Bharat Heavy Electricals Limited vs Progressive Construction Limited

Court
Delhi High Court

$~36 & 38
* IN THE HIGH COURT OF DELHI AT NEW DELHI


% Date of decision: 21.07.2026

+ O.M.P. (COMM) 375/2018, I.A. 11860/2018, I.A. 11861/2018
& I.A. 8500/2021
BHARAT HEAVY ELECTRICALS LIMITED .....Petitioner
Through: Ms. Mani Gupta, Mr. Pranav
Malhotra & Mr. Udwipt Verma,
Advs.
versus
PROGRESSIVE CONSTRUCTION LIMITED .....Respondent
Through: Mr. Arjun D Singh & Mr.
Yimyanger L, Advs.

+ O.M.P. (COMM) 388/2018
PROGRESSIVE CONSTRUCTION LIMITED .....Petitioner
Through: Mr. Arjun D Singh & Mr.
Yimyanger L, Advs.
versus
BHARAT HEAVY ELECTRICALS LIMITED .....Respondent
Through: Ms. Mani Gupta, Mr. Pranav
Malhotra & Mr. Udwipt Verma,
Advs.
CORAM:
HON'BLE MR. JUSTICE AVNEESH JHINGAN

AVNEESH JHINGAN, J. (ORAL)
1. These petitions are filed under Section 34 of the Arbitration and
Conciliation Act, 1996 (for short „the Act‟) challenging the arbitral
award dated 01.05.2018 (for brevity „the Award‟).
2. The short issue is that whether the unilateral appointment of the
sole arbitrator is in violation of amended Section 12(5) of the Act.
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3. For convenience sake, the facts are being taken from O.M.P.
(COMM) 375/2018. The brief facts are that the petitioner/ Bharat
Heavy Electricals Limited (BHEL) was awarded a work contract by
National Electricity Corporation (Sudanese Thermal Power
Generating Co. Ltd.) for „civil, structural & architectural works of
buildings, roads/drains & boundary wall/ fencing of 4 X 125 MW
power plant in Kosti, Sudan‟. The petitioner further gave a sub
contract to the respondent vide Letter of Intent dated 24.04.2007, with
a stipulated completion period of thirty seven months. Subsequently,
an agreement dated 29.06.2007 was entered into between the parties to
the lis .
3.1 Clause 33 of the General Conditions of Contract (for short
„GCC‟) provides for resolution of disputes by arbitration. As per the
said clause, disputes shall be referred to the sole arbitration of the
General Manager of BHEL or a nominee appointed by it and no
objection shall lie if the appointed arbitrator is an employee of BHEL.
The relevant clause is reproduced below:

“33.0 ARBITRATION : All disputes between the parties
to the contract arising out of or in relation to the contract,
other than those for which the decision of the Engineer or
any other person is by the contract expressed to be final
and conclusive, shall after written notice by either party to
the contract to the other party, be referred to sole
arbitration of the General Manager or his nominee. The
arbitration shall be conducted in accordance with the
provisions of the Arbitration and Reconciliation Act, 1996.
The parties to the contract understand and agree that it will
be no objection that the General Manager or the person
nominated as Arbitrator had earlier in his official capacity
to deal directly or indirectly with the matters to which the
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Signed By:CHANCHAL
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contract relates or that in the course of his official duties
had expressed views on all or any of the matters in dispute
or difference. The award of the Arbitrator shall be final and
binding on the parties to this contract. In the event of the
Arbitrator dying, neglecting or refusing to act or resigning
or being unable to act for any reason or his award being set
aside by the Court for any reason, it shall be lawful for the
General Manager or his successor, as the case may be,
either to act himself as the Arbitrator or to appoint another
Arbitrator in place of the outgoing Arbitrator in the manner
aforesaid. The Arbitrator may, from time to time, with the
consent of both the parties to the contract, enlarge the time
for making the award. Work under the contract shall be
continued during the arbitration proceedings. The venue of
the arbitration shall be the place from which the contract is
issued or such other place as the Arbitrator at his discretion
may determine.”

