. The question whether a party can, by its conduct, waive its right under Section 12(5) of the A&C Act is no longer res integra. The Supreme Court in the case of Bharat Broadband Network Limited v. United Telecoms Limited: (2019) 5 SCC 755 had explained that any waiver under Section 12(5) of the A&C Act would be valid only if it is by an express agreement in writing. There is no scope for imputing any implied waiver of the rights under Section 12(5) of the A&C Act by conduct or otherwise. The relevant extract of the said decision reads as under:— “20. This then brings us to the applicability of the proviso to Section 12(5) on the facts of this case. Unlike Section 4 of the Act which deals with deemed waiver of the right to object by conduct, the proviso to Section 12(5) will only apply if subsequent to disputes having arisen between the parties, the parties waive the applicability of sub-section (5) of Section 12 by an express agreement in writing. For this reason, the argument based on the analogy of Section 7 of the Act must also be rejected. Section 7 deals with arbitration agreements that must be in writing, and then explains that such agreements may be contained in documents which provide a record of such agreements. On the other hand, Section 12(5) refers to an “express agreement in writing”. The expression “express agreement in writing” refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct. Here, Section 9 of the Contract Act, 1872 becomes important. It states:

It is thus necessary that there be an “express” agreement in writing. This agreement must be an agreement by which both parties, with full knowledge of the fact that Shri Khan is ineligible to be appointed as an arbitrator, still go ahead and say that they have full faith and confidence in him to continue as such…”

20. Thus, it is not necessary to examine the question whether the appellant had raised an objection to the appointment of the learned Arbitrator. Even if it is assumed that the appellant had participated in the arbitral proceedings without raising any objection to the appointment of the learned Arbitrator, it is not open to hold that he had waived his right under Section 12(5) of the A&C Act. Although it is not material, the record does indicate that the appellant had objected to the appointment of respondent no. 2 as an arbitrator.

23. We are unable to agree that the decision in Bharat Broadband Network Limited v. United Telecoms Limited (supra) can be distinguished on the aforesaid ground. The said decision had authoritatively held that in terms of the proviso of Section 12(5) of the A&C Act, the ineligibility of an arbitrator under Section 12(5) of the A&C Act could be waived only by an express agreement in writing and cannot be inferred by the conduct of the parties. Thus, the fact that the parties had participated before the arbitral tribunal cannot be construed as a waiver of their rights to object to the ineligibility of the arbitrator(s). We are unable to accept that while such a right could be exercised prior to the delivery of the award, it would cease thereafter. If the arbitrator is ineligible to act as an arbitrator, the arbitral award rendered by the arbitral tribunal would be without jurisdiction.”

18. In view of the aforesaid judgments, this Court cannot accept the contention of the Respondent that participation, assuming any, in the arbitral proceedings would amount to a waiver of the rights of the Petitioner under Section 12(5) disentitling the Petitioner from seeking termination of the mandate of learned sole Arbitrator in the absence of an express agreement in writing waiving its right. No material has been placed on record by the Respondent which even remotely indicates that the Petitioner had expressly in writing waived the applicability of sub-section (5) of Section 12 so as to fall within the rigors of proviso to the said provision. Even going by the conduct of the Petitioner albeit the same is immaterial in view of the law laid down, it cannot be construed that the Petitioner accepted the appointment of the learned Arbitrator and willingly participated in the arbitral proceedings.

19. In this view, present petition is allowed and the mandate of Sh. Akash Swami, Advocate, learned sole Arbitrator, who was unilaterally appointed by the Respondent, is terminated. Parties are left to appoint a substitute Arbitrator, if they so desire, in consonance with Arbitration Clause 8.

20. Petition is disposed of in the aforesaid terms.

JYOTI SINGH, J SEPTEMBER 18, 2023