Full Text
HIGH COURT OF DELHI
Date of Decision: 04th August, 2025
M/S SATYA PARKASH AND BROTHERS (P) LTD. .....Appellant
Through: Mr. Aseem Mehrotra &Ms. Deeksha Mehrotra, Advs.
Through: Ms. Avni Singh, Panel Counsel for GNCTD.
JUDGMENT
1. This hearing has been done through hybrid mode.
2. The present appeal has been filed by the Appellant under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996, read with Section 13 of the Commercial Courts Act, 2015.
3. The appeal has been filed by the Appellant challenging the judgment and order dated 15th January, 2025 (hereinafter, the ‘impugned judgment’) passed by the Court of District Judge (Commercial Court)-05, South East District, Saket, New Delhi in Arb. A. [Comm.] No. 1/2020.
4. The Commercial Court, vide the impugned judgment, has set aside the award dated 21st May, 2020 (hereinafter, ‘the arbitral award’) passed by Sh. K B Rajoria (hereinafter, ‘the Sole Arbitrator’), on the ground that he was ineligible to be appointed as the Arbitrator in the matter in view of Section 12(5) of the Arbitration and Conciliation Act,1996.
5. Ld. Counsel for the Appellant submits that the Appellant did not object to the appointment of the Sole Arbitrator who was appointed and the arbitral award was thus, subsequently passed by the Sole Arbitrator. Additionally, the Respondent also did not raise any objection in this regard. Thus, it is contended by the Appellant that the award was set aside by the Commercial Court merely on technical grounds and without going into the merits of the case – that too without either side raising any objection to the appointment.
6. Both Mr. Mehrotra and Ms. Avni Singh, ld. Counsels have made their respective submissions today and have cited their respective case laws.
7. Ms. Avni Singh, ld. Counsel has handed over a short affidavit deposed by Mr. Sanjay Kumar, Executive Engineer, PWD Division, South-East Road- 2 (M-442), Sukhdev Vihar, New Delhi to the following effect: “I, SANJAY KUMAR, S/o Sh.
RAM BACHAN PRASAD SINGH aged about 58 years posted as EXECUTIVE ENGINEER. having its office at PWD DIVISION SOUTH EAST ROAD-2 (M-442), SUKHDEV VIHAR, NEW DELHI- 110025 do hereby solemnly affirm and declare as follows:
1. That the Appellant has filed an appeal under section 37 of the Arbitration and Conciliation Act, 1996 to set aside the Impugned Judgement and Order dated 15.01.2025 passed by the Court of Shri Bhupesh Narula. District Judge (Commercial Court) 05. South East District. Saket. New Delhi in Arb. A. [Comm.] NO. 1/2020.
2. That in the said Impugned Order, the Ld. District Court has set aside the Award dated 21.05.2020 on the ground of illegal appointment of Arbitrator. In this regard. it is submitted that the Arbitrator was appointed by the Answering Respondent with the full consent of the Appellant herein and at no stage, was any objection raised by the Appellant.
3. That it is further submitted nonetheless the Award dated 21.05.2020 is liable to be set aside on merits since it suffers from illegality and is in conflict with the public policy of India for the reasons set out in the appeal filed by the Respondent.
4. That it is further submitted that if the present Appeal of the Appellant is allowed and the Impugned Order set aside. then the matter should be remanded back and the section 34 appeal filed by the Respondent ought to be heard on merits.”
8. Heard counsel for the parties. The brief factual background of the case is that in the year 2017, percentage-rate tenders were invited by Respondent for the work of strengthening of SA Road from Outer Ring Road to MB Road Point. The estimated cost of the work put to tender was Rs. 14,09,69,619/-.
9. Appellant's bid was found to be the lowest by 37.08 percent below the said estimated cost put to tender. Thus, the tendered amount of the Appellant worked out to Rs. 8,86,98,062/-. An agreement was thereafter executed between the parties.
10. The time allowed for completion of the said work was 60 days and the stipulated dates of start and completion of the work were fixed as 14th March, 2017 and 13th May, 2017, respectively. However, the work was finally completed on 27th September, 2017. It is the case of the Petitioner that the delay occurred due to some problems at the site which was beyond the control of the Appellant. Therefore, extension of time for the delayed period was granted by the competent authority without levy of any compensation.
11. Subsequently, upon completion of the work, some disputes arose between the parties pertaining to the payment of the final bill and the same was referred to the Disputes Redressal Committee under clause 25 of the agreement executed between the parties.
12. Mr. K.B. Rajoria, Chief Engineer, South(M), CPWD, was appointed as the Sole Arbitrator to adjudicate upon the said dispute and vide the award dated 21st May, 2020, the Sole Arbitrator partially allowed the claims of the Appellant by awarding a total sum of Rs. 62,22,247/-.
13. The said award was challenged by the Respondent before the Court of District Judge (Commercial Court)-05, South East District, Saket, New Delhi in Arb. A. [Comm.] No. 1/2020 and was set aside on the ground that the Sole Arbitrator was ineligible to be appointed as the Arbitrator in the matter in view of Section 12(5) of the Arbitration and Conciliation Act,1996. Hence, the present Appeal.
14. The question that arises for consideration in this case is a short one as to whether a unilateral appointment of a Sole Arbitrator by one of the parties could have been the basis for setting aside the arbitral award passed by the Sole Arbitrator, especially when the parties have voluntarily participated in the entire arbitration proceedings without any demur whatsoever.
