Full Text
HIGH COURT OF DELHI
Date of Decision: 16th January, 2023
MS BRIDGE BUILDING
CONSTRUCTION CO PVT LTD ..... Petitioner
Through: Mr. Sanjay Kumar Shandilya, Ms. Apoorva Agarwal & Mr. Abhishek Singh, Advocates.
[M:- 9958540848]
Through: Mr. Pallav Kumar, Advocate.
BRIDGE BUILDING
CONSTRUCTION PVT. LTD. ..... Petitioner
Through: Mr. Sanjay Kumar Shandilya, Ms. Apoorva Agarwal & Mr. Abhishek Singh, Advocates.
[M:- 9958540848]
Through: Mr. Pallav Kumar, Advocate.
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 assails two arbitral awards between the parties rendered by the same arbitrator, albeit under different contract agreements. In O.M.P. (COMM) 87/2022, the impugned award was made on 23.01.2021 and arose out of a Contract Agreement dated 09.02.2016 (pursuant to Letter of Intent dated 27.11.2014 and Work Order dated 23.04.2015). In O.M.P. (COMM) 377/2022, the impugned award was made on 18.08.2021[1] and arose out of a Contract Agreement dated 09.02.2016 (pursuant to the Letter of Intent dated 27.11.2014 and Work Order dated 10.07.2015).
2. Both agreements contain identical arbitration clauses (Clause 26), which provide for resolution of disputes by sole arbitration of the Head of the Transmission Business Group (TBG) of the respondent or his appointee. The undisputed factual position is that the petitioner sought invocation of arbitration by communications addressed to the respondent, and the respondent appointed the arbitrator who has rendered the impugned awards.
3. The primary ground of challenge urged by Mr. Sanjay Kumar Shandilya, learned counsel for the petitioner, is that the arbitrator was unilaterally appointed by the respondent. He relies upon the judgments of the Supreme Court in TRF Ltd vs. Energo Engineering Projects Ltd.[2] and Perkins Eastman Architects DPC & Anr. vs. HSCC (India) At the foot of the award, the date mentioned is 20.08.2021.
Ltd.3, to submit that a unilaterally appointed arbitrator is ineligible to act under Section 12(5) of the Act and any award rendered by him is a nullity. It is also submitted that the arbitrator did not furnish any declaration, as required in Section 12 of the Act, to the petitioner.
4. Mr. Pallav Kumar, learned counsel for the respondent, on the other hand, submits that Section 12(5) of the Act itself contemplates that parties may waive the applicability of the provision by an express agreement in writing. He contends that the petitioner had sufficient opportunity, even after the aforesaid judgments in TRF[4] and Perkins[5] were rendered, to approach the arbitrator under Section 16 of the Act or the Court under Section 14 of the Act. Indeed, he submits that the petitioner itself made applications for extension of the mandate of the arbitrator under Section 29A of the Act, which resulted in orders dated 26.07.2019 in O.M.P. (Misc.) (Comm.) 297/2019 and O.M.P. (Misc.) (Comm.) 298/2019 and order dated 12.11.2020 in O.M.P. (Misc.) (Comm.) 252/2020. In these circumstances, Mr. Kumar submits that the petitioner itself submitted to the jurisdiction of the arbitrator and cannot assail the award on this ground at this stage.
5. It is also submitted by Mr. Kumar that in the present case, the arbitrator did make a disclosure as required under Section 12 of the Act, which was communicated to the respondent by an email dated 19.01.2017, which has been placed on record. There is, however, no
6. Having heard learned counsel for the parties, I am of the view that the point in issue is no longer res integra. The judgments of the Supreme Court in TRF[6] and Perkins[7], as well as Bharat Broadband Network Limited vs. United Telecoms Limited[8], have been considered by the Division Bench of this Court in two recent judgments, which squarely cover the present case as well.
7. In Ram Kumar and Anr. vs. Shriram Transport Finance Co. Ltd.9, the challenge to the arbitral award was on the ground of ineligibility due to unilateral appointment, as also non furnishing of the declaration under Section 12 of the Act. Both grounds were accepted by the Division Bench with the following observations:
24. This Court is of the view that the requirement of making a disclosure is a necessary safeguard for ensuring the integrity and efficacy of an arbitration as an alternate dispute resolution mechanism and is not optional.
26. In TRF Ltd. v. Energo Engineering Projects Ltd.: (2017) 8 SCC 377, the Supreme Court had referred to Section 12(5) of the A&C Act and noted that the Managing Director of a concerned party would be ineligible to act as an arbitrator. The Court had further held that being ineligible to act as an arbitrator, he was also ineligible to appoint an arbitrator. In Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.: (2020) 20 SCC 760, the Supreme Court, following the earlier decision in TRF Ltd. v. Energo Engineering Projects Ltd. (supra), held that the Chairmancum-Managing Director of a party was ineligible to appoint an arbitrator.
