Final Order 3

Order Details: COPY OF ORDER
Pdf Text: Ex. (Comm.) No. 111/23
Kogta Financial India Ltd. v. Mohd. Riyaz & Ors.
07.07.2023
Present : Sh.A.R.A. Vikram Shukla, Advocate, for the DH.
Case file is perused.
It is observed that the present execution petition has
been preferred, on behalf of the Decree Holder, for execution of
the award dated 30.12.2022, passed by Sh. Siddharth Khanna,
Advocate, the Ld. Sole Arbitrator, who was appointed by the
Claimant Company, vide letter dated 24.09.2022.
2. Perusal of the award dated 30.12.2022, shows that
the said arbitral award has been passed by the Ld. Sole Arbitrator,
who was unilaterally appointed by the award holder.
Furthermore, the arbitration proceedings were conducted by the
Ld. Arbitrator, without participation of the award debtors as the
award debtors were proceeded ‘exparte’ by the Ld. Sole
Arbitrator. Consequently, the arbitral award dated 30.12.2022
was passed.
3. The present execution petition has been filed on
behalf of the award holder for enforcement/execution of the said
award, on 11.05.2022.
4. During consideration of the present execution
petition, a query was raised by the court regarding the
executability of the ‘exparte’ award dated 30.12.2022, in view of
the unilateral appointment of the Ld. Arbitrator.
Ex. (Comm.) 111/23 page 1 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
-- 1 of 12 --
5. Sh. A.R.A. Vikram Shukla, Advocate, for the award
holder had addressed his arguments on the point of executability
of the ‘exparte’ award dated 30.12.2022, on 02.06.2023.
6. During the course of arguments, it was submitted by
the Ld. Counsel for the award holder that there was no bar for
enforcement of the ‘exparte’ award dated 30.12.2022, as the Ld.
Sole Arbitrator was not appointed unilaterally. He has further
argued that an Agreement of Arbitration was signed by the JDs
on 28.01.2020, whereby it was agreed between the parties, that in
case of any dispute, the matter shall be referred to the Sole
Arbitrator Sh. Sidhharth Khanna. He has further argued that the
claimant company had also issued Notice U/s 21 of the
Arbitration Act against which no objection of reply has been
received from the non-claimant. Decree Holder has also placed
on record photocopies of some postal receipts regarding service
of the abovesaid notice. Therefore, the present award does not
suffer from any defect and is executable, as per Section 36 of the
Arbitration & Conciliation Act, 1996.
7. I have carefully perused the case file and I have also
given my considered thoughts to the arguments addressed by the
Ld. Counsel for the award holder. I have also gone through the
various judgments of the Hon’ble Supreme Court of India and
Hon’ble High Court of Delhi.
8. The issue of non-executability of an arbitration
award, where the Ld. Arbitrator was appointed unilaterally has
also been discussed by the Hon’ble Supreme Court of India, in
case titled as, ‘TRF Limited vs. Energo Engineering Products
Ex. (Comm.) 111/23 page 2 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
-- 2 of 12 --
Ltd.’, reported as, ‘(2017) 7 SCR 409’ and subsequently, in
‘Perkins Eastman Architects DPC & Anr. vs. HSCC (India)
Ltd.’, reported as, ‘(2019) 17 SCR 275’ and the said judgments
have been followed by the various High Courts in India.
9. It has been held by the Hon’ble High Court of
Calcutta, in case titled as, ‘Cholamandalam Investment And
Finance Company Ltd. vs. Amrapali Enterprises And Anr.’
dated 14.03.2023, passed in EC 122 of 2022, as under :
“5. The position of law on unilateral appointment of an arbitrator is no more
res integra and has been settled by the Supreme Court through various
judicial pronouncements.
