The Delhi High Court has held that the mandate of an arbitrator appointed unilaterally, in violation of Section 12(5) of the Arbitration and Conciliation Act, 1996 (Arbitration Act), can be terminated under Section 14 of the Act.

The Single Bench of Justice Subramonium Prasad clarified that mere participation in arbitral proceedings does not amount to a waiver of objections unless explicitly expressed in writing.

Facts of the Case

The petition under Section 14(1)(a) read with Sections 14(2) and 15(2) of the Arbitration Act was filed by Shakti Pump India Ltd. (Petitioner) seeking termination of the mandate of the arbitrator appointed unilaterally by Apex Buildsys Ltd. (Respondent).

The dispute arose out of a Works Contract executed through a Letter of Intent (LOI) dated August 24, 2011, followed by two Purchase Orders issued by the Petitioner. Over five years later, on June 7, 2017, the Respondent unilaterally appointed Achin Goel, Advocate, as the Sole Arbitrator to adjudicate alleged unpaid dues.

Subsequently, the Respondent replaced him with J S Jangra, Additional District Judge (Retd.), through a corrigendum notice on July 10, 2017, without the Petitioner's consent. The Arbitrator entered into Reference on July 17, 2017.

Contentions

The Petitioner contended that the unilateral appointment of the Sole Arbitrator was impermissible under Section 12(5) read with the Seventh Schedule of the Arbitration Act, making the Arbitrator de jure ineligible. Relying on Perkins Eastman Architects DPC & Anr. v. HSCC (India) Limited (2020), the Petitioner argued that an appointment made by a person statutorily ineligible to act as an arbitrator would be invalid.

The Counsel also submitted that the Respondent was undergoing liquidation under the Insolvency & Bankruptcy Code, 2016 (IBC), and hence, the application under Section 29(A) of the Arbitration Act could not have been filed in light of the statutory bar under Section 33(5) of the IBC.

On the other hand, the Respondent contended that the Petitioner's active participation in arbitration proceedings constituted implied consent to the appointment.

Court’s Observations

The Single Bench observed that the appointment of an arbitrator who is ineligible under Section 12(5) of the Act is void ab initio, striking at the root of the arbitral proceedings. The Court reiterated that the essence of Section 12(5) and its proviso is that a valid waiver must be explicit, written, and executed only after the dispute has arisen.

The Court relied on:

- Ellora Paper Mills Ltd. v. State of M.P. (2022), where the Supreme Court held that mere participation in arbitration does not amount to a waiver of objections under Section 12(5).

- Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd. (2017), emphasizing that independence and impartiality of the arbitrator are fundamental to arbitration.

- Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Co. (2024), affirming that equal participation in arbitrator appointment is crucial to ensure a fair process.

The Court concluded that unilateral appointment without an express written waiver is invalid and accordingly terminated the mandate of the sole arbitrator. "In light of the law laid down by the Hon’ble Supreme Court in the aforementioned judgments, mere participation of the parties without an unequivocal, written waiver after the dispute has arisen would not tantamount to acceptance of a unilateral appointment, and the unilateral appointment of an arbitrator by the Respondent in this case being void ab initio, as held by the Apex Court, is liable to be terminated," the Bench concluded.

Cause Title: Shakti Pump India Ltd. v. Apex Buildsys Ltd. and Anr. [Neutral Citation No. 2025: DHC: 1813]

Appearance:-

Petitioner: Advocates Vasanth Rajasekaran, Harshvardhan Korada, Mritunjay Kumar Singh, Rajiv Vijay Mishra, Rajeev Kumar Gupta, Prakash Kashyap, Shaikat Khatua,

Respondent: Advocates Sohel Sehgal, Rakesh Kumar, Ramesh Babu, Jainendra Maldhir, Sohel Sehgal, Rakesh Kumar, Ramesh Babu, Jainendra Maldhir

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Justice Subramonium PrasadDelhi High CourtArbitration & Conciliation Act

Sukriti Mishra

    Sukriti Mishra was a Legal Correspondent at Verdictum. She covered the Supreme Court. She completed her graduation with BA. LL.B (Hons.) from The ICFAI University, Dehradun. Sukriti started covering courts in March 2022. She had previously worked with another legal news portal, where she covered the Delhi High Court and Trial Courts.