Bombay High Court
R.B.Krishnani Prop.Of ... vs M/S. Stem Water Distribution And ... on 21 April, 2025
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
Digitally
signed by
2025:BHC-AS:17845-DB
PRAJAKTA
PRAJAKTA SAGAR
SAGAR VARTAK
VARTAK Date:
2025.04.21
20:24:21
coara 8-23.odt
+0530
Prajakta Vartak
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
COMMERCIAL ARBITRATION APPEAL NO. 8 OF 2023
Mr. R. B. Krishnani, Proprietor of )
M/s. R. K. Krishnani through its authorised )
signatory Mr. Subhash Gundukupi, )
aged 51 years, having its register office at )
B-10, Shirine Garden, Opp-ITI Road, )
Aundh, Pune-411007 ) ..Appellant
(Orig. Claimant)
Versus
M/s. STEM Water Distribution and )
Infrastructure Com. Pvt. Ltd. )
a company registered under the Company )
Act 1956, having its registered office at )
Vardaman Commercial Complex, 9th Floor )
MIDC, Road No.16, Waghale Industrial )
Estate, Thane (West), 400604 ) ..Respondent
(Orig. Respondent)
__________
Mr. Gauraj Shah with Mr. Mangesh Humane for Appellant.
Mr. Ashish S. Gaikwad with Mr. Anirud R. Rote for Respondent.
__________
CORAM:
G. S. KULKARNI &
ADVAIT M. SETHNA, JJ.
RESERVED ON: 15 JANUARY 2025.
PRONOUNCED ON: 21 APRIL 2025.
Judgment (per G. S. Kulkarni, J.):
1. This appeal under Section 37 of the Arbitration and Conciliation Act,
1996 (for short, "ACA") is directed against the judgment and order dated 16
May 2023 passed by the Commercial Court at Thane whereby the respondent's
application under Section 34 of the ACA for setting aside the arbitral award
dated 29 September 2020 passed by the learned sole arbitrator is allowed, as a
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consequence of which, the arbitral award rendered by the learned sole arbitrator
stands quashed and set aside.
2. The only ground on which the arbitral award is set aside by the
Commercial Court is to the effect that the learned arbitrator was the Managing
Director of the respondent, hence, in view of the provisions of Section 12(5) of
the ACA, he was ineligible to act as an arbitrator. Also referring to the
provisions of Sections 14 and 15 of the ACA, the Commercial Court felt that on
such count the arbitral award suffered a patent illegality so as to set aside the
same by applying Section 34(2A) of the ACA.
3. Thus, the issue as urged in the present appeal is a pure question of law,
namely: 'when the learned sole arbitrator was appointed by consent of the
parties, and who happened to be the Managing Director of the respondent
having conducted the arbitral proceedings culminating into an award, whether
the arbitral award could be set aside on the ground of ineligibility of the
arbitrator in terms of Section 12(5) of the ACA and other relevant provisions'.
4. Relevant to the controversy, the facts many of which are not in dispute
can be noted:- An agreement dated 30 October 2013 was entered between the
respondent and the appellant under which the appellant was awarded water
supply works, namely, rehabilitation of existing components of 'Stem Water
Supply System', 'repairing of raw water pump station at Shahad', 'construction
of CCT, SUMP, pump house' and back wash water recirculation system' at
Temghar Water Treatment Plant. The contract work pertained to two locations.
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The appellant executing the work on all items under the contract is not in
dispute. The genesis of dispute between the parties and subject matter of
arbitration is in relation to extra work ordered by the respondent which,
according to the appellant, was outside the scope of contractual work and for its
essential completion. In such context, on 01 February 2019, a notice was issued
by the appellant to the respondent demanding payment. Respondent disputed
the appellant's claim. As the agreement dated 30 October 2013 as entered
between the parties contained an arbitration agreement in clause 17b thereof, to
provide that in case of disputes between the Contractor (Appellant) and the
field officers (of the Respondent) regarding the tender/contract, the "Member
Secretary STEM (Respondent)" shall be the sole arbitrator and no external
arbitrator shall be appointed.
5. On such premise, the appellant filed an application before this Court
under Section 11 of the ACA (Arbitration Petition No. 72 of 2019) however,
such application came to be withdrawn, as the appellant had failed to issue a
notice under Section 21 of the ACA, invoking arbitration and as per the
arbitration agreement. The appellant accordingly issued a notice to the
respondent dated 05 July 2019, invoking the arbitration agreement whereby the
respondent was called upon to appoint an arbitral tribunal. On 22 July 2019,
respondent replied to the appellant's notice through its advocate according
consent for the appointment of an arbitrator. The consent of the respondent
was in the following terms:-
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"2. My client states that, keeping all contentions and
averments open for argument as well as denying all the allegation
made by your goodself, my client is ready and willing to refer the
disputes as raised by your client for arbitration as per clause 17 of
the general conditions of contract to appoint Hon'ble Col.
Vivekanand Choudhary (retd.), Managing director of Stem Water
Dist. & infra co. pvt. Ltd. as the arbitrator for the dispute raised by
your goodself as per the arbitration clause.
........
18. My client states, as your goodself has raised the dispute we
hereby confirm and agree to refer the dispute to the Ld. Arbitrator
Hon'ble Col. Vivekanand Choudhary (retd.), Managing director
of Stem Water Dist. & Infra Co. Pvt. Ltd. to resolve the differences
arising the differences amongst the parties.
19. Please note a copy of this notice confirming the
appointment of the Ld. Arbitrator Hon'ble Col. Vivekanand
Choudhary (retd.), Managing director of Stem Water Dist. & infra
co. pvt. Ltd., is also sent to the Ld. Arbitrator Hon'ble Col.
Vivekanand Choudhary (retd.), Managing director of Stem Water
Dist. & Infra co. pvt. Ltd.
In view of the above submission it is important to initiate
arbitration proceedings with immediate effect since both the
parties have agreed to common arbitrator. ...."
(emphasis supplied)
6. Thus, in the aforesaid terms, the respondent agreed for appointment of
Col. Vivekanand Choudhary (retd.) who was the Managing Director of the
respondent to act as a sole arbitrator to adjudicate the disputes between the
parties.
7. It may be observed that, quite significantly, prior to the aforesaid letter of
the respondent's advocate consenting for appointment of the sole arbitrator, the
respondent had served an 'affidavit dated 26 June 2019 of Kalpita Patki,
Company Secretary' of the respondent to the Section 11 application filed by the
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appellant before this Court, in which a clear stand was taken on behalf of
respondent that the Col. Vivekanand Choudhary, Managing Director shall be
appointed as the arbitrator to adjudicate the dispute between the parties. The
relevant statements as made in the affidavit, which form part of the record of the
proceedings, read thus:-
"That it is pertinent to note that earlier STEM i.e. Respondent no.2
was a government organisation and its affairs and operation were
headed after by the "Member Secretary" thereafter from year 2009
STEM i.e. Respondent no.1 has been subsequently converted as a
private limited company vide Maharashtra Government Resolution
no. WSS-2008/CR-28/WS22 dated 27/02/2009 wherein the post
of "Member Secretary" of STEM has been replaced by the post of
"Managing Director" therefore after the conversion of the STEM
from Government organisation to private limited company the
post of member secretary is construed to be as of Managing
Director. Further it is also pertinent to note that the post of
"Member Secretary" earlier (when STEM was Government
organization) and the post of "Managing Director" currently (From
August 2014) has been held by the same person i.e. Mr.
