Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. (COMM) 297/2023
M/S S. K. BUILDERS .....Petitioner
Through: Mr. Rajshekhar Rao, Sr. Adv.
with Mr. Mayank Sharma, Mr. Anshul
Kulshrestha and Mr. Zahid L. Ahmed, Advs.
versus
M/S CLS CONSTRUCTION PVT LTD .....Respondent
Through: Mr. Kirti Uppal, Sr. Advocate
with Mr. Sidharth Chopra, Mr. Harshita
Gulati, Ms. Diksha Mathur, Mr. Aditya Raj
and Mr. Navneet Thakran, Advocates
CORAM:
HON'BLE MR. JUSTICE C.HARI SHANKAR
JUDGMENT (ORAL)
% 08.08.2024
1. Arbitral proceedings between the petitioner and the respondent,
before a Sole Arbitrator, culminated in an award dated 18 May 2023.
The present petition under Section 34 of the Arbitration and
1
Conciliation Act, 1996 assails the said award.
2. Mr. Rajshekhar Rao, learned Senior Counsel for the petitioner,
submits that the impugned award is a nullity as the arbitrator had been
unilaterally appointed by the respondent without the consent of the
petitioner. The impugned award, resultantly, stands vitiated ab initio .
1
“the 1996 Act” hereinafter
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HARI SHANKAR
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3. The disputes between the parties arose in the context of a
2
Memorandum of Understanding dated 20 December 2019 between
the petitioner and the respondent. The MoU was in the nature of a sub-
contract by the petitioner on the respondent for construction of a
railway platform and certain other structures. Clause 16 of the MoU
envisaged resolution of disputes by arbitration and read thus:
“16. That the parties undertake to fully abide by the terms and
conditions set out in this MOU and not to dispute / agitate upon the
same hereinafter in future in any manner whatsoever, or in case
any misunderstanding or dispute arises pertaining to the terms and
conditions of this deed the same shall beresolved by the parties
themselves and if the dispute still persist the same shall be resolved
and decided by the sole arbitrator as per mutually decided both of
parties , Advocate in accordance to the rules, regulations and
procedures of the of Arbitration and Conciliation Act, whose
decision shall be final and binding upon both parties to this deed.”
(Emphasis supplied)
4. Thus, it would be seen that Clause 16 of the MOU itself
envisaged arbitration by an Arbitrator to be mutually appointed by
both parties. That said, even if the agreement were, as in certain other
cases, to have provided for unilateral appointment of an arbitrator,
such a covenant could not have been enforced in view of the decision
of the Supreme Court in Perkins Eastman Architects DPC v. HSCC
3
(India) Ltd , Bharat Broadband Network Ltd v. United Telecoms
4 5
Ltd , TRF Ltd v. Energo Engineering Projects Ltd and Haryana
Space Application Centre (HARSAC) v. Pan India Consultants Pvt
6
Ltd . Nonetheless, in the present case, the arbitration agreement
2
“MoU” hereinafter
3
(2020) 20 SCC 760
4
(2019) 5 SCC 755
5
(2017) 8 SCC 377
6
(2021) 3 SCC 103
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categorically envisaged bilateral appointment of the arbitrator by
consent of parties.
5. The respondent raised certain claims against the petitioner and,
on the dispute remaining unresolved, sought reference of the disputes
to arbitration. On 21 June 2021, the respondent addressed a notice to
the petitioner styled as “NOTICE OF INVOCATION OF
ARBITRATION AGREMENET AS CONTAINED IN
MEMORANDUM OF UNDERSTANDING DATED 20.12.2019
AND APPOINTMENT OF ARBITRATOR”. Having set out the
controversy in dispute, the notice concluded thus :
“…Therefore in view of the above stated facts and circumstances,
it is clear that the dispute and differences have arisen out of
Memorandum of Understanding dated 20.12.2019 between you and
our client, we hereby on behalf of our above named Client request
your good self to refer the disputes and differences to the
Arbitration of Sole Arbitrator to be appointed by mutual consent.
Accordingly, our above named client hereby appoints Sh. M.P.S.
Kasana Advocate Enrolment no.D 186/1993 having office at
Kasana Place 46, Street No.16, Wazirabad, Delhi – 110 084, as the
Arbitrator who shall commence the Arbitral Proceedings in
accordance to the rules and procedures of the Arbitration and
Conciliation Act, 1996.
