Full Judgment Text
Neutral Citation Number:2023/DHC/000404
$~21 & 23
* IN THE HIGH COURT OF DELHI AT NEW DELHI
th
Date of Decision: 16 January, 2023
+ O.M.P. (COMM) 87/2022
MS BRIDGE BUILDING
CONSTRUCTION CO PVT LTD ..... Petitioner
Through: Mr. Sanjay Kumar Shandilya,
Ms. Apoorva Agarwal & Mr.
Abhishek Singh, Advocates.
[M:- 9958540848]
versus
BHARAT HEAVY ELECTRICALS LTD. ..... Respondents
Through: Mr. Pallav Kumar, Advocate.
+ O.M.P. (COMM) 377/2022 & I.As. 14553/2022, 14555/2022
BRIDGE BUILDING
CONSTRUCTION PVT. LTD. ..... Petitioner
Through: Mr. Sanjay Kumar Shandilya,
Ms. Apoorva Agarwal & Mr.
Abhishek Singh, Advocates.
[M:- 9958540848]
versus
BHARAT HEAVY ELECTRICALS LTD. ..... Respondents
Through: Mr. Pallav Kumar, Advocate.
CORAM:
HON’BLE MR. JUSTICE PRATEEK JALAN
PRATEEK JALAN, J. (ORAL)
%
Signature Not Verified
Digitally Signed
By:SHITU NAGPAL
Signing Date:19.01.2023
19:33:24
O.M.P. (COMM) 87/2022 & O.M.P.(COMM) 377/2022 Page 1 of 10
Neutral Citation Number:2023/DHC/000404
1. By way of these petitions under Section 34 of the
Arbitration and Conciliation Act, 1996 [“the Act”], the petitioner
assails two arbitral awards between the parties rendered by the same
arbitrator, albeit under different contract agreements. In O.M.P.
(COMM) 87/2022, the impugned award was made on 23.01.2021 and
arose out of a Contract Agreement dated 09.02.2016 (pursuant to
Letter of Intent dated 27.11.2014 and Work Order dated 23.04.2015).
In O.M.P. (COMM) 377/2022, the impugned award was made on
1
18.08.2021 and arose out of a Contract Agreement dated 09.02.2016
(pursuant to the Letter of Intent dated 27.11.2014 and Work Order
dated 10.07.2015).
2. Both agreements contain identical arbitration clauses (Clause
26), which provide for resolution of disputes by sole arbitration of the
Head of the Transmission Business Group (TBG) of the respondent or
his appointee. The undisputed factual position is that the petitioner
sought invocation of arbitration by communications addressed to the
respondent, and the respondent appointed the arbitrator who has
rendered the impugned awards.
3. The primary ground of challenge urged by Mr. Sanjay Kumar
Shandilya, learned counsel for the petitioner, is that the arbitrator was
unilaterally appointed by the respondent. He relies upon the judgments
of the Supreme Court in TRF Ltd vs. Energo Engineering Projects
2
Ltd. and Perkins Eastman Architects DPC & Anr. vs. HSCC (India)
1
At the foot of the award, the date mentioned is 20.08.2021.
2
2017 8 SCC 377.
Signature Not Verified
Digitally Signed
By:SHITU NAGPAL
Signing Date:19.01.2023
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O.M.P. (COMM) 87/2022 & O.M.P.(COMM) 377/2022 Page 2 of 10
Neutral Citation Number:2023/DHC/000404
3
Ltd. , to submit that a unilaterally appointed arbitrator is ineligible to
act under Section 12(5) of the Act and any award rendered by him is a
nullity. It is also submitted that the arbitrator did not furnish any
declaration, as required in Section 12 of the Act, to the petitioner.
4. Mr. Pallav Kumar, learned counsel for the respondent, on the
other hand, submits that Section 12(5) of the Act itself contemplates
that parties may waive the applicability of the provision by an express
agreement in writing. He contends that the petitioner had sufficient
4 5
opportunity, even after the aforesaid judgments in TRF and Perkins
were rendered, to approach the arbitrator under Section 16 of the Act
or the Court under Section 14 of the Act. Indeed, he submits that the
petitioner itself made applications for extension of the mandate of the
arbitrator under Section 29A of the Act, which resulted in orders dated
26.07.2019 in O.M.P. (Misc.) (Comm.) 297/2019 and O.M.P. (Misc.)
(Comm.) 298/2019 and order dated 12.11.2020 in O.M.P. (Misc.)
(Comm.) 252/2020. In these circumstances, Mr. Kumar submits that
the petitioner itself submitted to the jurisdiction of the arbitrator and
cannot assail the award on this ground at this stage.