Vivekanand Choudhary and hence by virtue of his office he shall
be the rightful authority to be appointed as the Arbitrator as far as
the present dispute between the Petitioner and the Respondent
no.1 is concerned."
"........ however it is now aptly clear that the petitioner intends to
arbitrate the differences amongst the parties and hence as per the
arbitration clause Mr. Vivekanand B. Choudhary who is holding
the post of Managing Director / member secretary shall be
appointed as the arbitrator in the present arbitration proceedings
considering the clause 17(b) of the general conditions contract of
the tender document.
6. It is therefore, humbly prayed that the Respondent no.1
have no objection to appoint Member Secretary, STEM now
referred and considered as the Managing Director of STEM Water
Distributions Infrastructure Co. Pvt. Ltd. i.e. Mr. Vivekanand b.
Choudhary an Arbitrator as per clause no. 17(b) General
Conditions of Contract, for adjudicating the dispute and claim
between the parties."
(emphasis supplied)
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8. It is thus clear that the respondent had insisted on the appointment of its
Managing Director Col. Vivekanand B. Choudhary as an arbitrator. It may also
be observed that at such point of time, it was open to the appellant to take a
position that Col. Vivekanand B. Choudhary, being an official of the
respondent, he would not be an independent person and/or that there would be
a likelihood of bias against the appellant, however, the appellant did not raise
such objection, as it appears that the appellant intended not to delay the arbitral
process and conceded in the appointment of the said arbitrator. Thus, the
situation was in fact of a bias which the appellant would suffer as the arbitrator
proposed to be appointed was an officer of the respondent.
9. On the aforesaid backdrop, learned sole arbitrator entered reference. On
04 October 2019, a disclosure was also made by the learned sole arbitrator as per
the Fifth Schedule of the ACA. An arbitral hearing was held on 07 November
2019, when both the parties consented on the programme of the arbitral
proceedings and minutes in that regard were recorded. Thereafter, at the further
hearings of the arbitral proceedings held on 21 November 2019 and 23
November 2019, the respondent participated and filed its statement of defence.
On 07 January 2020, the respondent informed the arbitral tribunal that the
respondent intended to file a counter-claim. The arbitral proceedings were
thereafter held on 15 January 2020, 24 January 2020, 25 February 2020, 12
March 2020, 16 March 2020 and 18 March 2020. Further, as the mandate of
the arbitral tribunal to conclude the arbitral proceedings as per the time lines
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prescribed under Section 29A of the ACA was expiring, the appellant
approached this Court by an application filed under the said provision praying
for extension of the mandate of the arbitral tribunal to complete the arbitral
proceedings. A learned Single Judge of this Court by an order dated 10 August
2020, passed on Arbitration Petition No. Ld/VC/ARBPL/17/2020 allowed the
appellant's application granting extension of time by six months from 22 July
2020, to enable the learned sole arbitrator to pass an award. On such backdrop,
learned arbitrator proceeded with the arbitral proceedings and finally published
an arbitral award on 29 September 2020.
10. Being aggrieved by the arbitral award, on 01 January 2021, the
respondent filed an application under Section 34 along with a stay application
before the Commercial Court at Thane. In the Section 34 proceedings, an
application was moved by the respondent on 01 February 2023 to file certain
additional documents. On such application, on 06 April 2023, an order was
passed by the Commercial Court permitting the respondent to file additional
documents. The proceedings of the Section 34 application were thereafter taken
up for final adjudication. By the impugned order dated 16 May 2023, the
Commercial Court set aside the arbitral award on the applicability of Section
12(5) read with Seventh Schedule of the ACA as observed in paragraphs 39 to
45 of the impugned order qua the appointment of the arbitral tribunal. The
Commercial Court has inter alia observed thus:-
"39] According to learned Advocate for the applicant, in view of
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amendment of 2015 in Section 12(5) of the Arbitration and
Conciliation Act Col. Vivekanand Choudhary (Retired) being
Managing director of the applicant company was ineligible to act
as an Arbitrator.
40] Sub-section 5 and Section 12 was inserted by Arbitration
and Conciliation (Amendment) Act 2015 with effect from
23/10/2015 which reads as under:
"12(5) --- Notwithstanding any prior agreement to
the contrary, any person whose relationship, with the
parties or counsel or the subject-matter of the dispute, falls
under any of the categories specified in the Seventh
Schedule shall be ineligible to be appointed as an
arbitrator.
Provided that parties may, subsequent to disputes
having arisen between them, waive the applicability of this
sub-section by an express agreement in writing."
41] The 7th Schedule is also added by virtue of Arbitration and
Conciliation (Amendment) Act 2015 which is reproduced here:
.....
.....
42] Col. Vivekanand Choudhary (Retd.) falls under category 1
and 5 of the 7th Schedule. As per provisions of Sub-section 5, the
parties can waive the applicability of this sub-section by express
agreement in writing.
43] It is true that the applicant company has not raised such
objection in Arbitration Proceeding No.72/2019 before the
Hon'ble Bombay High Court. From the perusal of the order dated
26/6/2019 passed by the Hon'ble Bombay High Court in Writ
Petition No. 72/2019 it seems that learned Advocate for both the
parties present respondents sought leave to withdraw the petition
with liberty to file appropriate petition. I think both the parties
have not clarified as to why said petition was withdrawn.
44] The order dated 10/8/2020 of Hon'ble Bombay High
Court in LD/VC/ARBPL 17/2020 shows that the time for
completing the Arbitration Proceeding was extended. It may be
noted that in the said proceeding nobody was present on behalf of
the present applicant.
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45] Moreover, in my view assuming for the sake of argument
that present applicant has not raised objection at any time during
Arbitral Proceeding, the language of Section 12(5) is very specific.
There must be express agreement for waiving of provisions of
Section 12(5). No such express agreement was executed between
the parties.
.....
47] In the present case, the applicant has placed on record copy
of the adjournment application dated 18/3/2020 wherein it is
specifically mentioned that the applicant company has no faith on
Col. Vivekanand Choudhary (Retd.) and he should not continue
the Arbitral Proceeding.
48] In view of above discussion, in my view, in the light of
provisions of Section 12(5) of Arbitration and Conciliation Act
Col. Vivekanand Choudhary (Retd.) being Managing Director of
the applicant company was ineligible to act as an Arbitrator.
.....
51] In view of aforesaid discussion, I hold that Col. Vivekanand
Choudhary (Retd.) was ineligible to act as an Arbitrator by virtue
of provisions of Section 12(5), 14 and 15 of the Arbitration and
Conciliation Act. It can be termed as illegality in the Arbitral
Proceedings by virtue of the provisions of Section 34(2A) of
Arbitration and Conciliation Act. The Award is required to be set
aside. In view of peculiar facts of the case, it would be just and
proper to direct both the parties to bear their costs."
