Unilateral Appointment of Sole Arbitrator Without Express Written Waiver Renders Arbitral Award Void Ab Initio

In brief

The question

1. Whether the unilateral appointment of a sole arbitrator by one party is in violation of the amended Section 12(5) of the Arbitration and Conciliation Act, 1996

The court held

The court held that the unilateral appointment was void ab initio and the resulting award was a nullity

It also directed

It answered that participation does not constitute a waiver and that the jurisdictional defect can be raised for the first time under Section 34

the court allowed the petition and set aside the arbitral award dated May 1, 2018

01Facts

Bharat Heavy Electricals Limited (BHEL) was awarded a power plant construction project in Sudan and subsequently subcontracted civil and structural works to Progressive Construction Limited via a Letter of Intent in 2007

p. 2 · ¶ 3

The governing agreement included an arbitration clause (Clause 33) authorizing BHEL's General Manager or their nominee to act as a sole arbitrator

p. 2 · ¶ 3.1

Following disputes regarding project delays and liquidated damages, BHEL unilaterally appointed a sole arbitrator in October 2016

p. 3 · ¶ 3.2

After the arbitral tribunal rendered its award, both parties challenged it under Section 34 of the Arbitration and Conciliation Act, 1996

p. 1 · ¶ 1

02Issues

i.1. Whether the unilateral appointment of a sole arbitrator by one party is in violation of the amended Section 12(5) of the Arbitration and Conciliation Act, 1996

p. 1 · ¶ 2

ii.2. Whether participation in arbitral proceedings without objection constitutes a waiver of the right to challenge an ineligible arbitrator under the proviso to Section 12(5)

p. 4 · ¶ 6.1 · p. 5 · ¶ 6.2

03Law Applied

The court applied Section 12(5) of the Arbitration and Conciliation Act, 1996, which renders any person whose relationship with the parties falls under the Seventh Schedule ineligible to be an arbitrator

p. 4 · ¶ 6.1

It relied on the Supreme Court precedent Bhadra International (India) Pvt. Ltd. v. Airports Authority of India, establishing that unilateral appointments are void ab initio and that waiver requires an "express agreement in writing"

pp. 4-5 · ¶ 6.1

the court cited Mahavir Prasad Gupta and Sons v. Govt. of NCT of Delhi, affirming that an award by an ineligible arbitrator is a nullity and can be challenged even by the party that made the appointment

pp. 5-7 · ¶ 6.2

Provisions in the judgment · 8 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 4 Section 12 Section 14 Section 15 Section 18 Section 34 Section 36 Section 7

04Reasoning

The court reasoned that since the arbitrator was appointed unilaterally by BHEL under a clause allowing its own official to nominate the tribunal, the appointment violated the principle of equal treatment of parties

p. 4 · ¶ 6.1

The court emphasized that the 2015 amendment to Section 12(5) created a non-derogable right unless waived by an "express agreement in writing" after the dispute arose

p. 7 · ¶ 7

The court rejected the respondent's argument that BHEL waived its right by participating in the proceedings, noting that conduct or silence cannot substitute for the mandatory written agreement required by the proviso to Section 12(5)

p. 9 · ¶ 12

Because the ineligibility goes to the root of the tribunal's jurisdiction, the court found the entire proceeding to be a nullity regardless of the stage at which the objection was raised

p. 8 · ¶ 113 · p. 10 · ¶ 14