Kiran Raj

The Delhi High Court has allowed petitions seeking termination of the mandate of an arbitrator appointed unilaterally by one of the disputing parties. The Single Bench of Justice Subramonium Prasad observed that the arbitrator’s appointment contravened Section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, 1996, and that participation by the opposing party in arbitration proceedings did not constitute a valid waiver under the statute. The Court terminated the mandate of the sole arbitrator in both petitions and allowed the parties to seek appointment of a substitute arbitrator as per law.

The Court was considering two petitions filed under Sections 14(1)(a), 14(2), and 15(2) of the Arbitration and Conciliation Act, 1996. The petitioners challenged the validity of the sole arbitrator’s appointment on grounds of unilateral appointment by the Director and Group Chairman of the respondent company, Apex Buildsys Ltd., and sought appointment of a substitute arbitrator.

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The petitioners, in the first matter, are engaged in the manufacturing of energy-efficient pumps and motors. The respondent is involved in construction and supply of pre-engineered steel buildings. The parties entered into a Works Contract in 2011, pursuant to which the petitioner issued purchase orders to the respondent. The respondent, after more than five years, invoked arbitration via a legal notice dated 7 June 2017 and unilaterally appointed Mr. Achin Goel, Advocate, as the sole arbitrator. Subsequently, the respondent issued a corrigendum on 10 July 2017, rescinding this appointment and appointing Mr. J S Jangra, retired Additional District Judge, as the sole arbitrator.

The petitioner objected, stating that the appointment was made without their consent. The arbitrator entered into reference on 17 July 2017. The petitioner further submitted that the arbitrator’s mandate expired on 17 January 2019 and that there was an unexplained delay of 593 days in filing an application under Section 29A before the Commercial Court, Dwarka. The application was dismissed on 17 December 2022 for lack of jurisdiction.

The respondent then approached the High Court under Section 29A(4) of the Act, which by its judgment dated 21 August 2024 extended the arbitrator’s mandate by six months. The High Court at that time noted that objections regarding unilateral appointment could be raised under Sections 14 and 15 of the Act.

In the second matter, the petitioner, engaged in civil construction and design, was awarded a contract for a project in Gwalior. The petitioner asserted that the purchase order issued on 22 December 2011 did not contain an arbitration clause. However, the respondent later raised invoices that independently contained an arbitration clause. The respondent, citing unpaid dues, issued a legal notice on 7 June 2017 and unilaterally appointed Mr. Achin Goel as the arbitrator. As in the first matter, the respondent subsequently rescinded this appointment and appointed Mr. J S Jangra as the sole arbitrator.

The petitioner objected to this appointment on 13 September 2017, stating there was no arbitration agreement between the parties. Despite these objections, the arbitral proceedings continued, and the arbitrator dismissed the petitioner’s objections through an order dated 6 February 2018, holding that the objections involved mixed questions of law and facts requiring evidence.

The petitioner argued that the arbitrator’s mandate expired on 25 March 2019 and that the arbitrator became de facto unable to perform his functions. The petitioner also submitted that the respondent’s application for extension of the mandate under Section 29A was barred due to ongoing liquidation proceedings against the respondent under the Insolvency and Bankruptcy Code, 2016, specifically citing Section 33(5) of the Code.

Both petitioners submitted that the appointment of the arbitrator contravened Section 12(5) read with the Seventh Schedule of the Arbitration Act. It was further argued that the Director and Group Chairman of the respondent, who appointed the arbitrator, had a significant interest in the outcome of the dispute and could not validly appoint an arbitrator in view of the Supreme Court’s decisions in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. and Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV).

In response, the respondent argued that the petitioners had impliedly waived their objections by participating in the arbitral proceedings. Reliance was placed on Kanodia Infratech Ltd. v. Dalmia Cement (Bharat) Ltd. and Arjun Mall Retail Holdings (P) Ltd. v. Gunocen Inc.

The High Court, however, rejected this contention. It recorded that, “a person’s ineligibility to act as an Arbitrator strikes at the very root of the appointment. If the Arbitrator was ineligible to be appointed, anything and everything that flows from such illegal appointment is also non est in law.” The Court observed that mere participation in proceedings did not amount to waiver under Section 12(5) of the Act.

Justice Prasad recorded, “for the proviso to apply, there must be an explicit agreement in writing which should be obtained after the dispute has arisen.” The Court found that no such express waiver was present and noted that the petitioners had filed objections early in the proceedings, objecting to the unilateral appointment.

The Court referred to Ellora Paper Mills Ltd. v. State of Madhya Pradesh, where the Supreme Court held that mere participation does not equate to waiver under Section 12(5). The Court also cited Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd., where the Supreme Court underscored the importance of independence and impartiality in arbitration proceedings, stating that “functions and duties require [the arbitrator] to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either party.”

The Bench also relied on Bharat Broadband Network Ltd. v. United Telecoms Ltd., where the Supreme Court held 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.” The Court reiterated that in cases involving unilateral appointment, waiver must be explicit and in writing after the dispute has arisen.

Referring to Central Organisation for Railway Electrification, the Court noted, “equal participation of parties in the process of appointment of arbitrators ensures that both sides have an equal say in the establishment of a genuinely independent and impartial arbitral process.”

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The High Court, therefore, concluded that the arbitrator’s appointment was void ab initio due to ineligibility under Section 12(5) read with the Seventh Schedule and that no valid waiver had occurred.

In its final directions, the Court allowed both petitions and terminated the mandate of the arbitrator. It further disposed of all pending applications.

Advocates Representing the Parties:

For the Petitioners: Mr. Vasanth Rajasekaran and Mr. Harshvardhan Korada, Advocates, Mr. Mritunjay Kumar Singh, Mr. Rajiv Vijay Mishra, Mr. Rajeev Kumar Gupta, Mr. Prakash Kashyap, and Mr. Shaikat Khatua, Advocates

For the Respondents: Mr. Sohel Sehgal, Mr. Rakesh Kumar, Mr. Ramesh Babu, and Mr. Jainendra Maldhir, Advocates

Case Title: Shakti Pump India Ltd. vs Apex Buildsys Ltd. and Vadera Interiors and Exteriors vs Apex Buildsys Ltd.
Neutral Citation: 2025: DHC:1831
Case Number: O.M.P. (T) (COMM.) 107/2024 and O.M.P. (T) (COMM.) 134/2024
Bench: Justice Subramonium Prasad

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