Submissions on behalf of the Appellant:-
11. Mr. Shah, learned counsel for the appellant has made the following
submissions:-
(i) The appointment of the sole arbitrator was by consent of the parties,
which was recorded in writing as clearly seen from the letter dated 22 July 2019
of the respondent's advocate, which clearly stated that Col. Vivekanand
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Choudhary (retd.) be appointed as a sole arbitrator to adjudicate the disputes
and differences between the parties. This was on the backdrop of a prior
affidavit of Ms. Kalpita Patki, Company Secretary, served on the appellant which
was to be filed in the Section 11 proceedings, wherein the respondent not only
suggested but also agreed for appointment of Col. Vivekanand Choudhary
(retd.) as a sole arbitrator to adjudicate the disputes and differences between the
parties. The express agreement in writing between the parties is clearly found in
the letter of the respondent's advocate dated 22 July 2019 (supra) as also the
contents of the affidavit of Ms. Kalpita Patki (supra). In view of the clear
agreement between the parties, it is deemed that there is a waiver of any
requirement of the applicability of Section 12(5) read with the Seventh Schedule
of the ACA as such situation would squarely fall within the proviso below sub-
section (5) of Section 12 which ordains that "parties may, subsequent to disputes
having arisen between them, waive the applicability of sub-section (5) by an
express agreement in writing". It was hence not permissible for the respondent
to raise any issue and that too challenging the arbitral award on the ground that
the learned sole arbitrator had incurred any legal disability in his appointment
and in acting as the sole arbitrator. In supporting such contention, reliance is
placed on the decisions of the Supreme Court in Bharat Broadband Network
Ltd. vs. Union Telecom Ltd.1, Mcleod Russel India vs. Aditya Birla Finance
Ltd.2, SBI Global Factors Ltd. vs. Prity Tubes Pvt. Ltd. & Ors.3.
1 (2019) 5 SCC 755
2 2023 SCC OnLine Cal 330
3 2022 SCC OnLine Bom 11444
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(ii) The primary requirements of the provisions of law are completely
overlooked by the Commercial Court in passing the impugned order allowing
Section 34 proceedings. Hence, the impugned order is ex facie illegal and
contrary to the provisions of the ACA.
(iii) The approach of the Commercial Court in considering the applicability
of the provisions of Sections 12 and 15 of the ACA is untenable as the
Commercial Court has proceeded on the principle of bias and arbitrary
appointment, on the premise that the sole arbitrator could not have been an
employee (Managing Director) of the respondent, hence, he lacked competence
to adjudicate the disputes between the parties. The Commercial Court thus
coming to a conclusion that in the facts of the case, the sole arbitrator being an
employee of the respondent suffered disqualification under the provisions of
sub-section (5) of Section 12 as also read with the relevant items of the Seventh
Schedule of the ACA, is far from legal and valid. Such objection was not raised
before the arbitral tribunal at any point of time during the arbitral proceedings,
hence, having not raised such objection earlier, it was not permissible for the
respondent to raise such objection for the first time in the proceedings of
Section 34 of the ACA. In supporting such contention, reliance is placed on the
decision of this Court in Solaris Developers Pvt. Ltd. vs. State Bank of India
Supervising Staff Bhagyashree Co-operative Housing Society Ltd. 4 and on the
decision of Delhi High Court in National Highways Authority of India vs. KCC
4 Arbitration Petition (L) No. 1359 of 2024 decided on 30.01.2024
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Buildcon Pvt. Ltd.5.
(iv) The appointment of the arbitrator in terms of the arbitration clause, who
was a person holding the designation at the time of appointment, did not lose
his mandate or attain disqualification upon his termination from the services as
alleged by the respondent. It is submitted that such contention presupposes that
the position which was taken and accepted by the respondent at the initial
appointment of the learned sole arbitrator cannot be altered merely because the
Managing Director of the respondent, on his retirement, had ceased to remain as
a person designated under the Arbitration Agreement, and therefore had no
authority to continue as an arbitrator. Thus, the contention is that after the
learned arbitrator retired from service of the respondent, he would not be
disqualified from continuing as an arbitrator. It is submitted that once the
learned sole arbitrator entered reference as per the terms of the arbitration
agreement between the parties, and as fully agreed and/or not disputed by the
parties, there is no question of him ceasing to be an arbitrator merely because he
retires. It is submitted that on such proposition, the position in law is well-
settled as seen from the decisions of the Supreme Court in Himalayan
Construction Co. vs. Executive Engineer, Irrigation Division, J & K & Anr. 6 and
Laxmi Continental Construction Company vs. State of Uttar Pradesh & Anr.7.
(v) The respondent itself having insisted, and having acquiesced and
5 2024 SCC OnLine Del 3077
6 (2001) 9 SCC 359
7 (2021) 13 SCC 142
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accepting the appointment of the learned sole arbitrator, also falls in a situation
which would clearly attract waiver of right to object as Section 4 of the ACA
would postulate.
(vi) Lastly, it is submitted that the impugned judgment and order passed by
the Commercial Court also requires interference on the ground that an opinion
was formed by the Commercial Court, by allowing an application filed by the
respondent to bring additional documents on record, which were not part of the
arbitral proceedings. It is submitted that no additional evidence could
ordinarily be brought on record of the Section 34 proceedings. In supporting
such contention, reliance is placed on the decision of the Supreme Court in
Alpine Housing Development Corporation Pvt. Ltd. vs. Ashok S. Dhariwal &
Ors.8 and on the decision of Delhi High Court in Jop International Ltd. vs.
Multifold Group Contractor and Engineers9.
Submissions on behalf of the Respondent
12. On the other hand, learned counsel for the respondent would submit
that the impugned order passed by the Commercial Court would not require
interference on the ground that the appointment of the learned sole arbitrator,
although was not objected by the respondent before the arbitral tribunal, was
per se not in accordance with law. It is submitted that even the Board of
Directors of respondent had not granted any approval for appointment of the
learned sole arbitrator, as the arbitration proceedings involved a claim of above
8 2023 SCC OnLine SC 55
9 2023 SCC OnLine Del 3396
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Rs.10 crores, which required a decision to be taken by the Board of Directors.
On such count, it is submitted that the Managing Director conducting
arbitration without prior express consent by majority of Board of Directors was
also contrary to the Articles of Association referring to Clause 139(a)(xv) of the
respondent company.
13. It is next submitted that the appellant's contention referring to the letter
dated 22 July 2019 of the respondent's Advocate, informing the appellant to
appoint the learned sole arbitrator, as he was a person so designated to act as a
sole arbitrator, was addressed without lawful authorization and sanction from
the Board of Directors. Hence, the appellant's case of a valid consent of the
respondent to the appointment under said letter, ought not to be accepted. It is
next submitted that even the learned sole arbitrator expressed his unwillingness
to act as an arbitrator when he addressed an email dated 9 August 2019 to the
respondent.
14. It is submitted that an application on behalf of the respondent was
moved before the learned sole arbitrator on 28 February 2019 contending that
the respondent had lost confidence in the arbitrator, and after filing of such
application, the respondent had not participated in the arbitration proceedings.
However, in making such submission, it is conceded that no proceedings either
under Section 11(6) or Section 14 of the ACA were resorted to assail the
mandate of the learned sole arbitrator.
15. It is next contended that the provisions of Section 12(5) are clear and
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when the arbitrator himself has taken a position that he was not eligible to
continue as an arbitrator, in terms of his email dated 9 August 2019, the
arbitrator should not have proceeded with the arbitration proceedings and
declared the award.
