Bharat Heavy Electriclas Limited vs Offshore Infrastructure Limited

$~30
* IN THE HIGH COURT OF DELHI AT NEW DELHI

% Date of decision: 23.04.2026

+ O.M.P. (COMM) 273/2018 & I.A. 8624/2018
BHARAT HEAVY ELECTRICLAS LIMITED .....Petitioner
Through: Ms. Mani Gupta & Ms. Sonali
Jain, Advs.
versus
OFFSHORE INFRASTRUCTURE LIMITED .....Respondent
Through: Mr. Gaurav Dudeja, Adv.

CORAM:

HON'BLE MR. JUSTICE AVNEESH JHINGAN

AVNEESH JHINGAN, J. (ORAL)
1. This petition is filed under Section 34 of the Arbitration and
Conciliation Act, 1996 (for short „the Act‟) seeking setting aside of
arbitral award dated 21.12.2017.
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.

3. The brief facts are that the petitioner was awarded a work
contract by M/s HPCL Mittal Energy Limited, valuing
Rs.15,97,99,800/-. The petitioner further gave a sub contract to the
respondent vide Letter of Intent dated 28.05.2010. Dispute arose
between the parties to the lis . Clause 33 of the General Conditions of
Contract (for short „GCC‟) reproduced below provides for dispute
resolution through arbitration.
“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
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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
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.”

3.1 The respondent issued a notice invoking arbitration on
28.12.2013 and the petitioner vide letter dated 10.02.2014 appointed
the nominee of the General Manager as the sole arbitrator. The arbitral
proceedings culminated in award dated 11.01.2016. The award was
challenged by both parties before this court under Section 34 of the
Act and was set aside on 19.10.2016 but liberty was granted to the
parties to proceed with fresh arbitration. A notice dated 10.11.2016
under Section 21 of Act was issued by the respondent and the
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petitioner vide communication dated 13.12.2016 in pursuance of
Clause 33 appointed the nominee of the General Manager as the sole
arbitrator. Aggrieved of the impugned award, the present petition is
filed.
4. Learned counsel for the petitioner contends that the unilateral
appointment of the arbitrator falls in the teeth of the amended Section
12(5) of the Act. The decision rendered by the Supreme Court in
Bhadra International (India) Pvt. Ltd. & Ors. v. Airports
Authority of India, 2026 INSC 6 is relied upon.
5. Per contra, the major part of the award has not been challenged
by the petitioner, the payments in pursuance thereto have been made
and therefore, the impugned award should be set aside only to the
extent of the issues under challenge. It is submitted that during the
pendency of the petition under Section 11 of the Act filed by the
respondent, an arbitrator was appointed by the petitioner pursuant to
which the petition was disposed of thereby confirming the said
appointment by this Court. It is contended that the issue of violation of
Section 12(5) of the Act was neither raised before the arbitrator nor in
this petition.
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?
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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.

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
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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
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.
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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.
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
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or appoint any other person as an arbitrator. The unilateral
appointment in absence of an express agreement in writing by 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.

8. Clause 33 of GCC provides that in case of a dispute between the
parties the matter shall be referred for arbitration of the General
Manager or a nominee appointed by it. The law is well settled that the
official of a party to the dispute can neither be appointed as an
arbitrator nor can appoint an arbitrator. In the case in hand, the
arbitrator was appointed by the petitioner.
9. The respondent in the notice dated 10.11.2016 expressly stated
the amendment of Section 12(5) of the Act and the effects thereof.
Once there is no express consent in writing given under the proviso to
Section 12(5) of the Act, the rigours of the amended provision of
Section 12(5) of the Act are applicable. The appointment of the
arbitrator is in violation of the amended provisions of Section 12(5) of
the Act render the impugned award to be a nullity.
10. The prayer made by the respondent for partial setting aside of
the impugned award cannot be accepted in view of the fact that the
appointment of the arbitrator itself is void and the impugned award
passed in pursuance to such appointment is a nullity and cannot be
sustained in parts.
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11. The submission that the issue was not raised before the
arbitrator lacks merit. The Supreme Court in Bhadra International
(supra) has 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.
12. The argument that since a petition under Section 11(6) of the
Act was pending before this court when the appointment was made by
the petitioner which was confirmed by this court is ill-founded. It
would be relevant to reproduce the concluding paragraph of the
decision of this court in ARB. P.19/2017 titled Offshore
Infrastructures Limited v. Bharat Heavy Electrical Limited dated
09.01.2017 dismissing the petition filed under Section 11(6) of the
Act. The court had not gone into the issue of the unilateral
appointment. It was only considered that the petitioner acted as per the
clause by making an appointment within thirty days and the
appointment by this court was not necessitated. The issue of
appointment was not dealt with on merits.
“12. As stated earlier, in the present case there has been no
delay on the part of the respondent and it has acted within
the period of thirty days from the date of invocation of the
arbitration clause. Thus, in the facts and circumstances of
this case, it is not necessary to appoint Arbitrator as the
Arbitral Tribunal has already been constituted.

13. The petition is, accordingly, dismissed.”
13. The further contention of learned counsel for the respondent
that the petitioner after making the appointment of the arbitrator and
upon failure in the arbitration proceedings has taken a u-turn deserves
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to be rejected. This issue was noted by the Supreme Court in Bhadra
International (supra) and it was observed that to avoid such a
situation the parties must make an endeavour to enter into an express
written agreement as per proviso to Section 12(5) of the Act so as to
prevent such a misuse. The following paragraph is reproduced below
from the judgment:
“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.”
14. In the absence of compliance of proviso to Section 12(5) of the
Act by the parties, 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 application is also disposed of.
16. Needless to say that the parties shall be at liberty to avail
remedies in accordance with law.
AVNEESH JHINGAN, J
APRIL 23, 2026

Ch
Reportable:- Yes
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