Further you are called upon to send your consent for reference of
disputes to the Arbitration which will be conducted by the sole
Arbitrator named above, within the Statutory period from the date
of the receipt of this Present Notice. Take notice that your non-
response or silence shall be treated as a consent . This is without
prejudice to our Client’s rights to seek any other Legal remedy
available as per law.”
(Emphasis supplied)
6. The petitioner replied to the aforesaid notice of the respondent
on 1 July 2021. The reply disputes any liability of the petitioner
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towards the respondent, but is completely silent on the request for
reference of the disputes to arbitration.
7. Mr. M.P.S. Kasana, who was the person named in the notice
dated 21 June 2021 as the proposed Arbitrator, proceeded to enter on
reference. There is no dispute about the fact that the petitioner and the
respondent participated in the arbitral proceedings. However, during
the course of arbitration, the petitioner filed a specific application
7 8
before the Arbitrator under Section 21 read with Section 32 of the
1996 Act, praying that the arbitral proceedings be terminated, inter
alia , on the ground that the appointment of the Arbitrator was
unilateral. Specific objections to assumption of jurisdiction by the
Arbitrator, despite the appointment having been unilateral, find place
in para 1, 5 and 6 of the application, which may, to the extent relevant,
be reproduced thus:
“1 …Even otherwise the unilateral appointment of the
arbitrator with a caveat of the consent of the other party is held to
be an illegal way of appointment of the arbitrator in catena of
judgment.
*
5. That it is here to submit that the respondent has never given
any consent to even the appointment of the arbitrator and / or the
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21. Commencement of arbitral proceedings . – Unless otherwise agreed by the parties, the arbitral
proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be
referred to arbitration is received by the respondent.
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32. Termination of proceedings . –
(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of
the arbitral tribunal under sub-section (2).
(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings
where—
(a) the claimant withdraws his claim, unless the respondent objects to the order and
the arbitral tribunal recognises a legitimate interest on his part in obtaining a final
settlement of the dispute;
(b) the parties agree on the termination of the proceedings; or
(c) the arbitral tribunal finds that the continuation of the proceedings has for any
other reason become unnecessary or impossible.
(3) Subject to Section 33 and sub-section (4) of Section 34, the mandate of the arbitral
tribunal shall terminate with the termination of the arbitral proceedings.
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claim amount, when the same is not detailed in the notice dated
21.06.2021, thus there is no reason to reply and / or accept the
same, as law of limitation has never started to run, when the legal
notice is defective as per section 21 of the Act.
6. That in the light of the aforesaid facts and circumstances,
the present arbitration proceeding is impossible and unsustainable
in the eyes of law, more particularly the pecuniary jurisdiction,
whereas on the contrary this hon’ble tribunal has calculated the
arbitration fee of ₹ 9,03,201/- (Rupees Nine Lakh Three Thousand
Two hundred and ten only), vide its order dated 03.01.2022 on the
basis of the claim petition without looking into the merit and
contrary to the settled law, which is illegal ab-initio, when this
Hon’ble tribunal is not properly constituted, its jurisdiction was
never been decided, even by the claimant.
8. The learned Arbitrator decided the aforesaid application by
order dated 17 February 2022, paras 8 to 10, 12, 13, 15 and 18 read as
under:
8. I have heard arguments from Sh. KK Jha Ld. counsel for
“
the claimant, Sh. Rajesh Kumar Ld. Counsel for the respondent and
also gone through the complete record and documents filed by both
the parties before Arbitration tribunal as well as considered the
submissions and case laws submitted by both the parties with at
most care and regards.
9. That the Ld. Counsel for the claimant has argued that their
notice dated 21.06.2021 completed the requirements of invocation
of arbitration under section 21 of the Arbitration and Conciliation
Act, 1996, as in the said notice it is specifically mentioned that we
have already appointed the sole arbitrator and non-response or
silence shall be treated as a consent for appointment of sole
arbitrator. It is also argued by the Ld. Counsel for the claimant that
if the respondent was having any objection for the appointment of
sole arbitrator or for invocation of arbitration, the respondent could
have raised the objection in his reply dated 01.07.2021 to the effect
that he has objection for the appointment of sole arbitrator or for
invocation of arbitration. It is also argued that the respondent could
have also raised objection at any other subsequent stage, when they
have appeared before the arbitration tribunal or could have
mentioned in his reply to the statement of claim. It is argued that
the respondent has not raised any objection for invocation of
arbitrator at any point of time and now when pleadings of both the
parties are completed and evidence yet to be started, the instant
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application under section 21 R/w section 32 of the Arbitration and
Conciliation Act, 1996 has been filed for raising the objection for
invocation of arbitration, which is completely without any
justification and cause and reason.