16. Learned counsel for the respondent has placed reliance on the
decisions in (i) Perkins Eastman Architects DPC v. HSCC (India) Ltd. 10,
(ii) Bharat Broadband Network Ltd. v. United Telecoms Ltd. 11, (iii) Union
of India v. Girdhari Lal12, (iv) Jaipur Zila Dugdh Utpadak Sahkari Sangh
Ltd. v. Ajay Sales & Suppliers 13, (v) Dredging & Desiltation Co. Pvt. Ltd.
v. Board of Trustees of Paradip Port Trust 14, (vi) Punjab State v. Pritam
Singh15 and (vii) Central Organisation for Railway Electrification v. ECI
SPIC SMO MCML (JV) A Joint Venture Company16.
Reasons and Conclusion:-
17. At the outset, some of the indisputed facts need to be noted. The
arbitration agreement between the parties is not in dispute. Clause 17b of the
agreement dated 30 October 2013 is the arbitration agreement between the
parties which reads thus:-
"17. Resolving of dispute: In case of dispute between the
10 (2020) 20 SCC 760
11 (2019) 5 SCC 755
12 1998 SCC OnLine Raj 157
13 (2021) 17 SCC 248
14 2014 SCC OnLine Ori 439
15 1999 SCC OnLine P&H 533
16 2024 SCC OnLine SC 3219
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Contractor and the field officer regarding this tender, the member
Secretary (STEM) shall be the sole Arbitrator and no external
Arbitrator shall be appointed."
18. On a reading of the aforesaid clause, it is clear that the parties had agreed
to appoint the person "designated" in the arbitration agreement as an arbitrator
to adjudicate the disputes and differences between the parties under the
agreement dated 30 October 2013.
19. From the facts as noted hereinabove, it is quite clear that this is a case
wherein, in fact quite peculiarly, it was the appellant who was in a position to
allege bias against the arbitrator proposed to be appointed being the officer of
the respondent. It did not raise such objection. Further, the appellant on the
respondent insisting for appointment of the sole arbitrator as per the arbitration
clause (supra), agreed for such arbitrator to be appointed. This is clear from the
proceedings of Section 11 application as filed by the appellant before this Court
praying for appointment of an arbitral tribunal. As noted hereinabove, in the
proceedings of the Section 11 application, respondent not only in the affidavit in
reply to Section 11 proceedings filed by the appellant, but also in the reply dated
22 July 2019 of its advocate to the appellant's advocate's letter invoking
arbitration insisted that in terms of the arbitration clause, appointment of Col.
Vivekanand Choudhary be made as the sole arbitrator.
20. It is also not in dispute that the learned sole arbitrator after having
received consent, proceeded to arbitrate the disputes and differences between
the parties. Even assuming that the respondent at any given point of time
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during the arbitral proceedings, had formed an opinion that the learned sole
arbitrator by virtue of his retirement and/or he ceasing to be the Managing
Director of the company had lost his mandate to continue as an arbitrator, and
for such reason, the arbitral proceedings ought not to be taken forward, the
respondent did not take recourse to any proceedings to that effect to substitute
the sole arbitrator. Morevoer, the day learned sole arbitrator entered reference,
there was no such disqualification whatsoever.
21. Further the arbitration clause (supra) also does not specify that after the
designated sole arbitrator enters reference by the consent of the parties, that is
the parties waiving any objections to such appointment, and during the course
of the arbitral proceedings, if the sole arbitrator (person designated) ceases to be
the Managing Director, he would cease to have jurisdiction to continue to act as
an arbitrator. In the absence of any such agreement between the parties, the
learned sole arbitrator had jurisdiction to continue with the arbitral proceedings.
Even otherwise the position in law is well settled, that once the learned sole
arbitrator has entered reference and he is the person of the designation as also
whose appointment has been explicitly agreed between the parties in terms of
what Section 7 of the ACA would provide, the arbitrator would not lose his
mandate or attain any disqualification upon him ceasing to possess the
designation.
22. Moreover, as seen from the factual narration, the respondent itself had
clearly insisted and acquiesced and accepted the appointment of the sole
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arbitrator, canvassing that the requirement of the arbitration agreement was to
appoint such person as designated. Such position as taken by the respondent
clearly falls under the mandate of Section 4 of the ACA providing for waiver of
right to object, hence, not attracting the intervention of the Court in terms of
Section 5 of the ACA. Sections 4 and 5 read thus:-
"4. Waiver of right to object.--A party who knows that--
(a) any provision of this Part from which the parties
may derogate, or
(b) any requirement under the arbitration agreement,
has not been complied with and yet proceeds with the arbitration
without stating his objection to such non-compliance without
undue delay or, if a time limit is provided for stating that objection,
within that period of time, shall be deemed to have waived his
right to so object.
5. Extent of judicial intervention.--Notwithstanding
anything contained in any other law for the time being in force, in
matters governed by this Part, no judicial authority shall intervene
except where so provided in this Part."
23. In Himalayan Construction Co. vs. Executive Engineer, Irrigation, J&K
(supra), the Supreme Court was dealing with an issue as to whether the
arbitrator who was appointed by designation, having retired and had ceased to
hold his office, would have an authority to pass the impugned award. Although
such issue was considered under the 1940 Act, however, the principles would
not be different in so far as the 1996 Act is concerned. The Supreme Court
observed that the agreement between the parties provided that the disputes
would be required to be referred to the arbitration of "Chief Engineer, Irrigation
and Flood Control Department, Jammu". The arbitrator was accordingly
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appointed by designation, however the said appointment did not survive
further, as the post itself was abolished and a fresh appointment was made by
parties, under which it was agreed between the parties to appoint one Shri. D. K.
Nargotra, Chief Engineer, Ravi Tavi Irrigation Complex, Jammu, as an
arbitrator. He was accordingly appointed as an arbitrator with an understanding
that he shall enter reference and submit award within the statutory period.
Significantly, the Court observed that the said arbitrator who was then the Chief
Engineer, was appointed as an arbitrator as agreed between the parties. It is in
such context, the High Court set aside appointment of the learned sole
arbitrator. In appeal before the Supreme Court, the appointment of Mr. D. K.
Nargotra as the arbitrator was upheld as also the award passed by such arbitrator
was approved, while holding that the arbitral award could not have been set
aside by the High Court on the ground of any disqualification of the arbitrator
being a designated person. The relevant observations of the Court read thus:-
"7. Once this conclusion is reached it becomes obvious that
the objection by the respondent-authorities to the award that it
was passed by a person who had, on retirement, ceased to hold
office which he earlier held at the time of reference cannot survive
as Mr. D.K. Nargotra himself passed the award. Not only that but
after his retirement and before he completed the proceedings he
applied to the Court for extension of time and that extension was
granted after hearing the parties and no such subjection was raised
at that time by the respondents. Consequently, it must be held that
the Division Bench had erroneously set aside the award decrees
only on this ground."
