{"id":255630,"date":"2021-10-16T10:00:16","date_gmt":"2021-10-16T04:30:16","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=255630"},"modified":"2021-10-16T09:02:02","modified_gmt":"2021-10-16T03:32:02","slug":"unilateral-appointment","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2021\/10\/16\/unilateral-appointment\/","title":{"rendered":"What is the Appropriate Stage to Challenge Unilateral Appointment"},"content":{"rendered":"

One of the basic tenets of arbitration as a dispute resolution mechanism is the resolution of parties\u2019 disputes by \u201cindependent\u201d and \u201cneutral\u201d adjudicator(s). In line with this principle, the 2015 Amendment1<\/a> to India\u2019s Arbitration and Conciliation Act, 19962<\/a> (the Act) introduced Section 12(5)3<\/a> and the Seventh Schedule4<\/a>, which when read together rendered a person de jure ineligible to act as an arbitrator in specified circumstances.<\/p>\n

To further enhance the integrity of the arbitral process, the Supreme Court of India through its decisions in TRF Ltd.<\/em> v. Energo Engg. Projects Ltd<\/em>.5<\/a> and Perkins Eastman Architects DPC<\/em> v. HSCC (India) Ltd.<\/em>6<\/a>, expounded that the essence of the 2015 Amendment is that a person who is statutorily ineligible to act as an arbitrator by virtue of Section 12(5) read with Seventh Schedule to the Act must also be de jure ineligible to unilaterally and exclusively appoint anyone else as an arbitrator.<\/p>\n

In light of the above, it is necessary to consider the stages at which a challenge can be mounted against the unilateral appointment of arbitrator by a de jure ineligible appointing authority (unilateral appointment). Should such a challenge be mandatorily raised during the pendency of arbitral proceedings or can it be raised for the first time in proceedings to set aside the award? Since there is no clarity on this issue, this article attempts to minimise the grey area in this regard.<\/p>\n

Challenge to unilateral appointment during pendency of arbitral proceedings<\/strong><\/span><\/p>\n

It is open to a party to challenge the unilateral appointment of an arbitrator at any stage during the pendency of the arbitral proceedings itself. Further, mere participation in the arbitration proceedings i.e. filing of pleadings or leading of evidence, etc., would not come in the way of raising objections against unilateral appointment at any stage of the arbitral proceedings. In order to understand the mechanism for such challenge, it is necessary to first briefly examine the legal validity\/effect of unilateral appointment.<\/p>\n

\u00a0<\/em>Effect of unilateral appointment<\/em><\/strong><\/span><\/p>\n

The de jure ineligibility to act as an arbitrator imposed by Section 12(5) read with Seventh Schedule to the Act goes to the \u201croot of the appointment\u201d. An arbitrator who is so ineligible would therefore \u201clack inherent jurisdiction\u201d to proceed with the arbitration.7<\/a><\/p>\n

In TRF<\/em><\/a>8<\/a> and Perkins<\/em><\/a>9<\/a>, in light of the principles underlying Section 12(5) and the Seventh Schedule, the Supreme Court has interpreted these provisions as not only imposing de jure ineligibility to act as an arbitrator in certain specified cases, but as also imposing de jure ineligibility to act as an appointing authority, since a person cannot indirectly purport to do that which he cannot do directly.10<\/a> Consequently, in Bharat Broadband Network Ltd.<\/em> v. United Telecoms Ltd.<\/em>11<\/a>, the Supreme Court observed that unilateral appointment in violation of Section 12(5) read with the Seventh Schedule to the Act would be void ab initio.12<\/a><\/p>\n

To sum up, it can be said that unilateral appointment vitiates the very root of the appointment, rendering it void ab initio and therefore, an arbitrator so appointed would lack inherent jurisdiction to conduct the arbitration.<\/p>\n

Mechanism for challenge<\/em><\/strong><\/span><\/p>\n

In view of the legal validity\/effect of unilateral appointment explained above, an arbitrator who has entered into reference through unilateral appointment ought to withdraw from the arbitration, even without any application by a party to challenge the unilateral appointment, since the dejure ineligibility of the appointing authority would strike at the root of the appointment. In any event, under Section 14(1)13<\/a> of the Act, the mandate of such an arbitrator would terminate immediately if the parties agree to such termination. However, in case of any controversy in this regard, the party challenging such appointment may approach the court to decide on the termination of the arbitrator\u2019s mandate and appointment of a substitute, under Section 14(2) of the Act.14<\/a><\/p>\n