10. The Ld. Counsel for the respondent has argued that
whatever reasons are there but the claimant is failed to comply the
mandatory requirement of provisions of sending a valid legal
notice under section 21 of the Arbitration and Conciliation Act,
1996 for invocation of arbitration. The Ld. Counsel for the
respondent also argued that there cannot be an unilateral
appointment of the arbitrator and the present arbitration tribunal
has no jurisdiction to try and adjudicate the claim amount. The Ld.
counsel for respondent also relied upon the case laws Lt. Col. H. S.
Bedi (Retd.) & Anr. Vs. STCI Finance Limited, OMP (Comm.)
427/2018 and Alupro Building System Pvt. Ltd. Vs. Ozone
Overseas Pvt. Ltd., OMP 3/2015.
*
12. That it is correct, the claimant herein has issued a notice
dated 21.06.2021 to the respondent for invocation of arbitration,
the said notice was duly served upon the respondent herein. The
respondent has also replied the said notice vide his reply dated
01.07.2021. It is further admitted fact between the parties that in
the said notice dated 21.06.2021, the claimant herein requested the
respondent to refer the dispute and differences to the present
arbitration tribunal and called upon the respondent to send his
consent for reference of dispute to the arbitration. It is also found
mentioned in the last para of the said notice dated 21.06.2021 that
non response or silence shall be treated as a consent for the
appointment of sole arbitrator. In his reply dated 01.07.2021 the
respondent admittedly has not disputed the appointment of sole
arbitrator and as such has not raised any objection to referring the
matter to the sole arbitrator. However the respondent denied the
claims made by the claimant in notice dated 21.06.2021, stating
therein
"III. as per available records our client had made timely
payment for the work done same, we have done after
completing company formalities now have seen the work
which you have done have liability of market around
1.98Cr. we have approaches to you several times to clear
the dues of liability of market but you have not provided
affirmative responses and even though you are not
attending there (labours, materials suppliers, other sub
contractor and staffs) calls as in leads they daily
approaching our clients office complaint about non-
payment of there."
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and in the last para in this reply it is stated that:
"so we would like to request you kindly clears all the dues
related to liabilities of parties for which work done instated
to taking any action on same."
13. That this arbitration tribunal have issued the notices dated
28.07.2021 to both the parties and they were requested to join the
arbitration proceedings commencing on 21.08.2021. Accordingly
both the parties have responded the notice dated 28.07.2021 and
have appeared before the Arbitration tribunal through their
respective counsels on 21.08.2021. Then claimant herein has filed
his statement of claim alongwith documents. The respondent herein
has filed his reply to the statement of claim on 17.12.2021 and
thereafter rejoinder was also filed by the claimant, as such
pleadings of the parties are completed before this arbitration
tribunal on 08.01.2022.
*
15. That the respondent neither in his reply dated 01.07.2021
to the notice dated 21.06.2021 of the claimant, nor in his reply
filed before this arbitration tribunal to the statement of claim has
ever objected the appointment of this arbitration tribunal. Only the
present application U/s21 R/w Section 32 of the Arbitration and
Conciliation Act, 1996 has been filed on 15.01.2022, when the
matter was listed for filing of affidavit of admission denial of
document, framing of issues and for payment of arbitration fee.
From the perusal of the application it appears that the respondent is
aggrieved from the claim raised by the claimant in his statement of
claim and further on the basis of which fees of the arbitration
proceedings has been calculated. It is also the grievance of the
respondent that initially in the legal notice dated 25.03.2021 the
claimant raised a demand of ₹ 15,89,403.769/- from the respondent
and thereafter in a notice dated 21.06.2021 for invocation of
arbitration, the claimant raised a demand of ₹ 2.45 Crores till date,
but subsequently the claimant has filed a statement of claim for an
amount of ₹ 6,65,71,049.96/-.However on perusal of Notice dated
25.03.2021 in its concluding para, it is specifically mentioned that
if the Amount so raised including other compliance are not
met/complied "then the Claimant having no other option, shall
certainly knock the doors of the Hon'ble Arbitral Tribunal Court of
law for redressal of his grievances for the loss of Huge investment
in crores of Rupees, mental agony, harassment etc. being faced by
him due to your (Respondent herein) non-cooperation. sluggish,
deliberate and conscious act of delayed payment, which you
(Respondent) please note" But even otherwise if there is variation
of the demands by the claimant in the abovesaid notices and in
statement of claim that has to be seen by adducing proper evidence,
to the effect that for how much claim the claimant is legally
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entitled. Moreover, as per settled principle of law, as laid down by
Hon'ble Apex Court in a case PSA Sical Terminals Pvt. Ltd. v The
9
Board of Trustees VO (decided on 28.07.2021). an arbitrator
cannot go beyond the contract and beyond the term & conditions of
the agreement of the parties and it has been held that the
jurisdiction of the arbitrator being confined to the four corner of the
agreement, he can only pass such an award which may be the
subject matter of reference. So mere filing of statement of claim is
not sufficient to pass an award for the amount claimed in the
Statement of claim. In fact an award and other claims so demanded
in the Statement of claim cannot be awarded beyond the contract of
parties and without any documentary proof. However before
completion of evidence in any of the matter it is not possible to
give any accurate finding as how much sum or amount is liable to
be awarded, that can only be decided after completion of evidence
between the parties. Similarly this settled principle of law would
also be applicable in the present case.