5. It is also submitted by Mr. Kumar that in the present case, the
arbitrator did make a disclosure as required under Section 12 of the
Act, which was communicated to the respondent by an email dated
19.01.2017, which has been placed on record. There is, however, no
3
(2020) 20 SCC 760.
4
Supra (note 2).
5
Supra (note 3).
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Digitally Signed
By:SHITU NAGPAL
Signing Date:19.01.2023
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Neutral Citation Number:2023/DHC/000404
assertion that the declaration was communicated to the petitioner at
any stage.
6. Having heard learned counsel for the parties, I am of the view
that the point in issue is no longer res integra . The judgments of the
6 7
Supreme Court in TRF and Perkins , as well as Bharat Broadband
8
Network Limited vs. United Telecoms Limited , have been considered
by the Division Bench of this Court in two recent judgments, which
squarely cover the present case as well.
7. In Ram Kumar and Anr. vs. Shriram Transport Finance Co.
9
Ltd. , the challenge to the arbitral award was on the ground of
ineligibility due to unilateral appointment, as also non furnishing of
the declaration under Section 12 of the Act. Both grounds were
accepted by the Division Bench with the following observations:
“19. In terms of Explanation 1 to Section 12(1) of the A&C Act –
the grounds as stated in the Fifth Schedule of the A&C Act – the
learned Sole Arbitrator was required to be guided by the grounds
as stated in the Fifth Schedule of the A&C Act. Entry 22 of the
Fifth Schedule of the A&C Act specifically provides circumstances
where an arbitrator has, within the past three years, been
appointed as an arbitrator on more than two occasions by either of
the parties or their affiliates. This Court is unable to accept that
such a disclosure is not mandatory and is merely at the discretion
of the arbitrator. The onus for disclosing the number of matters in
which the learned Sole Arbitrator had been appointed as such, at
the instance of the respondent, rested with the learned Sole
Arbitrator. The assumption that the burden to ascertain the
circumstances that may give rise to justifiable doubts as to the
independence and impartiality of the arbitrators is on the parties,
is erroneous; this disclosure is necessarily required to be made by
6
Supra (note 2).
7
Supra (note 3).
8
(2019) 5 SCC 755.
9
2022 SCC OnLine Del 4268.
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By:SHITU NAGPAL
Signing Date:19.01.2023
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Neutral Citation Number:2023/DHC/000404
the person approached in connection with his appointment as an
arbitrator.
xxxx xxxx xxxx
22. It is necessary to note that the language of Section 12(1) of the
A&C Act does not leave it at the discretion of any person,
approached in connection with being appointed as an arbitrator, to
make the necessary disclosures. The use of the words “he shall
disclose” in Section 12(1) of the A&C Act makes it mandatory for
the person who is approached in connection with his possible
appointment as an arbitrator, to make a disclosure of all
circumstances that may give rise to justifiable doubts as to his
independence and impartiality.
xxxx xxxx xxxx
24. This Court is of the view that the requirement of making a
disclosure is a necessary safeguard for ensuring the integrity and
efficacy of an arbitration as an alternate dispute resolution
mechanism and is not optional.
xxxx xxxx xxxx
26. In TRF Ltd. v. Energo Engineering Projects Ltd.: (2017) 8 SCC
377, the Supreme Court had referred to Section 12(5) of the A&C
Act and noted that the Managing Director of a concerned party
would be ineligible to act as an arbitrator. The Court had further
held that being ineligible to act as an arbitrator, he was also
ineligible to appoint an arbitrator. In Perkins Eastman Architects
DPC & Anr. v. HSCC (India) Ltd.: (2020) 20 SCC 760, the
Supreme Court, following the earlier decision in TRF Ltd. v.
Energo Engineering Projects Ltd. (supra), held that the Chairman-
cum-Managing Director of a party was ineligible to appoint an
arbitrator.
xxxx xxxx xxxx
28. Clearly, an award rendered by a person who is ineligible to
act as an arbitrator would be of little value; it cannot be
considered as an arbitral award under the A&C Act. While it is
permissible for the parties to agree to waive the ineligibility of an
arbitrator, the proviso to Section 12(5) of the A&C Act makes it
clear that such an agreement requires to be in writing. In
Proddatur Cable TV Digi Services v. Siti Cable Network Limited:
(2020) 267 DLT 51, the learned Single Judge of this Court,
following the decision in TRF Ltd. v. Energo Engineering Projects
Ltd. (supra) and Perkins Eastman Architects DPC & Anr. v. HSCC
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Signing Date:19.01.2023
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Neutral Citation Number:2023/DHC/000404
(India) Ltd. (supra), held that unilateral appointment of an
arbitrator by a party is impermissible.
