[Cites 8, Cited by 0]
Delhi High Court
Innovative B2B Logistics Solutions ... vs Central Warehousing Corporation on 24 March, 2026
$~97
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 24.03.2026
+ O.M.P. (COMM) 243/2018 & I.A. 6662/2023
INNOVATIVE B2B LOGISTICS SOLUTIONS PRIVATE
LIMITED .....Petitioner
Through: Mr. Sacchin Puri, Sr. Adv. with
Mr. Piyush Sharma, Mr. Rahul
Khosla, Mr. Pankaj Prakash,
Mr. Sarang Rastogi, Ms.
Shweta Singh & Mr. Ramapati
Mishra, Advs.
versus
CENTRAL WAREHOUSING CORPORATION
.....Respondent
Through: Mr. K.K. Tyagi, Mr. Iftekhar
Ahmad & Ms. Garima Tyagi,
Advs.
CORAM:
HON'BLE MR. JUSTICE AVNEESH JHINGAN
AVNEESH JHINGAN, J. (ORAL)
1. This petition under Section 34 of the Arbitration and
Conciliation Act, 1996 (for short „the Act‟) is filed being aggrieved of
the arbitral award dated 16.01.2018.
2. The brief facts are that the parties to the lis entered into a
Memorandum of Understanding dated 05.02.2007 (for brevity „the
MOU‟). The parties agreed to identify areas of mutual co-operation by
synergizing their resources for providing efficient logistic solutions
through the management of rakes owned by the petitioner.
2.1 Pursuant to execution of the MOU, an agreement dated
16.07.2007 (hereinafter „the agreement‟) was executed for the hiring
of wagons for container train service. Article 6.1 of the agreement
provided for dispute resolution through arbitration. The relevant part
is reproduced below:
"6.1 Dispute resolution- All dispute or differences
whatsoever arising between the parties hereto out of or
relating to the construction, meaning and operation or
effect of this agreement or the breach thereof which
cannot be settled by mutual discussion shall be referred to
and settled by arbitration under the legislation on
arbitration prevailing in India and shall be conducted in
accordance with the provision of Arbitration and
Conciliation Act 1996 or such other prevailing Act, and
the award made in pursuance thereof shall be binding on
the parties. The venue for arbitration shall be at Delhi and
any litigation arising therefrom shall be subject to the
exclusive jurisdiction of courts in Delhi."
2.2 The petitioner issued a notice dated 25.07.2016 to initiate
arbitration proceedings. It was stated in the notice that the respondent
was called upon to appoint an arbitrator of its choice within fifteen
days, failing which the petitioner would proceed in accordance with
law. The Managing Director (for short „the MD‟) of the respondent
vide order dated 05.08.2016 appointed a sole arbitrator unilaterally.
The proceedings culminated in the impugned award and the
concluding part of the award is reproduced below:
"27. CONCLUSIONS:
In view of the foregoing, I hereby make the following
AWARD In these proceedings:
Issues/claims by Claimant
1. The Respondent and the Claimant were directed to
reconcile the figure/amount of the claims. As parties could
not submit reconciled figures, the Claimant has
pleaded/argued its case based on its own figures of
claim/supporting documents.
The prayer of the Claimant vide application dated 18th
December, 2017-for non-reliance on Respondent's accounts/
striking off of defence is devoid of merits, and hence not
admitted.
2(a) claim for refund of Rs 312.30 lakh on account of
stabling, siding, shunting charges etc is not admitted.
Respondent is entitled to recover 60% of all the charges as
paid to Railways on account of stabling, siding and shunting
charges on rakes of wagons provided by the Claimant under
the agreement.
2(b) claim for refund of Rs 213.48 Lakh on account of VAT
is not admitted.
2(c) claim of Rs 41.22 lakh forming part of the 60% of
gross margin is admitted. The Respondent is not entitled to
deduct 0.72% from the share of Claimant which is 60% of
gross margin.
2(d) claim on account of non-recovery of outstanding from
customers is admitted. The Respondent is not entitled to
recover Rs 36,57,099, or any other amount, on account of
non-recovery of dues from its customers.
2(e) claim for release of Rs 26,38,03,492 towards wagon
hire/rentals for the period from February 2009 till 3
October, 2015 withheld/set off by the Respondent against
SAMO agreement is not admitted.
2. Payment of interest on claims not admitted.
Issue by Respondent
3. Claim pertaining to amount withheld/set off towards
wagon hire charges/rentals is not barred by principle of res-
judicata.
The arbitration fee and expenses incurred by arbitrator shall
be shared equally by both the parties. Each party shall bear
its own cost and expenses incurred on the case."
2.3 Both the parties being aggrieved of the award have filed
petitions under Section 34 of the Act.