*
18. That the present case has also been considered in view of
Section 32 of the Arbitration and Conciliation Act, 1996 but from
the perusal of the records pleadings of the parties or otherwise,
there is no any condition as referred in section 32 is made out for
termination of the present arbitration proceedings from either of the
parties, as such the Section 32 of the Arbitration and Conciliation
Act cannot be invoked in the present matter without any
justification and ground. Therefore in the fact and circumstances
proceedings of the arbitration cannot be terminated, as such the
application filed by the respondent to this effect is not maintainable
and devoid of merits, more specifically when the pleadings of the
parties are already completed and evidence is yet to be started.
18. I have also gone through the case cited by the Ld. counsel
for the respondent with at most regards, however the said case
laws cited are not applicable in the facts and circumstances of the
present case, since here is a case where both the parties have
joined the proceeding before the present Arbitration proceeding
and have completed their pleadings too. Therefore I do not find
any justification or ground in the present application filed by the
respondent and in view of the submissions, discussions made by
the Ld. Counsels of the parties and on perusal of records, the
application under section U/s 21 read with Section 32 of the
Arbitration and Conciliation Act, 1996 filed by the respondent is
devoid of merits, hence the application is dismissed.”
(Emphasis supplied)
9
2021 SCC OnLine SC 508
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9. The Arbitrator having thus rejected the petitioner’s application
for termination of the arbitral proceedings, the proceedings continued.
10. During the course of proceedings, as the mandate of the
Arbitrator was to expire on 20 February 2023, a joint statement of
learned counsel for the parties was recorded by the Arbitrator on 11
February 2023, extending the time for conclusion of the arbitral
proceedings by a further period of three months. This fact stands noted
in the following paragraph of the impugned award :
“VI. EXTENSION OF TIME FOR THE ARBITRATION
PROCEEDINGS WITH THE CONSENT OF BOTH THE
PARTIES
That on 11.02.2023 case was listed for arguments on the
application under section 137 R/w section 138 of the Indian
Evidence Act. Both parties have addressed their arguments and it
was decided further between both the parties that the period of 12
months after completion the pleadings of the parties is to expire by
20.02.2023 therefore a joint statement of the Ld. Counsels for both
the parties for extension of time for Arbitration Proceeding for a
further period of 3 months was recorded, as such it was decided
between the parties that the Arbitration proceedings in the present
matter be completed on or before 20.05.2023. The Ld. Counsels of
both the parties have signed the joint statements recorded on
11.02.2023.”
11. The award came to be rendered by the Arbitrator on 18 May
2023. The award being in favour of the respondent, the petitioner has
challenged the award by means of the present proceedings under
Section 34 of the 1996 Act.
12. Mr. Rao, learned Senior Counsel for the petitioner advanced a
preliminary submission that the impugned award is a nullity, as the
learned Arbitrator had no jurisdiction to enter on the reference, his
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appointment having been unilaterally made by the respondent without
the consent of the petitioner.
13. Mr. Kirti Uppal, learned Senior Counsel for the respondent
emphatically refutes this contention. He submits that, in the notice
dated 21 June 2021, issued by the respondent to the petitioner under
Section 21 of the 1996 Act, invoking arbitration, it was clearly stated
that if the petitioner did not object to the appointment of Mr. Kasana
as the Arbitrator, the consent of the petitioner would be presumed. The
proverbial ball was, thereafter in the petitioner’s court, and it was for
the petitioner to object to Mr. Kasana’s appointment, if the petitioner
so deemed appropriate. In the reply dated 1 July 2021 filed by way of
response to Section 21 notice, however, the petitioner never raised any
objection to reference of the disputes to arbitration or to Mr. Kasana
being the Arbitrator. The Arbitrator, therefore, he submits, committed
no illegality in entering on the reference or proceeding to arbitrate on
the disputes.