6. Firstly, in the case of HRD Corporation vs. GAIL reported in (2018) 12
SCC 471 [Coram: R.F.Nariman and S.K. Kaul, JJ.], the Apex Court ruled
that when a person directly falls under Schedule VII, ineligibility goes to the
root of the appointment as per prohibition under Section 12(5) read with
Schedule VII. Such person lacks inherent jurisdiction. Thereafter, in TRF
Limited vs. Energo Engineering Projects Limited reported in [2017] 7 S.C.R.
409 [Coram: Dipak Misra and A.M. Khanwilkar, JJ.], the Apex Court
expanded the approach in HRD Corporation (supra) and held that an
individual who himself is ineligible under the provisions of the Act to be
appointed as an arbitrator, cannot nominate a sole arbitrator. The
ineligibility goes to the root of the matter and arises out of lack of inherent
jurisdiction. The relevant paragraph penned down by J. Nariman in HRD
Corporation (supra) is enumerated below for reference :-
"57. In such a context, the fulcrum of the controversy would be, can
an ineligible arbitrator, like the Managing Director, nominate an
arbitrator, who may be otherwise eligible and a respectable person.
As stated earlier, we are neither concerned with the objectivity nor the
individual respectability. We are only concerned with the authority or
the power of the Managing Director. By our analysis, we are
obligated to arrive at the conclusion that once the arbitrator has
become ineligible by operation of law, he cannot nominate another as
an arbitrator. The arbitrator becomes ineligible as per prescription
contained in Section 12(5) of the Act. It is inconceivable in law that
person who is statutorily ineligible can nominate a person. Needless
to say, once the infrastructure collapses, the superstructure is bound
to collapse. One cannot have a building without the plinth. Or to put it
differently, once the identity of the Managing Director as the sole
arbitrator is lost, the power to nominate someone else as an
arbitrator is obliterated. Therefore, the view expressed by the High
Court is not sustainable and we say so."
7. Subsequently, in Perkins Eastman Architects DPC & Anr. vs. HSCC
(India) Ltd. reported in [2019] 17 S.C.R. 275 [U.U. Lalit and Indu Malhotra,
JJ.] the Supreme Court extended the approach taken in TRF Limited (supra)
and held that a party who has an interest in the outcome of a dispute also
Ex. (Comm.) 111/23 page 3 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
-- 3 of 12 --
cannot nominate a sole arbitrator. The relevant portion of eloquent
exposition penned by U.U. Lalit, J. is extracted below :-
"15. ....... We thus have two categories of cases. The first, similar to
the one dealt with in TRF Ltd. where the Managing Director himself is
named as an arbitrator with an additional power to appoint any other
person as an arbitrator. In the second category, the Managing
Director is not to act as an arbitrator himself but is empowered or
authorised to appoint any other person of his choice or discretion as
an arbitrator. If, in the first category of cases, the Managing Director
was found incompetent, it was because of the interest that he would be
said to be having in the outcome or result of the dispute. The element
of invalidity would thus be directly relatable to and arise from the
interest that he would be having in such outcome or decision. If that
be the test, similar invalidity would always arise and spring even in
the second category of cases. If the interest that he has in the outcome
of the dispute, is taken to be the basis for the possibility of bias, it will
always be present irrespective of whether the matter stands under the
first or second category of cases. We are conscious that if such
deduction is drawn from the decision of this Court in TRF Ltd., all
cases having clauses similar to that with which we are presently
concerned, a party to the agreement would be disentitled to make any
appointment of an arbitrator on its own and it would always be
available to argue that a party or an official or an authority having
interest in the dispute would be disentitled to make appointment of an
arbitrator."