3.2 Disputes arose between the parties with regard to delay in
execution of the work, levy of liquidated damages and release of
pending amounts. The respondent by letter dated 09.09.2016 and
email dated 20.09.2016 requested for referring the disputes to
arbitration. The petitioner appointed the sole arbitrator on 28.10.2016
and proceedings culminated in the impugned award and hence the
present petition.
4. Learned counsel for the petitioner submits that the appointment
of the sole arbitrator is in violation of amended Section 12(5) read
with Seventh Schedule of the Act and the impugned award is liable to
be set aside. Reliance is placed upon the decision of the Supreme
Court in Bhadra International (India) Pvt. Ltd. & Ors. v. Airports
Authority of India , 2026 INSC 6 and the decisions of this Court in
Railways Board, Ministry of Railways vs. Titagarh Rail Systems
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Signed By:CHANCHAL
Signing Date:23.07.2026
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Limited , 2026:DHC:1720 and Engineering Projects (India) Ltd. v.
Allied Construction , 2026:DHC:2540 to contend that unilateral
appointment of an arbitrator is void ab-initio and objection to such
appointment can be raised even in proceedings under Section 34 of the
Act.
5. Per contra , it is not a case of unilateral appointment as the
arbitrator was appointed by the petitioner and the parties participated
in the arbitral proceedings without raising an objection. It is submitted
that petitioner having appointed the arbitrator and on failing is now
taking a u-turn. Further that no objection with regard to the
appointment of the arbitrator was raised before the arbitral tribunal.
6. Before proceeding further, it would be apposite to quote the
following decisions:
6.1 The Supreme Court in Bhadra International (supra) dealt with
the following three issues:
“29….i. Whether the sole arbitrator could be said to have
become “ineligible to be appointed as an arbitrator” by
virtue of sub-section (5) of Section 12 of the Act, 1996?
ii. Whether the parties could be said to have waived the
applicability of sub-section (5) of Section 12 of the Act,
1996, by way of their conduct, either expressed or implied?
iii. Whether the appellants could have raised an objection
to the appointment of the sole arbitrator for the first time in
an application under Section 34 of the Act, 1996?”
Held:
“123…i. The principle of equal treatment of parties
provided in Section 18 of the Act, 1996, applies not only to
the arbitral proceedings but also to the procedure for
appointment of arbitrators. Equal treatment of the parties
entails that the parties must have an equal say in the
constitution of the arbitral tribunal.
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ii. Sub-section (5) of Section 12 provides that any person
whose relationship with the parties or counsel, or the
dispute, whether direct or indirect, falls within any of the
categories specified in the Seventh Schedule would be
ineligible to be appointed as an arbitrator. Since, the
ineligibility stems from the operation of law, not only is a
person having an interest in the dispute or its outcome
ineligible to act as an arbitrator, but appointment by such a
person would be ex facie invalid.
iii. The words “an express agreement in writing” in the
proviso to Section 12(5) means that the right to object to
the appointment of an ineligible arbitrator cannot be taken
away by mere implication. The agreement referred to in the
proviso must be a clear, unequivocal written agreement. iv.
When an arbitrator is found to be ineligible by virtue of
Section 12(5) read with the Seventh Schedule, his mandate
is automatically terminated. In such circumstance, an
aggrieved party may approach the court under Section 14
read with Section 15 for appointment of a substitute
arbitrator. Whereas, when an award has been passed by
such an arbitrator, an aggrieved party may approach the
court under Section 34 for setting aside the award.
v. In arbitration, the parties vest jurisdiction in the tribunal
by exercising their consent in furtherance of a valid
arbitration agreement. An arbitrator who lacks jurisdiction
cannot make an award on the merits. Hence, an objection
to the inherent lack of jurisdiction can be taken at any stage
of the proceedings.”