14. Mr. Uppal also places reliance on the observations contained in
the passage from the impugned award extracted in para 10 supra ,
wherein the Arbitrator has noted the joint statement made by the
learned counsel for both sides on 11 February 2023, consenting to
extension of the mandate of the Arbitrator by three months. This,
submits Mr. Uppal, amounts to consent by the petitioner to the
arbitration of the disputes by the Arbitrator. It is not open, therefore, to
the petitioner having failed in the arbitration, to now seek to contend
that the Arbitrator was incompetent to arbitrate.
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15. Had the petitioner succeeded in the arbitration, submits Mr.
Uppal, tongue firmly in cheek, that such a contention would hardly
have been raised.
16. Mr. Uppal places reliance on a judgment of a Division Bench of
10
this Court in Arjun Mall Retail Holdings Pvt Ltd v. Gunocen Inc ,
specifically on paras 32 to 35 of the report which read:
“ 32. It is observed that the respondent had sent several notices
invoking the Arbitration clause, the first of which was a Notice
dated 11.11.2017. Thereafter, vide legal notice dated 02.08.2018,
the respondent had informed the appellants in respect of invocation
of the arbitration clause and appointment of the learned Sole
Arbitrator. Therefore, the Tribunal entered into reference on
02.08.2018. When the matter came up for hearing before the
learned Arbitrator on 31.10.2018 as well as on 24.11.2018, none
appeared on behalf of the appellants. Relevantly, there is a time
gap of almost eight months from the date of issuance of first legal
Notice of invocation of arbitration proceedings and its actual
commencement. Yet, the appellants did not take any recourse to
law for revocation of appointment of learned Arbitrator or in
challenge of the arbitration clause.
33. We find that under Section 34 of the Act, 1996 scope of
interference by the Court is limited to the extent that the Arbitral
Award is not vitiated on basis of pleadings raised by the parties.
The learned District Judge has rightly observed that if a party fails
to raise a plea in arbitral proceedings, it cannot take a fresh ground
to seek relief before the Appellate Authority and any such plea,
deserves to be rejected.
34. The Hon'ble Supreme Court in Delhi Airport Metro
11
Express v. DMRC , has observed that in several judgments scope
of Section 34 of the Act has been interpreted to stress on the
restrain upon the Court to examine the validity of the Arbitral
Awards, after dissecting or reassessing the factual aspects of the
cases. It has been observed as under :-
“29. Patent illegality should be illegality which goes to
the root of the matter. In other words, every error of law
10
2024 SCC Onine Del 428
11
(2022) 1 SCC 131
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committed by the Arbitral Tribunal would not fall within
the expression “patent illegality”. Likewise, erroneous
application of law cannot be categorised as patent illegality.
In addition, contravention of law not linked to public policy
or public interest is beyond the scope of the expression
“patent illegality”. What is prohibited is for Courts to
reappreciate evidence to conclude that the award suffers
from patent illegality appearing on the face of the award, as
Courts do not sit in appeal against the Arbitral Award. The
permissible grounds for interference with a domestic award
under Section 34(2-A) on the ground of patent illegality is
when the Arbitrator takes a view which is not even a
possible one, or interprets a clause in the contract in such a
manner which no fair-minded or reasonable person would,
or if the Arbitrator commits an error of jurisdiction by
wandering outside the contract and dealing with matters
not allotted to them. An Arbitral Award stating no reasons
for its findings would make itself susceptible to challenge
on this account. The conclusions of the Arbitrator which
are based on no evidence or have been arrived at by
ignoring vital evidence are perverse and can be set aside on
the ground of patent illegality. Also, consideration of
documents which are not supplied to the other party is a
facet of perversity falling within the expression “patent
illegality”.”
35. The aforesaid dictum in Delhi Airport Metro
Express (Supra) makes it clear that under Section 34 of the Act,
scope of interference by the courts is very limited and only if there
is any patent illegality in the Arbitral Award, then only it is
required to be touched upon. In the present case, even if it is
accepted that the appellants had raised objection to the appointment
of learned Arbitrator by sending a letter to him but the fact remains
that the appointment was never challenged under the provisions of
Section 11(6) of the Act, 1996 nor did the appellants participate in
arbitral proceedings, despite having knowledge of the same.