16. But, in our view that has to be the logical deduction from TRF
Limited. Paragraph 50 of the decision shows that this Court was
concerned with the issue, "whether the Managing Director, after
becoming ineligible by operation of law, is he still eligible to nominate
an Arbitrator" The ineligibility referred to therein, was as a result of
operation of law, in that a person having an interest in the dispute or
in the outcome or decision thereof, must not only be ineligible to act
as an arbitrator but must also not be eligible to appoint anyone else
as an arbitrator and that such person cannot and should not have any
role in charting out any course to the dispute resolution by having the
power to appoint an arbitrator. The next sentences in the paragraph,
further show that cases where both the parties could nominate
respective arbitrators of their choice were found to be completely a
different situation. The reason is clear that whatever advantage a
party may derive by nominating an arbitrator of its choice would get
counter balanced by equal power with the other party. But, in a case
where only one party has a right to appoint a sole arbitrator, its
choice will always have an element of exclusivity in determining or
charting the course for dispute resolution. Naturally, the person who
has an interest in the outcome or decision of the dispute must not have
the power to appoint a sole arbitrator. That has to be taken as the
essence of the amendments brought in by the Arbitration and
Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised
by the decision of this Court in TRF Limited."
Emphasis Added
Therefore, the proscription under Section 12(5) read with Schedule VII of the
Act was extended to persons unilaterally appointed to act as an arbitrator.
Such persons who are unilaterally appointed lack inherent jurisdiction unless
an express written approval is given by the parties subsequent to disputes
having arisen.
Ex. (Comm.) 111/23 page 4 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
-- 4 of 12 --
8. Finally, the Supreme Court in Bharat Broadband Network Limited vs.
United Telecoms Limited reported in [2019] 6 S.C.R. 97 [Coram: R. F.
Nariman and Vineet Saran, JJ.] held that a unilaterally appointed arbitrator
is de jure ineligible to perform his functions and that his mandate is
automatically terminated under Section 14(1)(a) of the Act. Further, any
prior agreement to do away with this ineligibility would be wiped out by the
non-obstante clause contained in Section 12(5), and the same can be cured
only through an express waiver. I have delineated the relevant paragraphs
herein below :-
"15. Section 12(5), on the other hand, is a new provision which relates
to the de jure inability of an arbitrator to act as such. Under this
provision, any prior agreement to the contrary is wiped out by the
nonobstante clause in Section 12(5) the moment any person whose
relationship with the parties or the counsel or the subject matter of the
dispute falls under the Seventh Schedule. The sub-section then
declares that such person shall be "ineligible" to be appointed as
arbitrator. The only way in which this ineligibility can be removed is
by the proviso, which again is a special provision which states that
parties may, subsequent to disputes having arisen between them,
waive the applicability of Section 12(5) by an express agreement in
writing. What is clear, therefore, is that where, under any agreement
between the parties, a person falls within any of the categories set out
in the Seventh Schedule, he is, as a matter of law, ineligible to be
appointed as an arbitrator. The only way in which this ineligibility
can be removed, again, in law, is that parties may after disputes have
arisen between them, waive the applicability of this sub-section by an
"express agreement in writing". Obviously, the "express agreement in
writing" has reference to a person who is interdicted by the Seventh
Schedule, but who is stated by parties (after the disputes have arisen
between them) to be a person in whom they have faith notwithstanding
the fact that such person is interdicted by the Seventh Schedule."
* * *
17. The scheme of Sections 12, 13 and 14, therefore, is that where an
arbitrator makes a disclosure in writing which is likely to give
justifiable doubts as to his independence or impartiality, the
appointment of such arbitrator may be challenged under Sections
12(1) to 12(4) read with Section 13. However, where such person
becomes "ineligible" to be appointed as an arbitrator, there is no
question of challenge to such arbitrator, before such arbitrator. In
such a case i.e., a case which falls under Section 12(5), Section 14(1)
(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a
matter of law (i.e., de jure), unable to perform his functions under
Section 12(5), being ineligible to be appointed as an arbitrator. This
being so, his mandate automatically terminates, and he shall then be
substituted by another arbitrator under Section 14(1) itself. It is only
if a controversy occurs concerning whether he has become de jure
unable to perform his functions as such, that a party has to apply to
the Court to decide on the termination of the mandate, unless
otherwise agreed by the parties. Thus, in all Section 12(5) cases, there
is no challenge procedure to be availed of. If an arbitrator continues
as such, being de jure unable to perform his functions, as he falls
within any of the categories mentioned in Section 12(5), read with the
Seventh Schedule, a party may apply to the Court, which will then
decide on whether his mandate has terminated......."
xxxxx xxxxx xxxxx xxxxx
Ex. (Comm.) 111/23 page 5 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
-- 5 of 12 --
11. In light of the aforementioned judicial precedents, it can be said with
unambiguous certainty that the unilateral appointment of Mr. Soma Kar
Ghosh by the award holder is illegal and void. However, what still remains to
be determined is the impact of the aforesaid illegality on the arbitral award
and the present execution petition.