6.2 The Division Bench of this court in Mahavir Prasad Gupta
and Sons v. Govt. of NCT of Delhi , 2025 SCC OnLine Del 4241
dealt with the following issues:
“74…a) When a party itself has unilaterally appointed the
arbitrator, whether that party can object to the unilateral
appointment of the arbitrator at any stage during or after
the arbitration proceedings?
b) If a party has unilaterally appointed an arbitrator, can
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Signed By:CHANCHAL
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that party be deemed to have given express waiver in
writing under Section 12(5) of the Act while making the
appointment itself?”
The court concluded:
“84….a) Mandatory Requirement : Any arbitration
agreement providing unilateral appointment of the sole or
presiding arbitrator is invalid. A unilateral appointment by
any party in 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 being
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.
b) Deemed Waiver: The proviso to Section 12(5) of the
Act requires an express agreement in writing. The conduct
of the parties, no matter how acquiescent or conducive, is
inconsequential and cannot constitute a valid waiver under
the proviso to Section 12(5) of the Act. The ineligibility of
a unilaterally appointed arbitrator can be waived only by an
express agreement in writing between the parties after the
dispute has arisen between them. Section 12(5) of the Act
is an exception to Section 4 of the Act as there is no
deemed waiver under Section 4 of the Act for unilateral
appointment by conduct of participation in the proceedings.
The proviso to Section 12(5) of the Act requires an
„express agreement in writing‟ and deemed waiver under
Section 4 of the Act will not be applicable to the proviso to
Section 12(5) of the Act.
c) Award by an Ineligible Arbitrator is a Nullity: An
award passed by a unilaterally appointed arbitrator is a
nullity as the ineligibility goes to the root of the
jurisdiction. Hence, the award can be set aside under
Section 34(2)(b) of the Act by the Court on its own if it
„finds that‟ an award is passed by unilaterally appointed
arbitrator without even raising such objection by either
party.
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d) Stage of Challenge: An objection to the lack of inherent
jurisdiction of an arbitrator can be taken at any stage during
or after the arbitration proceedings including by a party
who has appointed the sole or presiding arbitrator
unilaterally as the act of appointment is not an express
waiver of the ineligibility under proviso to Section 12(5) of
the Act. Such objection can be taken even at stage of
challenge to the award under Section 34 of the Act or
during the enforcement proceedings under Section 36 of
the Act.”

7. After amendment of Section 12(5) of the Act an employee of a
party in dispute can neither be appointed arbitrator nor can nominate
or appoint any other person as an arbitrator. The unilateral
appointment in absence of an express agreement in writing between
the parties to waive applicability of Section 12(5) of the Act is void
ab-initio. The filing of the statement of claim or participation in the
arbitral proceedings cannot be construed as waiver under the proviso
to Section 12(5) of the Act. The unilateral appointment of the
arbitrator can be objected to for the first time under Section 34 of the
Act. In the case in hand, the arbitrator was unilaterally appointed by
the petitioner in terms of clause 33 of the GCC without compliance of
proviso to Section 12(5) of the Act.
8. The contention that the appointment of the arbitrator was never
objected to and that this issue was not pleaded in the petition under
Section 34 of the Act is of no avail. The Supreme Court in Bhadra
International (supra) held that the issue goes to the root of
jurisdiction and can be raised for the first time under Section 34 of the
Act. Moreover, the issue of jurisdiction can be raised at any stage,
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including the stage of execution. It is also held that there should be
express written consent by the parties for waiver of the applicability of
Section 12(5) of the Act. The relevant paragraphs are reproduced
below:
“97. One could argue that a miscreant party may participate
in the arbitral proceedings up to the passing of the award,
despite having full knowledge of the arbitrator's
ineligibility. While after an adverse award is rendered, such
a party may then seek to challenge it with a view to having
it set aside. Such an apprehension is reasonable, however,
to obviate the possibility of such misuse, the party making
unilateral appointment must endeavour to enter into an
express written agreement as stipulated in the proviso to
Section 12(5), so as to safeguard the proceedings from
being rendered futile.
*
109. When an award has been passed, the proceedings
before the arbitral tribunal conclude, leaving no possibility
of substituting the arbitrator at this stage. In other words,
once an award is passed, the mandate of the arbitral
tribunal also arrives at a conclusion. In such circumstances,
a party aggrieved by the arbitrator's ineligibility may
challenge the award by filing an application under Section
34 of the 1996 Act, as an award passed by an ineligible
arbitrator is nullity, non-est, or void ab initio, and against
the public policy of India.
*
113. A challenge to an arbitrator's ineligibility could be
raised at any stage because an award passed in such
circumstance is non-est, i.e., it carries no enforceability or
recognition in law. We say so because an arbitrator does
not possess the jurisdiction to pass an award. In arbitration,
the parties vest the jurisdiction in the tribunal by virtue of a
valid arbitration agreement and an appointment made in
accordance with the provisions of the Act, 1996. This
jurisdiction is grounded in the consent of the parties as
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explained in the foregoing paragraphs of this judgment.”