Instead of contesting the respondent's claim before the learned
Arbitrator, the appellants remained mute spectator and only after
losing the battle in arbitral proceedings, the appellants preferred
appeal under Section 34 of the Act, challenging the appointment of
Arbitrator as well as the Arbitral Award.”
17. However, Mr. Uppal, with characteristic candour, concedes
that, in the Special Leave petition preferred against the aforesaid
decision, the Supreme Court, even while dismissing the SLP by order
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dated 14 June 2024, left the question of law open. Nonetheless, he
submits that the judgment of the Division Bench in Arjun Mall Retail
Holdings is final and binds this Court.
18. Mr. Uppal also places reliance on the decision of a learned
Single Judge of this Court in R.S. Seven Lifestyle Pvt Ltd v Seven
12
Hills . He submits that the situation that obtained before the learned
Single Judge in R.S. Seven Lifestyle is starkly similar to the situation
which obtains in the present case. In that case, too, the Arbitrator was
unilaterally appointed by one party, as the opposite party did not
object to the appointment before it was made. He points out that, in
para 18 of the decision, this Court has treated the consent granted for
extension of the mandate of the Arbitrator as an implied consent to the
Arbitrator being competent to arbitrate on the dispute. In that view of
the matter, Mr. Uppal submits that the petitioner cannot, at this
juncture, be heard to contend that the impugned award is a nullity as
the Arbitrator was unilaterally appointed.
19. Responding to the submissions of Mr. Uppal, Mr. Rao, learned
Senior Counsel for the petitioner, points out that the petitioner had
raised a specific challenge to the authority of Mr. Kasana to arbitrate
on the dispute by moving an application before him under Section 21
read with Section 32 of the 1996 Act, seeking termination of his
mandate. He has drawn my attention to the various paragraphs of the
said application reproduced in para 7 supra in which it was
specifically submitted that Mr. Kasana could not arbitrate on the
12
Judgment dated 16 March 2021 passed in OMP (T)(COMM) 7/2021
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dispute, as his appointment was unilateral. He has also drawn my
attention to the order dated 17 February 2022 passed by the learned
Arbitrator on the said application, in which the learned Arbitrator has
relied on the fact that, in the reply dated 1 July 2021, submitted by the
petitioner by way of response to the Section 21 notice dated 21 June
2021 addressed by the respondent, no objection to Mr. Kasana
arbitrating on the dispute was ever raised. Apart from this, the learned
Arbitrator has relied on the fact that the petitioner had participated in
the proceedings. Mr. Rao’s submission is that these considerations do
not efface the illegality of the appointment of Mr. Kasana as the
Arbitrator, as the appointment was clearly unilateral and without the
consent of the petitioner. Mr. Rao places reliance on the judgment of a
Coordinate Bench of this Court in Lt Col H.S. Bedi v STCI Finance
13
Ltd , which, he submits was almost identical on facts. In that case,
following the judgment of the Supreme Court in Dharma
14
Prathishthanam v. Madhok Construction (P) Ltd , a Coordinate
Bench of this Court held that the appointment of the Arbitrator was a
nullity ab initio as it was unilateral and without the consent of one of
the parties. This judgment, according to Mr. Rao, squarely covers the
present case. Mr. Rao has also relied on the judgment of the Supreme
Court in Lion Engineering Consultants v State of Madhya
15
Pradesh , particularly drawing attention to paras 3 and 4 of the
report:
“ 3. The learned Advocate General for the State of M.P.
submitted that the amendment sought is formal. Legal plea arising
on undisputed facts is not precluded by Section 34(2)( b ) of the Act.
Even if an objection to jurisdiction is not raised under Section 16
13
2018 SCC Online Del 12577
14
(2005) 9 SCC 686
15
(2018) 16 SCC 758
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of the Act, the same can be raised under Section 34 of the Act. It is
not even necessary to consider the application for amendment as it
is a legal plea, on admitted facts, which can be raised in any case.
He thus submits the amendment being unnecessary is not pressed.
The learned Advocate General also submitted that observations in
MSP Infrastructure Ltd. v. M.P. Road Development Corpn.
16
Ltd . , particularly in paras 16 and 17 do not lay down correct law.
4. We find merit in the contentions raised on behalf of the
State. We proceed on the footing that the amendment being beyond
limitation is not to be allowed as the amendment is not pressed. We
do not see any bar to plea of jurisdiction being raised by way of an
objection under Section 34 of the Act even if no such objection
was raised under Section 16.”