12. In Ram Kumar and Ors. -vs- Shriram Transport Finance Co. Limited
reported in MANU/DE/4941/2022 [Coram: Vibhu Bakhruand Amit Mahajan,
JJ.] a division bench of the Delhi High Court, while adjudicating a Section
34 challenge to an arbitral award passed by a unilaterally appointed
arbitrator, held that an arbitral award passed by a person ineligible to act as
an arbitrator cannot be considered as an arbitral award under the provisions
of the Act. The relevant portion has been reproduced below -
"8. 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 (India) Ltd. (supra), held that unilateral
appointment of an arbitrator by a party is impermissible."
13. In a similar fashion, in JV Engineering Associate, Civil Engineering
Contractors -vs- General Manager, CORE reported in 2020 SCC OnLine
Mad 4829, the Madras High Court dealt with the validity of an arbitral
award passed by an ineligible arbitrator. P.T. Asha, J., concluded as
follows :-
"31. In the above circumstances the Award in question having been
passed by an Arbitrator who is ineligible to be an Arbitrator deserves
to be set aside more particularly since there is no express waiver in
writing as contemplated under the proviso to Section 12(5)."
14. Likewise, the Bombay High Court in Naresh Kanyalal Rajwani vs. Kotak
Mahindra Bank reported in 2022 SCC OnLine Bom 6204, was dealing with
effect of unilateral appointments on an arbitral award. Manish Pitale, J.,
remarked the following :-
"23. Therefore, it becomes evident that in the present case, from the
very inception, i.e. from the stage of appointment of the Arbitrator, the
proceedings were vitiated and the arbitral award was therefore,
rendered unsustainable. This Court is inclined to allow the petition
only on the aforesaid ground."
15. I find myself in complete concurrence with the aforesaid judgments, and
in my view, the impugned award is unsustainable and non-est in the eyes of
law. It is a settled principle of law that compliance with Section 12(5) read
with Schedule VII is sine qua non for any arbitral reference to gain
recognition and validity before the Courts. In the present facts in hand, an
arbitral reference which itself began with an illegal act has vitiated the entire
arbitral proceedings from its inception and the same cannot be validated at
any later stage. Thus, it would be a logical inference to consider the
aforesaid arbitral proceedings as void ab initio.
Ex. (Comm.) 111/23 page 6 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
-- 6 of 12 --
16. In my view, the impugned award, which was passed by a dejure ineligible
arbitrator, suffers from a permanent and indelible mark of bias and prejudice
which cannot be washed away at any stage including the execution
proceedings. Infact, as the arbitrator was dejure ineligible to perform his
functions and therefore lacked inherent jurisdiction or competence to
adjudicate the disputes in hand, the impugned award cannot be accorded the
privileged status of an award.
17. In light of the above findings, it is palpably clear that an arbitral award
passed by a unilaterally appointed arbitrator will not survive the Section 34
challenge. However, the arbitration application before me is not under
Section 34 but rather an execution petition under Section 36. There is no
denying the fact that the Act is a complete code in itself and at the same time,
it is equally true that Section 36 provides no scope of adverse interference
with an arbitral award except executing it as a decree of the court. While
Section 47 of the Code of Civil Procedure, 1908 (hereinafter referred to as
the 'CPC') governs the challenge to a court decree at the execution stage,
there is no such similar provision provided in the Act. However, at this
juncture it would be relevant to examine the jurisprudence with respect to
decrees passed by bodies lacking inherent jurisdiction.