3. For the sake of convenience, the present petition i.e., O.M.P.
(COMM) 243/2018 is decided as the lead case.
4. Learned counsel for the petitioner submits that the unilateral
appointment of the arbitrator is in violation of Section 12(5) of the Act
and is void ab initio. Reliance is placed upon the decision of the
Supreme Court in Bhadra International (India) Pvt. Ltd. & Ors. v.
Airports Authority of India, 2026 INSC 6 and the Division Bench of
this Court in Mahavir Prasad Gupta and Sons v. Govt. of NCT of
Delhi, 2025 SCC OnLine Del 4241.
5. Per contra article 6.1 of the agreement does not provide for
unilateral appointment of the arbitrator and the decisions relied upon
by learned counsel for the petitioner are not applicable to the facts and
circumstances of the present case. The contention is that the arbitrator
was appointed by the MD of the respondent at the instance of the
petitioner and appointment is not unilateral.
6. Before proceeding further, it would be relevant to quote the
following decisions:
6.1 The Supreme Court in Bhadra International (India) Pvt. Ltd.
(supra) dealt with the following three issues:
"29......i. Whether the sole arbitrator could be said to have
become "ineligible to be appointed as an
arbitrator" by virtue of sub-section (5) of Section
12 of the Act, 1996?
ii. Whether the parties could be said to have waived
the applicability of sub-section (5) of Section 12
of the Act, 1996, by way of their conduct, either
expressed or implied?
iii. Whether the appellants could have raised an
objection to the appointment of the sole
arbitrator for the first time in an application
under Section 34 of the Act, 1996?"
Held:
"123... i. The principle of equal treatment of parties
provided in Section 18 of the Act, 1996, applies
not only to the arbitral proceedings but also to
the procedure for appointment of arbitrators.
Equal treatment of the parties entails that the
parties must have an equal say in the
constitution of the arbitral tribunal.
ii. Sub-section (5) of Section 12 provides that any
person whose relationship with the parties or
counsel, or the dispute, whether direct or
indirect, falls within any of the categories
specified in the Seventh Schedule would be
ineligible to be appointed as an arbitrator.
Since, the ineligibility stems from the operation
of law, not only is a person having an interest
in the dispute or its outcome ineligible to act as
an arbitrator, but appointment by such a person
would be ex facie invalid.
iii. The words "an express agreement in writing" in
the proviso to Section 12(5) means that the
right to object to the appointment of an
ineligible arbitrator cannot be taken away by
mere implication. The agreement referred to in
the proviso must be a clear, unequivocal written
agreement.
iv. When an arbitrator is found to be ineligible by
virtue of Section 12(5) read with the Seventh
Schedule, his mandate is automatically
terminated. In such circumstance, an aggrieved
party may approach the court under Section 14
read with Section 15 for appointment of a
substitute arbitrator. Whereas, when an award
has been passed by such an arbitrator, an
aggrieved party may approach the court under
Section 34 for setting aside the award.
v. In arbitration, the parties vest jurisdiction in the
tribunal by exercising their consent in
furtherance of a valid arbitration agreement. An
arbitrator who lacks jurisdiction cannot make
an award on the merits. Hence, an objection to
the inherent lack of jurisdiction can be taken at
any stage of the proceedings."
6.2 The Division Bench of this court in Mahavir Prasad Gupta
and Sons (supra) dealt with the following issues:
"74......a) When a party itself has unilaterally appointed
the arbitrator, whether that party can object to
the unilateral appointment of the arbitrator at
any stage during or after the arbitration
proceedings?
b) If a party has unilaterally appointed an arbitrator,
can that party be deemed to have given express
waiver in writing under Section 12(5) of the Act
while making the appointment itself?"
The court concluded:
"84.....a) Mandatory Requirement: Any arbitration
agreement providing unilateral appointment of the
sole or presiding arbitrator is invalid. A unilateral
appointment by any party in the arbitrations seated
in India is strictly prohibited and considered as null
and void since its very inception. Resultantly, any
proceedings conducted before such unilaterally
appointed Arbitral Tribunal are also nullity and
cannot result into an enforceable award being
against Public Policy of India and can be set aside
under Section 34 of the Act and/or refused to be
enforced under Section 36 of the Act.
b) Deemed Waiver: The proviso to Section 12(5) of
the Act requires an express agreement in writing.
The conduct of the parties, no matter how
acquiescent or conducive, is inconsequential and
cannot constitute a valid waiver under the proviso to
Section 12(5) of the Act. The ineligibility of a
unilaterally appointed arbitrator can be waived only
by an express agreement in writing between the
parties after the dispute has arisen between them.