15. This issue has been repeatedly considered and pronounced upon by various Courts. The Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd. [2019 SCC OnLine SC 1517], relying upon the decision in TRF Limited v. Energo Engineering Projects Limited [(2017) 8 SCC 377 held that a party having an interest in the outcome of an arbitration proceeding must not be vested with the exclusive power to appoint a sole arbitrator. Where the right to appoint a sole arbitrator lies solely with one party, the appointment is inherently susceptible to unilateral influence, thereby compromising the neutrality of the arbitral proceedings. The relevant portion of Perkins (supra) is extracted below:
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 counter-balanced 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]”
16. Further, the Supreme Court, in Central Organisation for Railway Electrification (CORE) v. ECI SPIC SMO MCML (JV) A Joint Venture Co. [2024 SCC OnLine SC 3219] conclusively held that a clause permitting unilateral appointment of an arbitrator raises justifiable doubts regarding the independence and impartiality of the sole arbitrator. Furthermore, the Court held that such unilateral appointment clauses, particularly in public-private contracts, are violative of Article 14 of the Constitution of India. Relevant portion of this case is extracted herein:
17. Thereafter, in Civil Appeal No. 3972 of 2019 titled Bharat Broadband Network Limited v. United Telecoms Limited the Supreme Court further clarified that the proviso to Section 12(5) of the Arbitration and Conciliation Act, 1996, mandates an "express agreement in writing," signifying that the parties must explicitly record their intention to waive their right to object to the arbitrator’s jurisdiction. Such a waiver cannot be implied or presumed from the conduct of the parties:
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.”
18. One of the most recent decisions pertaining to this issue is of a Coordinate Bench of this Court being FAO (COMM) 170/2023 titled M/s Mahavir Prasad Gupta and Sons v. Government of NCT Delhi dated 31st May, 2025 where the following two issues were raised for consideration:
19. The Court, considered and discussed various decisions of the Supreme Court in Perkins Eastman (supra), TRF Limited (supra) and Central Organisation for Railway Electrification (CORE) (supra).
20. After analysing the said judgments of the Supreme Court, the Court, in Mahavir Prasad Gupta (Supra) observed as under:
participation of the other party in the appointment process of arbitrators; d. In the appointment of a three-member panel, mandating the other party to select its arbitrator from a curated panel of potential arbitrators is against the principle of equal treatment of parties. In this situation, there is no effective counterbalance because parties do not participate equally in the process of appointing arbitrators. The process of appointing arbitrators in CORE (supra) is unequal and prejudiced in favour of the Railways; e. Unilateral appointment clauses in public-private contracts are violative of Article 14 of the Constitution; f. The principle of express waiver contained under the proviso to Section 12(5) also applies to situations where the parties seek to waive the allegation of bias against an arbitrator appointed unilaterally by one of the parties. After the disputes have arisen, the parties can determine whether there is a necessity to waive the nemo judex rule; and g. The law laid down in the present reference will apply prospectively to arbitrator appointments to be made after the date of this judgment. This direction applies to three-member tribunals.”
37. Hence, a unilateral appointment of the sole arbitrator or the presiding arbitrator by a party to 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. Any award passed by the unilaterally appointed Arbitral Tribunal is 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.”
21. The Court, thereafter, went on to consider the question as to whether there can be a waiver of the objection to unilateral appointment and if so, in what manner. Again, after considering the relevant decisions of the Supreme Court as also the High Courts, the Court came to the conclusion that any waiver has to be expressly in writing and the same has to be waived after the dispute arises between the parties. The observations in this regard are set out below:
commodities arbitration may require the parties to draw upon a small, specialised pool. [ “Explanation 3.—For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently, to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above.”] The second requirement of the proviso to Section 12(5) is that parties must consciously abandon their existing legal right through an express agreement. Thus, the Arbitration Act reinforces the autonomy of parties by allowing them to override the limitations of independence and impartiality by an express agreement in that regard.”
43. Consenting to the extension of the mandate of the arbitrator under Section 29A(3) of the Act does not constitute a valid express waiver in writing as required under the proviso to Section 12(5) of the Act……”
22. The Co-ordinate Bench of this Court, in Mahavir Prasad Gupta (Supra) also considered another decision of an earlier Co-ordinate Bench in FAO(OS) (COMM) 23/2025 titled Bhadra International India Pvt. Ltd. and Ors. v Airports Authority of India wherein the Court had taken an opposing view and had held that the conduct of the parties in participating in the arbitration proceedings would show that the arbitral award was not a nullity and it was held that there was also a written consent with respect to the appointment of arbitrator. This decision in Bhadra International (supra) was also held to be per incurium. The relevant paragraph of the said judgment i.e. Mahavir Prasad Gupta (Supra)is extracted below:
23. With the background of the applicable judicial precedents, the impugned judgement deserves to be considered. In the present appeal, the Commercial Court has held that the Engineer-in-Chief, PWD was not eligible for appointment of an Arbitrator in view of Section 12(5) of the Arbitration & Conciliation Act, 1996. Though no objection was raised by either party to the said appointment, the Court itself set aside the award on the ground that this was a unilateral appointment. The observations of the Commercial Court are set out below:
24. The clear legal position that has emerged is that any award passed by a unilaterally appointed Arbitral Tribunal who is conflicted under Section 12(5) of the Arbitration and Conciliation Act, 1996, would be against public policy. Under such circumstances, the approach of the Commercial Court cannot be faulted with.
25. In the opinion of this Court, even the affidavit filed on behalf of the PWD would not constitute express waiver in writing as required in CORE (supra) and M/s Mahavir Prasad Gupta and Sons (supra) and hence, the present appeal is liable to be dismissed. The impugned judgment does not warrant any interference of this Court.
26. Accordingly, the present appeal is dismissed. All pending applications are disposed of. Ordered accordingly.
27. Parties are left to avail of their remedies in accordance with law, in respect of their disputes.
PRATHIBA M. SINGH JUDGE SHAIL JAIN JUDGE AUGUST 4, 2025/Rahul/ss