18. The Apex Court in Sunder Dass vs. Ram Prakash reported in 1977 AIR
1201 had stated that decrees passed by bodies lacking inherent jurisdiction
are unenforceable and it would be as if no decree existed at all. P.N.
Bhagwati, J., in his inimitable style had examined and penned down the
following:
"3. Now, the law is well settled that an executing court cannot go
behind the decree nor can it question its legality or correctness. But
there is one exception to this general rule and that is that where the
decree sought to be executed is a nullity for lack of inherent
jurisdiction in the court passing it, its invalidity can be set up in an
execution proceeding. Where there is lack of inherent jurisdiction, it
goes to the root of the competence of the court to try the case and a
decree which is a nullity is void and can be declared to be void by any
court in which it is presented. Its nullity can be set up whenever and
wherever it is sought to be enforced or relied upon and even at the
stage of execution or even in collateral proceedings. The executing
court can, therefore, entertain an objection that the decree is a nullity
and can refuse to execute the decree. By doing so, the executing court
would not incur the reproach that it is going behind the decree,
because the decree being null and void, there would really be no
decree at all. Vide Kiran Singh v. Chaman Paswan [AIR 1954 SC
340 : (1955) 1 SCR 117] and Seth Hiralal Patni v. Sri Kali Nath [AIR
1962 SC 199 : (1962) 2 SCR 747] . It is, therefore, obvious that in the
present case, it was competent to the executing court to examine
whether the decree for eviction was a nullity on the ground that the
civil court had no inherent jurisdiction to entertain the suit in which
the decree for eviction was passed. If the decree for eviction was a
nullity, the executing court could declare it to be such and decline to
execute it against the respondent."
Similar pronouncements were made in Hiralal Moolchand Doshi -vs- Barot
Raman Lal Ranchhoddas reported in (1993) 2 SCC 458 [Coram: Yogeshwar
Ex. (Comm.) 111/23 page 7 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
-- 7 of 12 --
Dayal, J.] and Sushil Kumar Mehta -vs- Gobind Ram Bohra, reported in
(1990) 1 SCC 193 [Coram: K Ramaswamy, J].
xxxxx xxxxx xxxxx xxxxx
22. From the analysis undertaken above, the principles that emanated are
extracted below:
a) As held in HRD Corp (supra), arbitrators falling under Schedule
VII of the Act are ineligible as they lack inherent jurisdiction. Such
ineligibility was extended to persons appointed by persons falling
under Schedule VII of the Act in TRF Limited (supra). This
ineligibility was ultimately extended to persons who are unilaterally
appointed by one of the parties to the arbitration in Perkins (supra).
b) The Apex court has judicially expanded the Schedule VII of the Act
to include persons unilaterally appointed by one of the parties vide its
judgement in Perkins (supra) and/or persons appointed by persons
falling under Schedule VII of the Act vide its judgement in TRF
Limited (supra).
c) It is a settled principle of law that compliance with Section 12(5)
read with Schedule VII is sine qua non for any arbitral reference to
gain recognition and validity before the Courts. An arbitral reference
which begins with an illegal act vitiates the entire arbitral
proceedings from its inception and the same cannot be validated at
any later stage. Thus, it would be a logical inference to consider such
arbitral proceedings as void ab initio.
d) Awards passed by a unilaterally appointed arbitrator are non- est
in the eyes of law. While Section 47 of the CPC is not directly
applicable, guidance has to be sought from the jurisprudence of the
Apex Court vis-à-vis decrees passed while lacking inherent
jurisdiction. Such decrees do not exist in the eyes of law and similarly
awards passed while lacking inherent jurisdiction can be said to have
never existed. Therefore, the parties would be free to re-agitate the
matter.
e) This judgement is applicable to awards wherein the arbitral
proceeding commenced post the 2015 amendment to the Act. It does
not deal with proceedings having been initiated pre the 2015
amendment and concluding post the 2015 amendemnt.