This avenue for challenge is available at any stage of the arbitral proceedings in any arbitration which has commenced and in which unilateral appointment of arbitrator was made on or after 23-10-2015 [the date on which Section 12(5) came into effect], as is evident fromBharat Broadband15<\/a>as well as the decision of\u00a0 the Delhi High Court in Proddatur Cable TV Digi Services<\/em> v. Siti Cable Network Ltd<\/em>.16<\/a>.<\/p>\n

Waiver of right to challenge unilateral appointment<\/em><\/strong><\/span><\/p>\n

The statutory requirements for waiver of the applicability of Section 12(5) of the Act are strict. Reference in this regard may be made to Bharat Broadband<\/em>17<\/a> as well as the Delhi High Court\u2019s decision in Reom Infrastructure and Construction Ltd.<\/em> v. Air Force Naval Housing Board<\/em>18<\/a>.<\/p>\n

Unlike Section 4 of the Act19<\/a> (a generic provision on the waiver of right to object to non-compliance with requirements under the arbitration agreement or non-mandatory provisions of the Act) which permits deemed waiver, the proviso to Section 12(5) is explicit that a waiver under Section 12(5) can happen only through an express agreement in writing i.e. an agreement made in words as opposed to an agreement which is to be inferred from conduct or an exchange of documents.<\/p>\n

In JMC Projects (India) Ltd.<\/em> v. Indure (P) Ltd.<\/em>20<\/a>, the Delhi High Court further expounded that any waiver in writing of the applicability of Section 12(5) must necessarily reflect the parties\u2019 awareness of the applicability of the provision and the resultant invalidation of the arbitrator\u2019s eligibility to arbitrate the dispute as well as a conscious intention to waive the applicability of the provision.<\/p>\n

Thus, mere silent participation in the arbitral proceedings through filing of pleadings, filing of applications to the arbitrator for extension of time to file evidence, filing of applications for extension of time for continuance and completion of the arbitral proceedings, etc. can neither be construed as a party\u2019s waiver of the applicability of Section 12(5) nor as an estoppel against the party\u2019s right to challenge the unilateral appointment of arbitrator.<\/p>\n

Challenge to unilateral appointment after issuance of final award<\/strong><\/span><\/p>\n

There is no bar under Section 34 of the Act21<\/a> to set aside an award rendered by an arbitrator who was appointed through unilateral appointment. In fact, in Bharat Broadband<\/em>22<\/a>, although the Supreme Court was dealing with an appeal from a decision of the High Court rendered in proceedings under Section 14(2) of the Act, it set aside the award which had been rendered by the arbitrator in the interim, upon reaching the conclusion that the challenge to unilateral appointment was maintainable and justified.<\/p>\n

Based on the authors\u2019 analysis, an award rendered by an arbitrator appointed through unilateral appointment can be set aside by the Court under Section 34(2)(b<\/em>)(ii<\/em>) of the Act, on the ground of violation of fundamental policy of Indian law, since as explained in TRF<\/em><\/a>23<\/a> and Perkins<\/em><\/a>24<\/a>, unilateral appointment militates against the very essence of the 2015 Amendment to the Act.<\/p>\n

The authors are not aware of any Supreme Court precedent involving a situation wherein unilateral appointment was considered as good ground for setting aside an arbitral award, despite the fact that no challenge to the unilateral appointment was raised by the party during the pendency of the arbitral proceedings. However, the Madras High Court when faced with such a situation in JV Engg. Associate<\/em> v. CORE<\/em>25<\/a>, set aside the arbitral award since the case involved a scenario wherein both the appointing authority and the arbitrator were de jure ineligible under Section 12(5) read with the Seventh Schedule to the Act. However, the Madras High Court, beyond observing that the parties had never waived the applicability of Section 12(5), did not expound on the jurisprudential basis for the maintainability of a challenge against unilateral appointment for the first time in proceedings to set aside the award under Section 34 of the Act.<\/p>\n

In this context, the authors argue that such a challenge is maintainable primarily because a unilateral appointment is void ab initio resulting in the arbitrator inherently lacking jurisdiction to enter into reference, as already explained in the preceding paragraphs. Since an award passed by an arbitrator without inherent jurisdiction would be a nullity in any event (principle of coram non judice), it is possible to agitate lack of jurisdiction for the first time even at the stage of Section 34 proceedings. This position of law has been settled by the Supreme Court in decisions such as Lion Engg. Consultants<\/em> v. State of M.P.<\/em>26<\/a> and Hindustan Zinc Ltd. <\/em>v. Ajmer Vidyut Vitran Nigam Ltd.<\/em>27<\/a>.<\/p>\n