28. Clearly, an award rendered by a person who is ineligible to act as an arbitrator would be of little value; it cannot be considered as an arbitral award under the A&C Act. While it is permissible for the parties to agree to waive the ineligibility of an arbitrator, the proviso to Section 12(5) of the A&C Act makes it clear that such an agreement 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 & Anr. v. HSCC (India) Ltd. (supra), held that unilateral appointment of an arbitrator by a party is impermissible.
29. In Bharat Broadband Network Limited v. United Telecoms Limited: (2019) 5 SCC 755, the Supreme Court rejected the contention that the waiver of a right to object the ineligibility of an arbitrator, under Section 12(5) of the A&C Act, could be inferred by conduct. The relevant observations made by the Supreme Court are set out below:
31. This Court is of the view that the approach of the learned Commercial Court is flawed. Unilateral appointment of the Arbitrator by the respondent is impermissible. The fact that the learned Sole Arbitrator had been engaged in a number of matters by the respondent is, concededly, a material fact that would raise justifiable grounds as to his independence and impartiality. Thus, in addition to being ineligible as an arbitrator under Section 12(5) of the A&C Act, the grounds giving rise to justifiable doubts as to the independence and impartiality exist in the present case. The learned Sole Arbitrator was required to disclose in writing such circumstances which are likely to give rise to justifiable doubts as to his independence and impartiality, but he had failed to make any such disclosure. In our view, since the grounds giving rise to justifiable doubts as to impartiality exist, failure to make such disclosure vitiates the arbitral proceedings and the impugned award.”10
8. In Govind Singh vs. M/S Satya Group Pvt Ltd and Anr.11, the Division Bench has noted that in TRF12, the Supreme Court held that a person who is ineligible to be appointed as an arbitrator would also be ineligible to appoint the arbitrator. It was further clarified in Perkins13 that the element of ineligibility would also extend to the person so appointed. Having considered these judgments and the judgment in Bharat Broadband14, the Division Bench held as follows:- “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:- Emphasis supplied.
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.
21. In view of the above, the remaining question to be addressed is whether an arbitral award rendered by a person who is ineligible to act as an arbitrator is valid or binding on the parties. Clearly, the answer must be in the negative. The arbitral award rendered by a person who is ineligible to act as an arbitrator cannot be considered as an arbitral award. The ineligibility of the arbitrator goes to the root of his jurisdiction. Plainly an arbitral award rendered by the arbitral tribunal which lacks the inherent jurisdiction cannot be considered as valid. In the aforesaid view, the impugned award is liable to be set aside as being wholly without jurisdiction.
22. In Kanodia Infratech Limited v. Dalmia Cement (Bharat) Limited: (2021) 284 DLT 722 the learned Single Judge of this Court had declined to interfere with the arbitral award, which was challenged on the ground that the arbitrator was ineligible to act as an arbitrator, on the ground that the parties had participated in the arbitral proceedings. The learned Single Judge had observed that the decision of the Supreme Court in Bharat Broadband Network Limited v. United Telecoms Limited (supra) was not applicable as the said matter had travelled to the Supreme Court against the decision of this Court, rejecting the petition under Section 14 and 15 of the A&C Act.
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.”15
9. I am of the view that the present petitions are entirely covered by the aforesaid judgments. The fact that the arbitrator had been unilaterally appointed has not been put in dispute, and the award is therefore unsustainable. Mr. Kumar’s contention that the petitioner’s conduct is evidence of waiver of its rights under Section 12(5) of the Act is also untenable in the light of these judgments.
10. Additionally, it may be noted that the communication of the arbitrator containing the declaration under Section 12 of the Act, which has been placed on record by the respondent, is addressed to the respondent alone. The said communication dated 19.01.2017 does not, on the face of it, appear to be addressed to the petitioner. In fact, the position taken in the reply filed by the respondent is that the nondisclosure by the arbitrator under Section 12(1) of the Act will not render the arbitrator ineligible to act. Such a contention has been expressly negatived by the Division Bench in Ram Kumar16. In any event, Mr. Kumar’s specific submission is that the arbitrator had, in fact, made a disclosure under Section 12 of the Act by his communication dated 19.01.2017. Suffice it to say that a declaration made under Section 12 of the Act ought to have been addressed by the arbitrator to both parties and not only to the respondent.
11. For the aforesaid reasons, the petitions are allowed and the impugned awards dated 23.01.2021 and 18.08.2021 are set aside. Emphasis supplied. Supra (note 9).
12. Mr. Kumar states that pursuant to the impugned award in O.M.P. (COMM) 87/2022, the respondent has made certain payments on behalf of the petitioner. It is open to the respondent to take its remedies in accordance with law in this regard.
13. It is clarified that the parties are at liberty to re-agitate their claims / counter-claims in properly constituted arbitration proceedings.
PRATEEK JALAN, J JANUARY 16, 2023 ‘vp’/