29. In Bharat Broadband Network Limited v. United Telecoms
Limited: (2019) 5 SCC 755, the Supreme Court rejected the
contention that the waiver of a right to object the ineligibility of
an arbitrator, under Section 12(5) of the A&C Act, could be
inferred by conduct. The relevant observations made by the
Supreme Court are set out below:
“20. This then brings us to the applicability of the proviso to
Section 12(5) on the facts of this case. Unlike Section 4 of the
Act which deals with deemed waiver of the right to object by
conduct, the proviso to Section 12(5) will only apply if
subsequent to disputes having arisen between the parties, the
parties waive the applicability of sub-section (5) of Section
12 by an express agreement in writing. For this reason, the
argument based on the analogy of Section 7 of the Act must
also be rejected. Section 7 deals with arbitration agreements
that must be in writing, and then explains that such
agreements may be contained in documents which provide a
record of such agreements. On the other hand, Section 12(5)
refers to an “express agreement in writing”. The expression
“express agreement in writing” refers to an agreement
made in words as opposed to an agreement which is to be
inferred by conduct. Here, Section 9 of the Contract Act,
1872 becomes important. It states:
“9. Promises, express and implied. – Insofar as the
proposal or acceptance of any promise is made in
words, the promise is said to be express. Insofar as
such proposal or acceptance is made otherwise than in
words, the promise is said to be implied.”
It is thus necessary that there be an “express” agreement in
writing. This agreement must be an agreement by which both
parties, with full knowledge of the fact that Shri Khan is
ineligible to be appointed as an arbitrator, still go ahead and
say that they have full faith and confidence in him to continue
as such.”
xxxx xxxx xxxx
31. This Court is of the view that the approach of the learned
Commercial Court is flawed. Unilateral appointment of the
Arbitrator by the respondent is impermissible. The fact that the
learned Sole Arbitrator had been engaged in a number of matters
by the respondent is, concededly, a material fact that would raise
Signature Not Verified
Digitally Signed
By:SHITU NAGPAL
Signing Date:19.01.2023
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Neutral Citation Number:2023/DHC/000404
justifiable grounds as to his independence and impartiality. Thus,
in addition to being ineligible as an arbitrator under Section
12(5) of the A&C Act, the grounds giving rise to justifiable doubts
as to the independence and impartiality exist in the present case.
The learned Sole Arbitrator was required to disclose in writing
such circumstances which are likely to give rise to justifiable
doubts as to his independence and impartiality, but he had failed
to make any such disclosure. In our view, since the grounds giving
rise to justifiable doubts as to impartiality exist, failure to make
such disclosure vitiates the arbitral proceedings and the impugned
10
award.”
11
8. In Govind Singh vs. M/S Satya Group Pvt Ltd and Anr. , the
12
Division Bench has noted that in TRF , the Supreme Court held that a
person who is ineligible to be appointed as an arbitrator would also be
13
ineligible to appoint the arbitrator. It was further clarified in Perkins
that the element of ineligibility would also extend to the person so
appointed. Having considered these judgments and the judgment in
14
Bharat Broadband , the Division Bench held as follows:-
“18. In view of the law as noted above, the learned Arbitrator
unilaterally appointed by the respondent company was ineligible
to act as an arbitrator under Section 12(5) of the A&C Act.
19. The contention that the appellant by its conduct has waived its
right to object to the appointment of the learned Arbitrator is also
without merit. The question whether a party can, by its conduct,
waive its right under Section 12(5) of the A&C Act is no longer
res integra. The Supreme Court in the case of Bharat Broadband
Network Limited v. United Telecoms Limited: (2019) 5 SCC 755
had explained that any waiver under Section 12(5) of the A&C Act
would be valid only if it is by an express agreement in writing.
There is no scope for imputing any implied waiver of the rights
under Section 12(5) of the A&C Act by conduct or otherwise. The
relevant extract of the said decision reads as under:-
xxxx xxxx xxxx
10
Emphasis supplied.
11
2023 SCC OnLine Del 37.
12
Supra (note 2).
13
Supra (note 3).
14
Supra (note 8).