Thus, submits Mr. Rao, the objection to the jurisdiction of the
Arbitrator to arbitrate on the dispute can be taken at any stage.
20. Mr. Rao also places reliance on paras 14 to 16 of the judgment
of the Supreme Court in Dharma Prathishthanam , which read:
17
“ 14. In Thawardas Pherumal v. Union of India a question
arose in the context that no specific question of law was referred to,
either by agreement or by compulsion, for decision of the arbitrator
and yet the same was decided howsoever assuming it to be within
his jurisdiction and essentially for him to decide the same
incidentally. It was held that : (SCR p. 58)
“A reference requires the assent of both sides. If one side is
not prepared to submit a given matter to arbitration when
there is an agreement between them that it should be
referred, then recourse must be had to the court under
Section 20 of the Act and the recalcitrant party can then be
compelled to submit the matter under sub-section (4). In the
absence of either, agreement by both sides about the terms
of reference, or an order of the court under Section 20(4)
compelling a reference, the arbitrator is not vested with the
necessary exclusive jurisdiction.”
(emphasis in original)
15. A Constitution Bench held in Waverly Jute Mills Co.
16
(2015) 13 SCC 713
17
(1955) 2 SCR 48 : AIR 1955 SC 468
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18
Ltd. v. Raymon and Co. (India) (P) Ltd that :
“An agreement for arbitration is the very foundation on
which the jurisdiction of the arbitrators to act rests, and
where that is not in existence, at the time when they enter
on their duties, the proceedings must be held to be wholly
without jurisdiction. And this defect is not cured by the
appearance of the parties in those proceedings, even if that
is without protest, because it is well settled that consent
cannot confer jurisdiction.”
16. Again a three-Judge Bench held in Union of India v. A.L.
19
Rallia Ram that it is from the terms of the arbitration agreement
that the arbitrator derives his authority to arbitrate and in absence
thereof the proceedings of the arbitrator would be unauthorised.”
(Italics in original; underscoring supplied)
21. Having heard learned counsel for both sides, in my considered
opinion, Mr. Rao’s contention has to succeed.
22. Unilateral arbitration is an oxymoron. Consent, to the
arbitration as well as the arbitrator, is the very raison d’etre of the
arbitral process. Unilateral appointment of an arbitrator is, therefore,
completely proscribed. Section 11 of the 1996 Act specifically
envisages consensus ad idem on the Arbitrator who has to arbitrate on
the disputes. In the present case, besides, Clause 16 of the MoU
clearly envisaged appointment of the Arbitrator by consent of the
parties.
23. There is clearly no consent by the petitioner to the appointment
of Mr. Kasana as the Arbitrator. The respondent could not, by merely
including, in its notice dated 21 June 2021, a cautionary caveat that
non-response/silence by the petitioner to the respondent’s request for
18
(1963) 3 SCR 209 : AIR 1963 SC 90
19
(1964) 3 SCR 164 : AIR 1963 SC 1685
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arbitration of the dispute by Mr. Kasana, would be taken as consent,
seek to urge that, as the petitioner’s response dated 1 July 2021 did not
pointedly object to the arbitration of the dispute by Mr. Kasana,
consent to Mr. Kasana arbitrating on the dispute must be presumed.
Clause 16 of the MoU required mutual decision . “Decision”
envisages a positive act. In the given context, it clearly analogizes to
consent. Consent has to be express or, even if implied, to be
unequivocal. The statement, in the notice dated 21 June 2021, that,
were the petitioner not to object to the arbitration of the dispute by Mr.
Kasana, consent in that regard would be presumed, can only apply to
the respondent, not to the law. The respondent may, in other words,
have presumed consent resulting from the silence, on the petitioner’s
part, regarding the proposal to arbitration by Mr. Kasana in its reply
dated 1 July 2021. The law does not.
24. It is well settled that consent requires consensus ad idem . There
must be positive consent on the part of the petitioner to the
appointment of an Arbitrator. Absent such consent, the appointment
becomes unilateral and ex facie illegal.
25. I am also in agreement with the decision of the Coordinate
Bench in Lt. Col. H.S. Bedi in which this Court held that the mere
insertion, in the Section 21 notice, of a caveat that failure to object to
the arbitration of the disputes by the named Arbitrator would imply
consent, would not necessarily mean that the opposite party had
consented to the arbitration as it did not expressly object.
26. The appointment of the Arbitrator in the present case was,
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therefore, unilateral. The arbitral proceedings would, even on that
score, stand vitiated ab initio .