24. Similarly, Laxmi Continental Construction Company vs. State of Uttar
Pradesh & Anr. (supra) was a case where the qualification for appointment as an
arbitrator was as agreed under clause 52 (the arbitration agreement) which was
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to the effect that the person to be appointed as an arbitrator should be an officer
of the rank of the Superintending Engineer or higher. The Court held that once
such an officer was appointed as an Arbitrator, he continued to be the Sole
Arbitrator till the arbitration proceedings are concluded unless he incurs any
disqualification under the law. It was held that even after his retirement, the
arbitration proceedings were required to be continued by the same Arbitrator, as
the arbitration agreement (Clause 52 therein) did not provide at all that on the
retirement of such an officer, who was appointed as a Sole Arbitrator, shall not
continue as an arbitrator and/or the mandate to continue with the arbitration
proceedings will come to an end. The Supreme Court further held that once the
learned Sole Arbitrator had continued with the arbitration proceedings and
passed the award within the extended period of time, it could not be said that,
when he continued with the arbitration proceedings, he had misconducted
himself for acting without jurisdiction.
25. In the present case also, there was an extension of the mandate of the
learned sole arbitrator as granted by this Court by an order dated 10 August
2020 passed on the proceedings filed under Section 29A of the ACA. It is of
utmost significance that the respondent did not, in any manner whatsoever,
assail the jurisdiction of the sole arbitrator after the arbitrator consensually
entered reference by taking recourse to the provisions of sub-sections (2) and (3)
of Section 16, nor the respondent resorted to the provisions of Section 14 of the
ACA to contend that the mandate of the arbitrator was required to be
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terminated as he had incurred a de jure or de facto disqualification. Such
conduct on the part of the respondent clearly brings about a situation of the
respondent having fully conceded, acquiesced and having accepted the
designated sole arbitrator to arbitrate the disputes between the parties and
hence, it was not permissible for the respondent to take a contrary position to
contend that the arbitrator had lost his authority to arbitrate on the ground that
he has ceased to be a Managing Director on his retirement.
26. We may also observe that the respondent's contention of alleging defect
in the appointment and/or the manner in which the appointment of learned
sole arbitrator is untenable as the respondent conceded in the reply affidavit of
Ms. Kalpita Patki, which was sought to be filed in the Section 11 proceedings
and which was served on the appellant, as also in the letter of the respondent's
advocate dated 22 July 2019, the contents of which we have extracted in detail
hereinabove when the respondent suggested and called upon the appellant to
appoint Col. Vivekanand Choudhary, Managing Director of the respondent as
the arbitrator. This also for the reason that such plea, firstly is a plea which is
destructive and/or contrary to the specific arbitration agreement between the
parties as the arbitration agreement does not contemplate inclusion of any
matters which are internal to the respondent's working. As also there is a
presumption that after such arbitration agreement of the nature as entered
between the parties, all considerations of any internal issues ultimately
culminated into the arbitration agreement. Therefore, a plea which is alien or
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contradictory to the terms and conditions of the arbitration agreement would be
wholly unacceptable in challenging the authority of the arbitrator.
27. In any event a plea that although the arbitration agreement between the
parties was clear, however, on some internal procedures pertaining to the
respondent's functioning, before the Managing Director could enter reference,
namely of an approval of the Board of Director was required to be taken, was an
issue wholly internal to the respondent and not part of any procedure as agreed
between the parties in appointing the arbitrator. This also amount to reading
something into the arbitration agreement not provided for. A party to an
arbitration agreement in such situation cannot be permitted in law to take a
position contrary to the arbitration agreement, and if at all such a plea is
intended to be asserted, it was required to be asserted in the manner known to
law i.e. at the appropriate time and in appropriate proceedings questioning the
appointment of the arbitrator and more particularly in the present case before
the sole arbitrator was appointed by consent. Thus, in the fact situation, any
alleged ineligibility or disqualification of the arbitrator could not have been set
up as a plea to challenge the arbitral award as the respondent had not only
acquiesced in the appointment of the learned sole arbitrator, but also by the
application of the principles of estoppel was prevented from taking such a plea.
28. The aforesaid observations in our opinion would clearly find acceptance
even when tested on the touchstone of the requirement of the provisions of
Section 12(5) of the ACA and the proviso below it. Section 12 provides for the
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grounds for challenge in regard to the appointment of an arbitrator. Sub-section
(5) begins with an non-obstante clause to ordain "Notwithstanding" any prior
agreement to the contrary, any person whose relationship, with the parties or
counsel or the subject-matter of the dispute, falls under any of the categories
specified in the Seventh Schedule shall be ineligible to be appointed as an
arbitrator. The proviso below it however makes an exception which is to the
effect that "the parties may, subsequent to disputes having arisen between them,
waive the applicability of this sub-section by an express agreement in writing".
We extract Section 12 hereunder which reads thus:-
"12. Grounds for challenge.--
(1) When a person is approached in connection with his
possible appointment as an arbitrator, he shall disclose in writing
any circumstances,--
(a) such as the existence either direct or indirect, of any
past or present relationship with or interest in any of the parties or
in relation to the subject-matter in dispute, whether financial,
business, professional or other kind, which is likely to give rise to
justifiable doubts as to his independence or impartiality; and
(b) which are likely to affect his ability to devote
sufficient time to the arbitration and in particular his ability to
complete the entire arbitration within a period of twelve months.
Explanation1.--The grounds stated in the Fifth Schedule shall
guide in determining whether circumstances exist which give rise
to justifiable doubts as to the independence or impartiality of an
arbitrator.
Explanation 2.--The disclosure shall be made by such person in
the form specified in the Sixth Schedule.
(2) An arbitrator, from the time of his appointment and
throughout the arbitral proceedings, shall, without delay, disclose
to the parties in writing any circumstances referred to in sub-
section (1) unless they have already been informed of them by him.
(3) An arbitrator may be challenged only if--
(a) circumstances exist that give rise to justifiable
doubts as to his independence or impartiality, or
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(b) he does not possess the qualifications agreed to by
the parties.
(4) A party may challenge an arbitrator appointed by him, or in
whose appointment he has participated, only for reasons of which
he becomes aware after the appointment has been made.
(5) Notwithstanding any prior agreement to the contrary, any
person whose relationship, with the parties or counsel or the
subject-matter of the dispute, falls under any of the categories
specified in the Seventh Schedule shall be ineligible to be
appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen
between them, waive the applicability of this sub-section by an
express agreement in writing."
(emphasis supplied)
29. In our opinion, the present case would be required to be regarded as
falling within the proviso to sub-section (5) of Section 12, inasmuch as the
affidavit of Ms. Kalpita Patki as also the letter of the respondent's advocate
addressed to the appellant dated 22 July 2019 insisting for appointment of Col.
Vivekanand Choudhary, Managing Director of the respondent as the sole
arbitrator, would be required to be an agreement in writing as the proviso below
sub-section (5) would envisage. There cannot be any other meaning to both
these documents by which the respondent in terms proposed the designated
arbitrator Col. Vivekanand Choudhary to act as an arbitrator, but also the fact
that such insistence and/or appointment was accepted by the appellant without
demur. Further, such appointment was not only accepted but acted upon with
the arbitrator entering reference and the arbitral proceedings having proceeded
for an award to be delivered. All this also included an order passed in the
proceedings before this Court for extension of the mandate of the arbitral
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tribunal by passing an order under Section 29A of the ACA. We would not
accept the proposition that the proviso below sub-section (5) of Section 12
would not accept the present position, as arrived in writing between the parties,
in conceding to the appointment of the sole arbitrator. Such position as taken
by the parties necessarily brings about the intention of the parties to overcome
any legal disability which could be inferred under the provisions of Section 12
read with Seventh Schedule to the ACA. This also for the reason that it cannot
be countenanced that the parties having agreed for resolution of the disputes by
arbitration which would recognize all facets of party autonomy, could be
oblivious to the provisions of the ACA on such issues. Applying such principles,
it was too far-fetched for the respondent to contend that the arbitral award was
rendered illegal on pure application of sub-section (5) of section 12 de hors the
respondent's conduct of conceding in the appointment of the learned sole
arbitrator and participation in the arbitral proceedings which include the
respondent not raising an objection to the jurisdiction of the learned sole
arbitrator either under any proceedings under Section 16 or Section 14 of the
ACA. The respondent also could not have been oblivious that the specific
writings as referred above and as accepted by the appellant accorded a complete
sanctity to the arbitrator proceeding to the arbitral reference by virtue of proviso
below sub-section (5) of Section 12. The Commercial Court has clearly
overlooked/disregarded such requirements as the law would postulate. We
discuss the principles of law in such context.