9. In view of the law laid down by the Supreme Court in Bhadra
International (supra) and the decisions of this Court in Titagarh Rail
Systems Limited (supra) & Allied Construction (supra) affirmed by
the Division Bench of this court, the appointment of the arbitrator falls
in the teeth of the amended Section 12(5) of the Act.
10. The issue now to be determined is as to whether after the
dispute arose was there an express waiver in writing between the
parties that the provisions of Section 12(5) of the Act shall not apply.
11. The Supreme Court in Bhadra International (supra) held that
waiver involves a conscious decision to abandon the existing legal
right and can be made only by a person fully aware of such right. A
legal right cannot be taken away by implications. The waiver has to be
an unequivocal expression and it cannot be lost sight of that by such
waiver the restriction imposed by Section 12(5) of the Act is sought to
be overcome.
12. There is no prescribed format under the proviso to Section 12(5)
of the Act for an express agreement in writing but it shall not mean
that the waiver can be inferred by implication or through conduct. It
would be relevant to quote the following paragraph from Bhadra
International (supra):
“84. Undoubtedly, the statute does not prescribe a format
for the agreement. However, the absence of a prescribed
format cannot be construed to mean that the waiver may be
inferred impliedly or through conduct. We say so because
the legislature has consciously prefaced the term
“agreement” with the word “express” and followed it with
the phrase “in writing”. This semantics denote the intention
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of the legislature that the waiver under the proviso to
Section 12(5) must be made only through an express and
written manifestation of intention.”

13. The matter needs to be considered from another angle. The
express consent in writing under proviso to Section 12(5) of the Act
has to be of both the parties. The factum of the petitioner having
appointed the arbitrator cannot be construed as compliance of proviso
to Section 12(5) of the Act. The waiver has to be express and cannot
be construed or inferred through conduct. The Division Bench of this
court in Mahavir Prasad Gupta (supra) held that an appointment of
an ineligible person as an arbitrator is void ab-initio and can be
challenged by the party making such appointment. The relevant
paragraphs of the judgment are:
“81. Accordingly, the party that unilaterally appointed the
arbitrator cannot be deemed to have agreed in writing to
waive the ineligibility of the arbitrator by act of
appointment. When appointment itself is ineligible under
the provisions of Section 12(5) of the Act read with
Seventh Schedule of the Act, it does not take away the
right of the party to challenge such an appointment merely
because that party had made the appointment in absence of
express agreement in writing between the parties to waive
the applicability of Section 12(5) of the Act. 82. Hence, a
party which unilaterally appointed the arbitrator has right
to object to such appointment irrespective of fact that that
party itself made the appointment of the arbitrator. Mere
fact of making appointment in writing will not make the
ineligible appointment a valid appointment unless there is
express agreement in writing waiving such ineligibility.
83. Although it appears disingenuous, a party appointing an
the sole or presiding arbitrator unilaterally can challenge
the award on the ground that the award has been rendered
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Signed By:CHANCHAL
Signing Date:23.07.2026
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in contravention of Section 12(5) of the Act read with
Seventh Schedule of the Act notwithstanding that the said
party itself made such an appointment. When the Arbitral
Tribunal inherently lacked jurisdiction to act, the
arbitration proceedings are void ab initio, rendering the
award unenforceable irrespective of which party made such
unilateral appointment. The arbitral proceedings and an
award made by an unilaterally appointed sole or presiding
arbitrator, who is de jure ineligible to be appointed as an
arbitrator by virtue of the Seventh Schedule of the Act are
void ab initio. The waiver under the proviso to Section
12(5) of the Act must be express and subsequent to the
disputes having been arisen between the parties. Hence, the
party which appointed the sole or presiding arbitrator
unilaterally can also challenge the award under Section 34
of the Act on the ground of such ineligibility.”


14. In the absence of an express agreement in writing under proviso
to Section 12(5) of the Act, the appointment of the arbitrator by the
petitioner is in violation of Section 12(5) read with Seventh Schedule
of the Act. The appointment of the arbitrator is void ab-initio and
renders the impugned award a nullity.
15. The petition is allowed and the impugned award is set aside.
Pending applications are also disposed of.
16. Since the award has been set aside no separate order is required
to be passed in O.M.P. (COMM) 388/2018.

AVNEESH JHINGAN, J
JULY 21, 2026
„Ch‟/ „Vs‟
Reportable: Yes
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Signed By:CHANCHAL
Signing Date:23.07.2026
18:31:22