Signature Not Verified
Digitally Signed
By:SHITU NAGPAL
Signing Date:19.01.2023
19:33:24
O.M.P. (COMM) 87/2022 & O.M.P.(COMM) 377/2022 Page 7 of 10
Neutral Citation Number:2023/DHC/000404
20. Thus, it is not necessary to examine the question whether the
appellant had raised an objection to the appointment of the learned
Arbitrator. Even if it is assumed that the appellant had participated
in the arbitral proceedings without raising any objection to the
appointment of the learned Arbitrator, it is not open to hold that he
had waived his right under Section 12(5) of the A&C Act. Although
it is not material, the record does indicate that the appellant had
objected to the appointment of respondent no.2 as an arbitrator.
21. In view of the above, the remaining question to be addressed
is whether an arbitral award rendered by a person who is
ineligible to act as an arbitrator is valid or binding on the parties.
Clearly, the answer must be in the negative. The arbitral award
rendered by a person who is ineligible to act as an arbitrator
cannot be considered as an arbitral award. The ineligibility of the
arbitrator goes to the root of his jurisdiction. Plainly an arbitral
award rendered by the arbitral tribunal which lacks the inherent
jurisdiction cannot be considered as valid. In the aforesaid view,
the impugned award is liable to be set aside as being wholly
without jurisdiction.
22. In Kanodia Infratech Limited v. Dalmia Cement (Bharat)
Limited: (2021) 284 DLT 722 the learned Single Judge of this
Court had declined to interfere with the arbitral award, which was
challenged on the ground that the arbitrator was ineligible to act
as an arbitrator, on the ground that the parties had participated in
the arbitral proceedings. The learned Single Judge had observed
that the decision of the Supreme Court in Bharat Broadband
Network Limited v. United Telecoms Limited (supra) was not
applicable as the said matter had travelled to the Supreme Court
against the decision of this Court, rejecting the petition under
Section 14 and 15 of the A&C Act.
23. We are unable to agree that the decision in Bharat Broadband
Network Limited v. United Telecoms Limited (supra) can be
distinguished on the aforesaid ground. The said decision had
authoritatively held that in terms of the proviso of Section 12(5) of
the A&C Act, the ineligibility of an arbitrator under Section 12(5)
of the A&C Act could be waived only by an express agreement in
writing and cannot be inferred by the conduct of the parties. Thus,
the fact that the parties had participated before the arbitral
tribunal cannot be construed as a waiver of their rights to object to
the ineligibility of the arbitrator(s). We are unable to accept that
while such a right could be exercised prior to the delivery of the
award, it would cease thereafter. If the arbitrator is ineligible to
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By:SHITU NAGPAL
Signing Date:19.01.2023
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Neutral Citation Number:2023/DHC/000404
act as an arbitrator, the arbitral award rendered by the arbitral
15
tribunal would be without jurisdiction. ”
9. I am of the view that the present petitions are entirely covered
by the aforesaid judgments. The fact that the arbitrator had been
unilaterally appointed has not been put in dispute, and the award is
therefore unsustainable. Mr. Kumar’s contention that the petitioner’s
conduct is evidence of waiver of its rights under Section 12(5) of the
Act is also untenable in the light of these judgments.
10. Additionally, it may be noted that the communication of the
arbitrator containing the declaration under Section 12 of the Act,
which has been placed on record by the respondent, is addressed to the
respondent alone. The said communication dated 19.01.2017 does not,
on the face of it, appear to be addressed to the petitioner. In fact, the
position taken in the reply filed by the respondent is that the non-
disclosure by the arbitrator under Section 12(1) of the Act will not
render the arbitrator ineligible to act. Such a contention has been
16
expressly negatived by the Division Bench in Ram Kumar . In any
event, Mr. Kumar’s specific submission is that the arbitrator had, in
fact, made a disclosure under Section 12 of the Act by his
communication dated 19.01.2017. Suffice it to say that a declaration
made under Section 12 of the Act ought to have been addressed by the
arbitrator to both parties and not only to the respondent.
11. For the aforesaid reasons, the petitions are allowed and the
impugned awards dated 23.01.2021 and 18.08.2021 are set aside.
15
Emphasis supplied.
16
Supra (note 9).
Signature Not Verified
Digitally Signed
By:SHITU NAGPAL
Signing Date:19.01.2023
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Neutral Citation Number:2023/DHC/000404
12. Mr. Kumar states that pursuant to the impugned award in
O.M.P. (COMM) 87/2022, the respondent has made certain payments
on behalf of the petitioner. It is open to the respondent to take its
remedies in accordance with law in this regard.
13. It is clarified that the parties are at liberty to re-agitate their
claims / counter-claims in properly constituted arbitration proceedings.
PRATEEK JALAN, J
JANUARY 16, 2023
‘vp’/
Signature Not Verified
Digitally Signed
By:SHITU NAGPAL
Signing Date:19.01.2023
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