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30. In Bharat Broadband Network Ltd. vs. Union Telecom Ltd. (supra),
disputes and differences had arisen between the parties under the purchase order
which provided for an arbitration agreement in terms of clause 20.1 under
which the parties agreed that the dispute shall be referred to the sole arbitration
of the CMD of the appellant-Bharat Broadband Network Ltd. or in case his
designation is changed or his office is abolished, then in such cases to the sole
arbitration of the officer for the time being entrusted with the functions of the
CMD or by whatever designation such an officer may be called. It was a case
wherein the CMD, instead of himself entering reference, appointed a person
who would be not eligible under the arbitration agreement. An objection was
raised before the arbitrator that the arbitrator was de jure unable to perform his
functions as an arbitrator, hence, he should have withdrawn from the
proceedings so as to allow the parties to approach the High Court for
appointment of a substitute arbitrator in his place. Such objection was rejected
by the sole arbitrator which led to a petition being filed before the Delhi High
Court under Sections 14 and 15 of the ACA, contending that the arbitrator had
become de jure incapable of acting as such. The High Court in its judgment
dated 22 November 2017, as assailed before the Supreme Court, rejected the
said proceedings, observing that the very person who appointed the arbitrator is
estopped from raising a plea that such arbitrator cannot be appointed, after
participating in the proceedings. It was observed that under the proviso to
Section 12(5) of the ACA, the appellant itself had appointed the learned sole
arbitrator (Shri K.H. Khan), and the respondent had filed a statement of claim
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without any reservation also in writing, the same would amount to an express
agreement in writing, which would, therefore, amount to a waiver of the
applicability of Section 12(5) of the ACA. However, considering the fact that
the High Court had proceeded to rely on the appointment letter, which
indicated an express agreement on the facts of the case, which was dated 17
January 2017, on which date, the Managing Director of the appellant was
certainly not aware that Shri K.H. Khan could not be appointed by him as
Section 12(5) read with the Seventh Schedule, only went to the invalidity of the
appointment of the Managing Director himself as an arbitrator and that Shri
K.H. Khan's appointment being invalid became clear only after the declaration
of law by the Supreme Court in TRF Ltd. v. Energo Engineering Projects Ltd.17
which was rendered on 03 July 2017. It was observed that after the said
judgment, there was no express agreement between the parties as to the validity
of Shri K.H. Khan's appointment and it is in these circumstances, an application
was moved before the learned sole arbitrator relying on the decision in TRF Ltd.
vs. Energo Engineering Projects Ltd. (supra) pointing out the ineligibility of the
arbitrator of being de jure incapable of acting as an arbitrator. It is in these
circumstances, the Supreme Court interfered with the orders of the High Court
in holding that the arbitrator in such case was de jure ineligible to continue as an
arbitrator. However, the observations of the Supreme Court which are relevant
to the present case in the context of the legal position of an acquiescence, waiver
and estoppel need to be noted when the Court recognizes such principles in
17 (2017) 8 SCC 377
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analysing legislative scheme as Sections 12, 13 and 14 of the ACA would
envisage, so as to attract the principles of acquiescence, waiver and estoppel.
The relevant observations read thus:-
" 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 non obstante 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
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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. Questions which may
typically arise under Section 14 may be as to whether such person
falls within any of the categories mentioned in the Seventh
Schedule, or whether there is a waiver as provided in the proviso to
Section 12(5) of the Act. As a matter of law, it is important to note
that the proviso to Section 12(5) must be contrasted with Section
4 of the Act. Section 4 deals with cases of deemed waiver by
conduct; whereas the proviso to Section 12(5) deals with waiver by
express agreement in writing between the parties only if made
subsequent to disputes having arisen between them.
.......
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 Indian Contract Act, 1872
becomes important. It states:
"9. Promises, express and implied.--In so far as a proposal
or acceptance of any promise is made in words, the promise is said
to be express. In so far 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. The facts of the
present case disclose no such express agreement. ...."
(emphasis supplied)
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31. In the facts of the present case, it is not in dispute that in writing as noted
above, the parties had expressly agreed to the appointment of the learned sole
arbitrator, although such appointment could have been labelled as prejudicial to
the appellant, and least to the respondent as the learned sole arbitrator was the
officer of the respondent.
32. In Mcleod Russel India vs. Aditya Birla Finance Ltd. (supra) the
proceeding before the Court was an application under Section 14 of the ACA,
which was challenging the appointment of the arbitrator. In such context, the
Court observed that Section 12(5) was certainly not context indifferent where a
party's continuous, repeated and unequivocal acceptance of the arbitrator's
appointment and subsequent participation in the arbitration was wiped out
simply on an application being filed for termination of the arbitrator's mandate.
It was observed that all unilateral appointments of arbitrators cannot
automatically be nullified on the application of Section 12(5) and that the
perceived disqualification was required to be assessed only on the mandate of
Section 12(5) which is within the guard-rails of the Seventh Schedule. This was
the case where the petitioners had participated in the arbitration for almost 2
years before lodging such challenge and had also not disclosed any facts which
came to the petitioners' knowledge after the appointment warranting
termination of the Arbitrator's mandate. The petitioners were also aware of the
disclosures/declarations made by the Arbitrators in May, 2019 and June, 2020.
They were also not oblivious of the position in law and nonetheless a challenge
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was raised to the appointment of arbitrator, after full participation in the
arbitration which was held to be foul of section 12(4) of the Act. It is in such
context, the Supreme Court made the following observations:-
"38. The provisions of The Arbitration and Conciliation Act,
1996, including section 12(5) read with the proviso are not fact-
neutral. The statutory leeway given to parties is for a purpose;
which is to facilitate the speed and ease of the arbitration
procedure. The Act aims to aid parties who are ready to flow with
the momentum built into the statute and not parties who change
their positions consequent to adverse orders in the arbitration.
Section 12(5) is certainly not context-indifferent where a party's
continuous, repeated and unequivocal acceptance of the
arbitrator's appointment and subsequent participation in the
arbitration is wiped out simply on an application being filed for
termination of the arbitrator's mandate.
.......
65. After discussing the import of section 12(5) read with the
proviso, this Court finds and accordingly holds that section 12(5)
is not applicable to this case since the alleged disqualification does
not breach any one or more of the conflict-protections in the
Entries of the Seventh Schedule. Even if it is assumed that the
Arbitrator became ineligible by reason of the Seventh Schedule,
the petitioners waived such disqualification by their express
writings, conduct and agreement as envisaged under the proviso to
section 12(5) of the Act."