Closing remarks<\/strong><\/span><\/p>\n

Where an arbitrator has entered into reference through unilateral appointment, the ideal and ethical route to proceed would be to ask the parties if they are willing to state that they have full confidence in the Tribunal despite the unilateral appointment and therefore, waive the applicability of Section 12(5) in writing. Should the parties be reluctant to do so, the arbitrator ought to withdraw from the arbitral proceedings since he or she is de jure ineligible to act as an arbitrator.<\/p>\n

Further, it is advisable for the affected party to challenge a unilateral appointment at the inception of arbitral proceedings under Section 14 of the Act, to avoid wastage of time and resources. Doing so would also eliminate the necessity to wade into the question of whether such a challenge can be raised for the first time in Section 34 proceedings.<\/p>\n

As a matter of caution, parties wishing to reserve the right to challenge unilateral appointment should be wary of any boilerplate language in procedural orders issued by the arbitrator which states that parties do not have any objection to the appointment of the arbitrator, since the same may be considered to be a waiver in writing of the applicability of Section 12(5).<\/p>\n

\n

*<\/a>Senior Associate, AK Law Chambers.<\/span><\/p>\n

**<\/a>Associate, AK Law Chambers.<\/span><\/p>\n

1<\/a>Arbitration and Conciliation (Amendment) Act, 2015<\/a>.<\/p>\n

2<\/a>http:\/\/www.scconline.com\/DocumentLink\/QWdt5a4f<\/a>.<\/p>\n

3<\/a>http:\/\/www.scconline.com\/DocumentLink\/9ajA4z9b.<\/a><\/p>\n

4<\/a>http:\/\/www.scconline.com\/DocumentLink\/9ajA4z9b.<\/a><\/p>\n

5<\/a>(2017) 8 SCC 377<\/a>.<\/p>\n

6<\/a>2019 SCC OnLine SC 1517.<\/a><\/p>\n

7<\/a>See HRD Corpn<\/em>. v. GAIL (India) Ltd<\/em>., (2018) 12 SCC 471.<\/a><\/p>\n

8<\/a>(2017) 8 SCC 377<\/a>.<\/p>\n

9<\/a>2019 SCC OnLine SC 1517.<\/a><\/p>\n

10<\/a>See TRF Ltd. <\/em>v.EnergoEngg. Projects Ltd<\/em>., (2017) 8 SCC 377, paras 55-57.<\/a><\/p>\n

11<\/a>(2019) 5 SCC 755.<\/a><\/p>\n

12<\/a>See Bharat Broadband Network Ltd. <\/em>v. United Telecoms Ltd<\/em>., (2019) 5 SCC 755, para 18.<\/em><\/a><\/p>\n

13<\/a>http:\/\/www.scconline.com\/DocumentLink\/y0QTX63N.<\/a><\/p>\n

14<\/a>See Bharat Broadband<\/em>, (2019) 5 SCC 755, paras 14-17<\/a>.<\/p>\n

15<\/a>Bharat Broadband<\/em>, (2019) 5 SCC 755, paras 18 and 20<\/a>.<\/p>\n

16<\/a>2020 SCC OnLine Del 350, paras 26-27<\/a>.<\/p>\n

17<\/a>(2019) 5 SCC 755, para 20<\/a>.<\/p>\n

18<\/a>2021 SCC OnLine Del 2857, paras 8 and 9<\/a>.<\/p>\n

19<\/a>http:\/\/www.scconline.com\/DocumentLink\/D8UZ7ger.<\/a><\/p>\n

20<\/a>2020 SCC OnLine Del 1950, paras 35 and 38<\/a>.<\/p>\n

21<\/a>http:\/\/www.scconline.com\/DocumentLink\/teuo89l3<\/a>.<\/p>\n

22<\/a>(2019) 5 SCC 755.<\/a><\/p>\n

23<\/a>(2017) 8 SCC 377<\/a>.<\/p>\n

24<\/a>2019 SCC OnLine SC 1517.<\/a><\/p>\n

25<\/a>2020 SCC OnLine Mad 4829.<\/a><\/p>\n

26<\/a>(2018) 16 SCC 758, para 6<\/a>.<\/p>\n

27<\/a>(2019) 17 SCC 82, paras 9 and 10<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

by Ramkishore Karanam*and Mahasweta M.**<\/p>\n","protected":false},"author":67011,"featured_media":255697,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[42503,1191],"tags":[41950,3226,2773,37235,47527],"class_list":["post-255630","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-legal-analysis","category-op-ed","tag-arbitral-proceedings","tag-arbitration","tag-Award","tag-dispute-resolution","tag-unilateral-appointment"],"yoast_head":"\nWhat is the Appropriate Stage to Challenge Unilateral Appointment | SCC Times<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2021\/10\/16\/unilateral-appointment\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" 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