Delhi High Court: The present appeal was filed under Section 37 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) challenging the order dated 23-5-2023 passed by the Commercial Court. By the said order, the Arbitration Award dated 12-10-2020 granting the appellant Rs. 1,76,01,359, was set aside on the ground that the Sole Arbitrator was unilaterally appointed by the State of Delhi (‘Respondent’), and the Award by a person ineligible to be appointed as an arbitrator under Section 12(5) read with Seventh Schedule of the Arbitration Act, was against public policy of India.
The Division Bench of Vibhu Bakhru and Tejas Karia*, JJ., while dismissing the present appeal observed that any proceedings conducted before unilaterally appointed Arbitrator were a nullity and could not result into an enforceable award being against Public Policy of India and could be set aside under Section 34 of the Arbitration Act and/or refused to be enforced under Section 36. Further, the ineligibility of a unilaterally appointed arbitrator could be waived only by an express agreement in writing between the parties after the dispute had arisen between them and the award passed by a unilaterally appointed arbitrator was a nullity as the ineligibility goes to the root of the jurisdiction.
Background
The dispute arose from a contract entered into by the appellant for strengthening of a Road (‘Project’), for which the appellant was issued a work order on 25-11-2014 for a total contract value of Rs. 5,16,82,612/-, and commenced work on 9-12-2014. The project, which was expected to be completed in three months, was finished on 21-5-2015. Post-completion, Quality Assurance Unit of State of Delhi conducted an inspection and found the road thickness at several points to be below the required thickness of 165mm. Consequently, the respondent withheld the appellant’s final bill submitted on 16-11-2015, on grounds that the thickness of the constructed road was allegedly less than the prescribed specifications.
In response, a Third-Party Quality Audit (‘TPQA’) was conducted by IIT Roorkee and PWD officials and their report, dated 28-3-2016, found the executed work to be within permissible tolerances and acceptable. Upon consideration of the said inspection, the respondent directed to lay an additional layer of 37mm thick Dense Bituminous Concrete (‘DBC’) over a 20-meter stretch and continued withholding the payment.
Consequently, the appellant invoked arbitration clause on 18-10-2018 and the respondent appointed former DG (Works), CPWD, as the Sole Arbitrator. The Arbitrator upheld the report dated 28-3-2016 submitted by TPQA and declared that the report was comprehensive, reliable, and impartial and noted that the measured total average thickness was found to be within the permissible limits and, accordingly, the report recommended acceptance of the work. Thereafter, the Arbitrator awarded the appellant Rs. 1,76,01,359/-.
The respondent challenged the Award under Section 34 of the Arbitration Act arguing that the Arbitrator’s appointment violated Section 12(5) and Seventh Schedule. The challenge succeeded, and the Award was set aside, against which the appellant had filed the present appeal.
The Court identified the following key legal issues for determination:
- In view of requirement of express waiver in writing under proviso to Section 12(5) of the Arbitration Act, can the parties by participating in arbitration proceedings and not raising objection before the arbitrator, be deemed to have waived the objection against the unilateral appointment?
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Does the award passed by unilaterally appointed arbitrator was per se bad and a nullity, which affected the jurisdiction of the arbitrator, that entitled any party to object at any stage during or after arbitration proceedings including the challenge to the award under Section 34 of the Arbitration Act and/or enforcement of the award under Section 36?
Analysis and Decision
The Court after considering the facts held that unilateral appointment of the sole or presiding arbitrator in India was invalid and against public policy. Further, a unilateral appointment by any party in the arbitrations seated in India was strictly prohibited and considered as null and void since its very inception Thus, any proceedings conducted before such unilaterally appointed Arbitral Tribunal were also nullity and could not result into an enforceable award and could be set aside under Section 34 of the Arbitration Act and/or refused to be enforced under Section 36.
The Court opined that the conduct of the parties was inconsequential and could not constitute a valid waiver under the proviso to Section 12(5) and it was an exception to Section 4 of the Arbitration Act as there was no deemed waiver under Section 4 for unilateral appointment by conduct of participation in the proceedings. The proviso to Section 12(5) required an “express agreement in writing” and deemed waiver under Section 4 would not be applicable to the proviso to Section 12(5). Thus, the ineligibility of a unilaterally appointed arbitrator could be waived only by an express agreement in writing between the parties after the dispute had arisen between them. Further, the award passed by a unilaterally appointed arbitrator was a nullity as the ineligibility goes to the root of the jurisdiction. Hence, the award could be set aside under Section 34(2)(b) by the Court on its own if it “finds that” an award was passed by unilaterally appointed arbitrator without even raising such objection by either party.
Hence, an objection to the lack of inherent jurisdiction of an arbitrator could be taken at any stage during or after the arbitration proceedings including by a party who had appointed the sole or presiding arbitrator unilaterally as the act of appointment was not an express waiver of the ineligibility under proviso to Section 12(5). Such objection could be taken even at stage of challenge to the award under Section 34 or during the enforcement proceedings under Section 36.
In this case, since the Sole Arbitrator was unilaterally appointed by an ineligible authority (the Respondent’s Chief Engineer) without any express written waiver, thus, the appointment made by him was also invalid under Section 12(5) and the Seventh Schedule of the Arbitration Act. The Court thus, dismissed the present appeal as there was no infirmity with the impugned judgment and held that the Award was rightly set aside.
[Mahavir Prasad Gupta v. State (NCT of Delhi), 2025 SCC OnLine Del 4241, decided on 31-5-2025]
*Judgement authored by: Justice Tejas Karia
Advocates who appeared in this case:
For the Appellant: M.K. Ghosh and Tina Garg, Advocates
For the Respondent: Tushar Sannu and Ankita Bhadouriya, Advocates
Buy Arbitration and Conciliation Act, 1996 HERE