Section 12(5) of the Act is an exception to Section 4
of the Act as there is no deemed waiver under
Section 4 of the Act for unilateral appointment by
conduct of participation in the proceedings. The
proviso to Section 12(5) of the Act requires an
„express agreement in writing‟ and deemed waiver
under Section 4 of the Act will not be applicable to
the proviso to Section 12(5) of the Act.
c) Award by an Ineligible Arbitrator is a
Nullity: An award passed by a unilaterally
appointed arbitrator is a nullity as the ineligibility
goes to the root of the jurisdiction. Hence, the award
can be set aside under Section 34(2)(b) of the Act by
the Court on its own if it „finds that‟ an award is
passed by unilaterally appointed arbitrator without
even raising such objection by either party.
d) Stage of Challenge: An objection to the lack of
inherent jurisdiction of an arbitrator can be taken at
any stage during or after the arbitration proceedings
including by a party who has appointed the sole or
presiding arbitrator unilaterally as the act of
appointment is not an express waiver of the
ineligibility under proviso to Section 12(5) of the
Act. Such objection can be taken even at stage of
challenge to the award under Section 34 of the Act
or during the enforcement proceedings under
Section 36 of the Act."
7. Under article 6.1 of the agreement, the parties agreed to dispute
resolution through arbitration. The arbitration was to be conducted as
per the provisions of the Act or any other prevailing Act at the
relevant time. There was dispute between the parties and a notice was
issued by the petitioner invoking arbitration. The legal position is that
under Section 12(5) read with Seventh Schedule of the Act an
employee of the party in dispute is ineligible to be appointed as an
arbitrator and cannot nominate or appoint any other person as an
arbitrator. The unilateral appointment in absence of express agreement
in writing between the parties to waive applicability of Section 12(5)
of the Act is void ab initio. The filing of the claim statement or
participation in the arbitration proceedings cannot be construed to be
waiver under the proviso to Section 12(5) of the Act. The unilateral
appointment of the arbitrator can be objected to for the first time under
Section 34 of the Act.
8. The Supreme Court in Bhadra International (India) Pvt. Ltd
(supra) held that waiver involves a conscious decision to abandon the
existing legal right and can be made only by a person fully aware of
such right. A legal right cannot be taken away by implications. The
waiver has to be an unequivocal expression and it cannot be lost sight
of that by such waiver the restriction imposed by Section 12(5) of the
Act is sought to be overcome.
9. There being no prescribed format for express agreement in
writing shall not mean that the waiver can be inferred by implication
or through conduct. It would be relevant to quote following paragraph
from Bhadra International (India) Pvt. Ltd. (supra).
"84. Undoubtedly, the statute does not prescribe a format
for the agreement. However, the absence of a prescribed
format cannot be construed to mean that the waiver may
be inferred impliedly or through conduct. We say so
because the legislature has consciously prefaced the term
"agreement" with the word "express" and followed it
with the phrase "in writing". This semantics denote the
intention of the legislature that the waiver under the
proviso to Section 12(5) must be made only through an
express and written manifestation of intention."
10. The contention of learned counsel for the respondent that article
6.1 of the agreement does not provide for unilateral appointment and
the appointment cannot be faulted with lacks merit. The challenge is
not to the article being violative of Section 12(5) of the Act but to the
unilateral appointment made by the respondent contrary to the
provisions of the Act and law laid down by the Supreme Court in
Bhadra International (India) Pvt. Ltd. (supra).
11. In view of the decision of the Supreme Court in Bhadra
International (India) Pvt. Ltd. (supra), the waiver under proviso to
Section 12(5) of the Act has to be express and in writing. From a
reading of the notice dated 25.07.2016 as a whole, there is no express
waiver in writing by the petitioner of the applicability of Section 12(5)
of the Act. In absence of an express agreement in writing between the
parties, the MD of the respondent cannot make a unilateral
appointment of the sole arbitrator.
12. The matter needs to be considered from another angle. The
statutory requirement under the proviso to Section 12(5) of the Act is
that subsequent to the arising of the dispute the parties by an express
agreement in writing can waive the applicability of Section 12(5) of
the Act. The waiver has to be by both the parties. However, the
mention by the petitioner in the notice that the respondent may
appoint an arbitrator of its choice read along with the conduct of the
respondent in appointing an arbitrator is not sufficient to wriggle out
of the rigours of Section 12(5) of the Act. There was no waiver by the
respondent.
13. The unilateral appointment made by the MD of the respondent
without compliance with the proviso to Section 12(5) of the Act is in
violation of Section 12(5) read with Seventh Schedule of the Act. The
appointment is void ab initio consequently rendering the impugned
award a nullity.
14. The impugned award is set aside. The petition is allowed.
Pending application stands disposed of.
AVNEESH JHINGAN, J
MARCH 24, 2026
'ha'
Reportable:- Yes