27. Mr. Rao is also correct in pointing out that the petitioner had, in
the present case, specifically objected to the continuance of the arbitral
proceedings by Mr. Kasana by moving an application, in that regard,
before him, seeking termination of his mandate. One of the specific
grounds on which the petitioner objected to Mr. Kasana continuing as
the Arbitrator was the fact that the appointment of Mr. Kasana as the
Arbitrator was unilateral and without the consent of the petitioner.
Significantly, the application, in this context, placed reliance on the
decision of this Court in Lt. Col. H.S. Bedi .
28. The manner in which the petitioner’s objection has been
rejected by the Arbitrator in his order dated 17 February 2022 clearly
cannot sustain legal scrutiny. The Arbitrator has placed reliance on the
observation, in the Section 21 notice dated 21 June 2022 issued by the
respondent, that silence or absence of any objection by the petitioner
to the appointment of Mr. Kasana as the Arbitrator to arbitrate on the
disputes, would amount to deemed consent. In so doing, the learned
Arbitrator has failed to notice that a precisely identical contention was
specifically negatived by this Court in Lt. Col. H.S. Bedi.
29. Further, while dealing with the application, the learned
Arbitrator has not returned any finding on the petitioner’s specific
contention that his appointment as Arbitrator was unilateral and was,
therefore a nullity ab initio . Rather, the Arbitrator has proceeded on
the premise that, as the parties had completed their pleadings and the
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proceedings had gone on for some time, the petitioner could not raise
any objection to the jurisdiction of the Arbitrator to arbitrate on the
dispute. This view, as taken by the learned Arbitrator in the order
dated 17 February 2022, is clearly erroneous and cannot sustain in
law. An objection to jurisdiction could be raised at any point. Lion
Engineering Consultants is clear on the point.
30. In the impugned award, the learned Arbitrator has noted the fact
that the parties had jointly agreed to extension of his mandate by three
months with effect from 20 February 2023. This fact cannot, in my
view, be regarded as consent on the part of the petitioner to the
jurisdiction of the Arbitrator, especially in view of the specific
objection in that regard having been raised by the petitioner by way of
an independent application filed before the learned Arbitrator.
31. It is also significant that even while dismissing the SLP
preferred against the judgment of the Division Bench in Arjun Mall
Retail Holdings , the Supreme Court left the question of law open.
This clearly indicates that, even in the opinion of the Supreme Court,
the question of whether an arbitration which proceeds following the
unilateral appointment of the Arbitrator, can at all sustain, deserved
consideration.
32. R.S. Seven Lifestyle was a case in which, prior to agreeing to
extension of the mandate of the Arbitrator, no objection was raised by
the petitioner to his jurisdiction. The first objection that was raised
was on 25 January 2020, after the mandate of the Arbitrator already
stood extended. Even so, the decision concludes by regularizing the
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appointment of the Arbitrator by construing the appointment as having
been made by the Court. As such, it is clear that the decision in R.S.
Seven Lifestyle cannot be regarded as a binding precedent on the
principle that, even where a specific application objecting to the
Arbitrator’s continuing with the jurisdiction were filed before the
learned Arbitrator, the party would nonetheless stand estopped from
raising the contention after the award was passed. In any event, R.S.
Seven Lifestyle does not consider the judgment of the Supreme Court
in Dharma Prathishthanam . Though the decision in Dharma
Prathishthanam was rendered in the context of erstwhile Arbitration
Act, 1940, the principle that consensus ad idem is necessary between
the parties is necessary for an Arbitrator to assume jurisdiction over
the arbitration pervades both the 1940 as well as 1996 Act. The
Coordinate Bench in Lt. Col. H.S. Bedi correctly therefore relied on
the law laid down in Dharma Prathishthanam which has not been
noticed by this Court while passing judgment in R.S. Seven Lifestyle .
33. For all the aforesaid reasons, I am of the opinion that the
learned Arbitrator had no jurisdiction to arbitrate on the disputes at
hand, as his appointment was unilateral. The appointment of the
Arbitrator, therefore, stands vitiated ab initio . The arbitral proceedings
also, therefore, stand rendered a nullity. The impugned award,
therefore, is liable to be set aside even on this sole ground.
34. Without therefore, entering into any other aspect of the dispute,
the impugned award stands set aside solely on the ground that the
appointment of the Arbitrator was unilateral.
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35. The petition stands allowed accordingly with no orders as to
costs.
C.HARI SHANKAR, J
AUGUST 8, 2024/yg
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