33. In SBI Global Factors Ltd. vs. Prity Tubes Pvt. Ltd. & Ors. (supra), in the
proceedings of Sections 14 and 15 of the ACA in a dispute between the parties
under a 'Factory Facility Agreement', learned arbitrator proceeded in the arbitral
proceedings and when the final arguments in the arbitral proceedings were in
progress namely when the petitioner was to make submissions in rejoinder to
the respondent's argument, the respondent peculiarly at such stage of the
arbitral proceedings, raised an objection that the appointment of the learned
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arbitral tribunal was unilateral. The learned arbitrator, considering such
objection, passed an order recording that he was rendered de jure incapable to
act as a sole arbitrator. In such context, the Court observed that it was clear that
the respondent throughout had participated in the arbitral proceedings, which
were in progress, as also the mandate of the arbitral tribunal was extended by the
order passed by the High Court under Section 29A of the ACA (as in the
present case). It was held that such proceedings were not maintainable, for the
reason of the respondent having participated in the arbitral proceedings, as also
having acquiesced in the extension of the mandate. It is in such context, not
accepting the contentions for any substitution, the Court made the following
observations:-
"5. It is clear from the above indisputed facts that the
respondents have participated in the arbitral proceedings, as also
they conceded before this Court in extending the mandate of the
arbitral tribunal. If this be the situation, in my opinion, the
respondents have certainly waived the applicability of the
provisions of Part I of the Act, and prima facie in my opinion they
have also lost their entitlement to raise any objection on the
ground that the appointment of the learned sole arbitrator was
unilateral and not in accordance with the provisions of Part I of the
Act. Prima-facie no other inference can be drawn from the
conduct of the respondents.
6. For the above reasons, in my opinion, in the facts of the
present case, the above order has been passed by the learned sole
arbitrator not considering the legal effect and consequence as
created by the provisions of Section 4 of the Act which provide for
"Waiver of right to object"."
34. A Constitution Bench of the Supreme Court in Central Organisation for
Railway Electrification vs. M/s. ECI SPIC SMO MCML (JV) a Joint Venture
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Company (supra) in its majority judgment recognized the principle of minimum
judicial interference, supplementing the autonomy of parties by prohibiting
courts from interfering in arbitral proceedings unless mandated by the law. It
was held that such principle respects the autonomy of the parties to mutually
chart the course of the arbitral proceedings, while holding that party autonomy
is the governing feature of the constitution of the arbitral tribunal. On the
process of selecting the arbitral tribunal, it was observed that it allows the parties
to choose arbitrators with particular experience or expertise and that the parties
are free to agree either on a specified individual or individuals as arbitrators or
on a procedure for the selection of arbitrators. The Supreme Court held that
Section 12(5) overrides any prior procedure for appointing the arbitrators
agreed upon between the parties, under Section 11(2) due to the non-obstante
clause. However, it was observed that the proviso to Section 12(5) allows parties
to waive the applicability of that provision after the dispute had arisen. It was
further held that the proviso secures "real and genuine party autonomy" by
allowing parties to waive the applicability of Section 12(5). It was reiterated that
the Arbitration Act is a self-contained code and that the legal framework
contained under the Arbitration Act and the Contract Act recognizes and
enforces the contractual intention of parties to entrust an arbitral tribunal with
the authority to settle their disputes. In regard to the Seventh Schedule of the
Act, it was observed that the categories mentioned under the Seventh Schedule
are such that it is difficult to distinguish the interests of an arbitrator from those
of a party to which an arbitrator is connected and in such cases, the issue would
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be whether the outcome of the arbitration would realistically affect the
arbitrator's interest. It was held that once it is established that an arbitrator falls
under any of the categories mentioned in the Seventh Schedule, they are
automatically disqualified without any investigation whether or not there is any
likelihood of bias. However, the Court categorically held that an objection to the
bias of an adjudicator can be waived. It was held that a waiver is an intentional
relinquishment of a right by a party or an agreement not to assert a right and
that the Arbitration Act allows parties to waive the application of Section 12(5)
by an express agreement after the disputes have arisen. The Court also held that
the waiver was subject to two factors, firstly, the parties can only waive the
applicability of Section 12(5) after the dispute had arisen, which allowed the
parties to determine whether they will be required or necessitated to draw upon
the services of specific individuals as arbitrators to decide upon specific issues.
It was observed that secondly the requirement of the proviso to Section 12(5)
was to the effect that parties must consciously abandon their existing legal right
through an express agreement, which reinforces the autonomy of parties by
allowing them to override the limitations of independence and impartiality by
an express agreement in that regard. The relevant observations in this context
are required to be noted, which reads thus:
121. An objection to the bias of an adjudicator can be waived. A
waiver is an intentional relinquishment of a right by a party or an
agreement not to assert a right. The Arbitration Act allows parties to
waive the application of Section 12(5) by an express agreement after the
disputes have arisen. However, the waiver is subject to two factors. First,
the parties can only waive the applicability of Section 12(5) after the
dispute has arisen. This allows parties to determine whether they will be
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required or necessitated to draw upon the services of specific individuals
as arbitrators to decide upon specific issues. To this effect, Explanation 3
to the Seventh Schedule recognizes that certain kinds of arbitration such
as maritime or commodities arbitration may require the parties to draw
upon a small, specialized pool. The second requirement of the proviso
to Section 12(5) is that parties must consciously abandon their existing
legal right through an express agreement. Thus, the Arbitration Act
reinforces the autonomy of parties by allowing them to override the
limitations of independence and impartiality by an express agreement in
that regard.
........
169. In view of the above discussion, we conclude that:
......
f. The principle of express waiver contained under the proviso to
Section 12(5) also applies to situations where the parties seek to
waive the allegation of bias against an arbitrator appointed
unilaterally by one of the parties. After the disputes have arisen, the
parties can determine whether there is a necessity to waive the nemo
judex rule;"
35. Applying the aforesaid principles of law and more particularly the
provisions of Sections 4 and 12(5) of the ACA, in our opinion, in passing the
impugned order the Commercial Court, in the facts of the present case, was not
correct to hold that the arbitral award was required to be set aside, purely
applying the provisions of Section 12(5) of the ACA without considering the
clear facts on record, which we have discussed hereinabove of firstly a complete
waiver of the applicability of Section 12(5) between the parties in writing as
noted hereinabove, and thereafter, in the complete participation of the
respondent in the arbitral proceedings without, at any time, assailing the
jurisdiction of the arbitral tribunal thereby having waived its right to object to
the appointment of the learned sole arbitrator and/or having acquiesced in such
appointment.