xxxxx xxxxx xxxxx xxxxx
24. Impartiality as discussed is the paramount principle of arbitral
proceedings and something which the Courts have to safeguard at every
stage of such proceedings. Even at the stage of execution, the lady of justice
cannot turn a blind eye and let one party run over the other. The people vest
faith in the Court to safeguard their rights and uphold the principles of
natural justice, irrespective of procedural hurdles. Whatever the case may be,
including an execution case where Courts are expected to simply enforce the
award without further probing, impartiality as a principle cannot be
railroaded. Shackles of procedural limitation in such cases will not prevent
parties from seeking the immunity of the Court. Parties making such
unilateral appointments couch behind procedural technicalities to shield
their unlawful act and reap the fruit of their own mischief. Accordingly, even
if an award is not set side under the procedure established in section 34 of
the Act, the courts, at the stage of execution can step in and declare a
'unilateral appointment award' as non-est in law, declare the same as a
nullity and direct parties to re-agitate their issues before a new arbitral
tribunal constituted in accordance with law.
Ex. (Comm.) 111/23 page 8 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
-- 8 of 12 --
(emphasis supplied)
10. During the course of arguments, the main contention
of the Ld. Counsel for the Decree Holder has remained that the
Ld. Arbitrator was appointed as per the conditions of Agreement
of Arbitration duly signed by the Judgment Debtor. Therefore,
the appointment of the Ld. Arbitral Tribunal cannot be termed as
‘unilateral’. I do not find any merit, even in this argument of the
Ld. Counsel for the Decree Holder/Award Holder.
11. It has been held by the Hon’ble High Court of
Madras, in case titled as, ‘Anil Damodar Potdukhe v M/s.
Kotak Mahindra Bank Ltd.’, passed in Arb. O.P. (Com.Div.)
No.14 of 2023 and A.No.194 of 2023 dated 08.03.2023, as
under:-
15. Now the question that arises for consideration is whether the
petitioners participated in the arbitral proceedings or after having the
knowledge of the appointment of the sole Arbitrator, failed to
challenge the said appointment in terms of Section 13 of the Act, and
whether the same would deprive the rights of the petitioners to
challenge the said appointment of the Arbitrator in terms of the
provisions of Section 34 of the Act for the violation of provisions of
Section 12(5) of the Act?
16. In my considered view, the answer is no. The petitioners are
certainly entitled to challenge the appointment of the Arbitrator under
Section 34 of the Act, if there is any violation of the provisions of the
Act. Even though, the petitioners has not challenged the unilateral
appointment of the sole Arbitrator under Section 13 of the Act, it
would not certainly take away the rights of the petitioners to
challenge the same under Section 34 of the Act. Even if there is any
participation by the petitioners in the arbitral proceedings, they would
still have the right to challenge the violation of the provisions of
Section 12(5) of the Act under Section 34 of the Act.
17. Further, proviso to Section 12(5) envisages that the parties may
subsequent to disputes having arisen between them, waive the
applicability of this sub-section by an express agreement in writing.
The definition of 'express and implied authority' is explicitly defined
under Section 187 of the Contract Act, which reads as under:
“187. Definitions of express and implied authority. An
authority is said to be express when it is given by words spoken
or written. An authority is said to be implied when it is to be
inferred from the circumstances of the case; and things spoken
Ex. (Comm.) 111/23 page 9 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
-- 9 of 12 --
or written, or the ordinary course of dealing, may be
accounted circumstances of the case.
18. A perusal of the above makes it clear that an authority is to be
implied when it is inferred from the circumstances of the case and is
said to be express when it is given by words spoken or written. In the
present case, from the circumstances even if it is inferred that the
authority is implied by the act of the petitioner having not raised any
objection towards the appointment of the Arbitrator made by the
respondent unilaterally, the same cannot be taken as implied authority
inasmuch as the proviso to Section 12(5) of the Act insists that the
'express agreement between the parties for providing consent for
unilateral appointment, must be in writing. Therefore, if the consent is
not in writing, no other inference can be drawn contrary to what is
provided under the proviso to Section 12(5) of the Act.
(emphasis supplied)
12. Recently, the Hon’ble High Court of Delhi, has also
considered the same issue in case titled as, ‘Kotak Mahindra
Bank Ltd. vs. Narendra Kumar Prajapat’, passed in, ‘EFA
Commercial No.3/2023, on 17.05.2023 (Neutral Citation No.:
2023:DHC:3705-DB), wherein, it was held as under :
“7. We find little merit in the aforesaid contentions. The proviso
to Section 12(5) of the A&C Act is unambiguous. A party can
waive its right to object to the ineligibility of an arbitrator
under Section 12(5) of the A&C Act but the same is subject to
two conditions. First, that the waiver is required to be by and
done by an express agreement in writing; and second, that such
agreement is entered into after the disputes have arisen. Unless
both the aforesaid conditions are satisfied, there can be no
waiver of the ineligibility of an arbitrator.
8. In Bharat Broadband Network Limited v. United Telecoms
Limited: (2019) 5 SCC 755, the Supreme Court had
authoritatively held that waiver of a right to object to
ineligibility of an arbitrator under Section 12(5) of the A&C Act
cannot be inferred by conduct of a party. Such waiver can only
be by an express agreement in writing. The Court had also
clarified that “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”.
9. In view of the above, the failure, if any, on the part of the
respondent to object to the unilateral appointment of the sole
arbitrator, cannot be construed as waiver of his right under
Section 12(5) of the A&C Act.
Ex. (Comm.) 111/23 page 10 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
-- 10 of 12 --
10. The award rendered by an arbitrator who is ineligible to be
appointed as such cannot be enforced.
11. In HRD Corporation v. GAIL (India) Ltd.: (2018) 12 SCC
471, the Supreme Court held as under:
“Since ineligibility goes to the root of the
appointment, Section 12(5) read with the Seventh
Schedule makes it clear that if the arbitrator falls in any
one of the categories specified in the Seventh Schedule, he
becomes “ineligible” to act as arbitrator. Once he
becomes ineligible, it is clear that, under Section 14(1)(a),
he then becomes dejure unable to perform his functions
inasmuch as, in law, he is regarded as “ineligible”. In
order to determine whether an arbitrator is de jure unable
to perform his functions, it is not necessary to go to the
Arbitral Tribunal under Section 13. Since such a person
would lack inherent jurisdiction to proceed any further, an
application may be filed under Section 14(2) to the Court
to decide on the termination of his/her mandate on this
ground.”
[emphasis added]
12. In Govind Singh v. M/S Satya Group Pvt Ltd & Anr.:
2023/DHC/000081 this court held as under:
“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.
xxx xxx xxx xxx
14. This Court finds no infirmity with the aforesaid view. A
person who is ineligible to act an Arbitrator, lacks the inherent
jurisdiction to render an Arbitral Award under the A&C Act. It
is trite law that a decision, by any authority, which lacks
inherent jurisdiction to make such a decision, cannot be
considered as valid. Thus, clearly, such an impugned award
cannot be enforced.”
(emphasis supplied)
Ex. (Comm.) 111/23 page 11 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
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13. In these circumstances and the legal position, as discussed
above, this court is of the considered opinion that the ‘exparte’
award dated 30.12.2022, is non-est in the eyes of law and is
therefore, non-executable, being a ‘nullity’. Accordingly, the
present execution petition is hereby dismissed.
It is ordered accordingly.
File be consigned to record room, after due
compliance.
Announced in open court
on this 7th Day of July 2023
(Brijesh Kumar Garg)
District Judge (Commercial Court)-01
Shahdara Distt, KKD
Ex. (Comm.) 111/23 page 12 of 12 D.J.(Commercial Court)-01/Shahdara/KKD/Delhi
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