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36. We also find substance in the contention as urged on behalf of the
appellant that under Section 34, no additional evidence could have been
ordinarily led. In the present case, the Commercial Court accepted the
application as moved on behalf of the respondent for producing additional
evidence. Such approach in the first place was in the teeth of the provisions of
Section 34 which are restricted in its application to challenge the validity of the
award on the ground as permissible under Section 34. Certainly such
proceedings are not original proceedings so as to permit a party to urge a
contention on materials, which were not on the record of the arbitral
proceedings. This was certainly not an acceptable approach of the Commercial
Court as Section 34 would not permit the Commercial Court to accept
additional material. Learned counsel for the appellant in this regard is correct in
placing reliance on the decision in Alpine Housing Development Corporation
Pvt. Ltd. vs. Ashok S. Dhariwal & Ors. (supra) wherein the Supreme Court held
that Section 34 applications are summary proceedings, and that, an award can
be set aside only on the grounds set out in Section 34(2)(a) and Section 34(2)
(b). It was observed that an application for setting aside the arbitral award
ordinarily does not require anything beyond the record which was before the
arbitrator. The only exception being that if there are matters not containing
such records, and the relevant determination to the issues arising under Section
34(2)(a), they may be brought to the notice of the Court by way of affidavits
filed by both the parties. The observations of the Court in such context read
thus:-
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"24. The ratio of the aforesaid three decisions on the scope and
ambit of section 34(2)(a) pre-amendment would be that
applications under sections 34 of the Act are summary
proceedings; an award can be set aside only on the grounds set out
in section 34(2)(a) and section 34(2) (b); speedy resolution of the
arbitral disputes has been the reason for enactment of 1996 Act
and continues to be a reason for adding amendments to the said
Act to strengthen the aforesaid object; therefore in the proceedings
under section 34 of the Arbitration Act, the issues are not required
to be framed, otherwise if the issues are to be framed and oral
evidence is taken in a summary proceedings, the said object will be
defeated; an application for setting aside the arbitral award will not
ordinarily require anything beyond the record that was before the
arbitrator, however, if there are matters not containing such records
and the relevant determination to the issues arising under section
34(2)(a), they may be brought to the notice of the Court by way of
affidavits filed by both the parties' the cross-examination of the
persons swearing in to the affidavits should not be allowed unless
absolutely necessary as the truth will emerge on the reading of the
affidavits filed by both the parties. Therefore, in an exceptional case
being made out and if it is brought to the court on the matters not
containing the record of the arbitrator that certain things are
relevant to the determination of the issues arising under section
34(2)(a), then the party who has assailed the award on the grounds
set out in section 34(2)(a) can be permitted to file affidavit in the
form of evidence. However, the same shall be allowed unless
absolutely necessary."
37. Further, from the impugned judgment and order rendered by the
Commercial Court, we find that the sole point for consideration as framed by
the Commercial Court was whether the learned arbitrator was competent to act
as an arbitrator. It was observed that there is no dispute that Col. Vivekanand
Choudhary (Retd.) was appointed as Managing Director from 06 August 2014
for a period of five years which expired on 05 August 2019 and that as per
clause 150(b) of the Articles of Association, Col. Vivekanand Choudhary was
eligible for reappointment. However, considering the fact that there was a
dispute in regard to the learned arbitrator being reappointed as the Managing
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Director, the Commercial Court observed that as Col. Vivekanand Choudhary
ceased to be the Managing Director during the progress of the arbitration,
hence, as per clause 17(b) of the agreement, as the Managing Director of the
respondent company by designation was appointed as an arbitrator and
considering the provisions of Section 14(1)(a), learned arbitrator was de jure
unable to perform his functions including on the applicability of Section 12(5)
of the ACA. The Commercial Court has held that such appointment of the sole
arbitrator also fell within the disqualification in category 1 and 5 of the Seventh
Schedule and as per the provisions of sub-section (5) of Section 12, he was
hence ineligible to be appointed as an arbitrator, except for the parties waiving
the applicability of the said provision by express agreement in writing. In our
opinion, to this effect the observations as made by the Commercial Court in
paragraphs 42 to 51 of the impugned order (supra) completely overlook the
mandate of law as applicable in the facts of the present case. Such observations
cannot be sustained for the reasons which we have discussed hereinabove, which
are to the effect: of the respondent with open eyes not only insisting but clearly
accepting the appointment of the learned sole arbitrator; also having
participated in the arbitration proceedings and having not taken recourse to the
provisions of Section 14 to challenge any ineligibility of the arbitrator; further
having fully acquiesced in the orders passed by the High Court for the extension
of the mandate of the learned sole arbitrator being continued under Section
29A of the ACA; and on such backdrop, only after the arbitral award being
rendered, raising an objection to the ineligibility of the arbitrator in challenging
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the award in the Section 34 proceedings. Such approach on the part of the
respondent was clearly in the teeth of the mandate of the provisions of Section
12(5) read with the proviso as applicable in the present case, as also contrary to
the provisions of Section 4 of the ACA.
38. We now refer to the decisions as relied on behalf of the respondent.
Insofar as the reliance on the decisions in Perkins Eastman Architects DPC v.
HSCC (India) Ltd. (supra) and Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd.
v. Ajay Sales & Suppliers (supra) are concerned, there cannot be two opinions
on the principles of law the decisions enunciate, however, considering the
factual matrix and our aforesaid discussion, these decisions would certainly not
apply to the facts of the case. Insofar as the decision of the learned Single Judge
of Rajasthan High Court in Union of India v. Girdhari Lal (supra) is concerned,
the same would also not assist the respondent, as in the present case, there was a
clear intention spelt out between the parties that the learned sole arbitrator, as
agreed to be appointed by the parties and who rendered the arbitral award,
would act as an arbitrator. The arbitrator accordingly pronounced the arbitral
award.
39. As we have referred to several decisions of the Supreme Court on the
position in law, we do not intend to burden the position by discussing the
decision of Orissa High Court in Dredging & Desiltation Co. Pvt. Ltd. v. Board
of Trustees of Paradip Port Trust (supra) which was delivered in 2014 and the
decision of the learned Single Judge of Punjab and Haryana High Court in
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Punjab State v. Pritam Singh (supra) which was rendered in the year 1999 at the
time when the Arbitration and Conciliation Act was yet to be amended by the
Act No. 3 of 2016 with effect from 23 October 2015. Also, the principles of law
in regard to the applicability of Section 12(5) and the Seventh Schedule which
fell for consideration of the Supreme Court in several decisions as discussed
hereinabove also arise under the provisions of the amended Act.
40. Before parting, we find from the memo of the Section 34 application as
filed on behalf of the respondent before the Commercial Court that the arbitral
award in question was assailed essentially only on the ineligibility of the learned
sole arbitrator in terms of Section 12(5) read with the Seventh Schedule of the
ACA. We also find that there is no specific challenge to the findings rendered
by the arbitral tribunal on any other grounds available under Section 34 of the
ACA. Thus, necessarily the adjudication before the Commercial Court confined
only to the issue of ineligibility of the learned sole arbitrator, being the only
ground in that regard as canvassed on behalf of the respondent. It is in such
context, the arbitral award was set aside by the impugned order passed by the
Commercial Court. As a corollary, the adjudication of the present appeal
remains confined on the issue of ineligibility of the learned sole arbitrator, as
urged before us. It is in such context, we have rendered our observations in the
foregoing paragraphs, in reaching to the conclusion in disposing of this appeal.
41. In the light of the above discussion, none of the contentions as urged by
the respondent in supporting the impugned order passed by the Commercial
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Court can be accepted. The impugned judgment and order is contrary to law.
The challenge to the judgment and order dated 16 May 2023 passed by the
Commercial Court in Civil M.A. No.8 of 2021 is quashed and set aside. The
appeal accordingly stands allowed. No costs.
(ADVAIT M. SETHNA, J.) (G. S. KULKARNI, J.)
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