2021 (9) TMI 1574 - HC - Indian Laws

Retired Chief Engineer's unilateral appointment as sole arbitrator invalid under Section 12(5) Arbitration Act 1996

Delhi HC held that unilateral appointment of retired Chief Engineer as sole arbitrator was invalid under Section 12(5) of the Arbitration Act 1996. The ... Unilateral appointment of retired Chief Engineer of the Public Works Department, Government ofMaharashtra, as the sole arbitrator to arbitrate on the disputes - HELD THAT:- Neither of the considerations can operate as an express waiver in writing, of the applicability of Section 12(5) of the 1996 Act. In fact, similar contentions, including the contention regarding the request for extension of time operate as a waiver to Section 12(5) were advanced before this Court - Clearly, therefore, the learned arbitrator is de jure rendered incapable of continuing with the arbitral proceedings. This order does not seek, in any manner, to comment on the competence or independence of the learned arbitrator. If the learned arbitrator has been rendered incapable of proceeding with the dispute, that is by operation of Statute and not for any other reason. This Court, has, no reason to dispute the competence or impartiality of the learned arbitrator. The contention, unfortunately, is not available to the petitioner, in view of the statutory right conferred by Section 12(5) of the 1996 Act. That right cannot be divested by the Court, merely on the grounds that the petitioner has approached this Court. Petition allowed. The core legal questions considered in this judgment revolve around the validity of the appointment of the sole arbitrator under the arbitration clause in the contract, specifically:1. Whether the appointment of the sole arbitrator, who is alleged to fall within the categories specified in the Seventh Schedule of the Arbitration and Conciliation Act, 1996 ('the 1996 Act'), is valid under Section 12(5) of the 1996 Act.2. Whether the proviso to Section 12(5) of the 1996 Act, which allows for waiver of ineligibility by an express agreement in writing subsequent to the dispute arising, applies in the present case.3. Whether the conduct of the parties, including requests for extension of time and continuance of arbitral proceedings before the sole arbitrator, can amount to an express waiver of the ineligibility under Section 12(5).4. The consequences of the arbitrator being de jure unable to act under Section 12(5), including termination of the arbitrator's mandate under Section 14(1)(a) of the 1996 Act.5. The procedural propriety of the petitioner approaching the Court to challenge the arbitrator's appointment and whether any delay or laches would bar such challenge.Issue-wise Detailed Analysis:Issue 1: Validity of the Arbitrator's Appointment under Section 12(5) of the 1996 ActThe legal framework is Section 12(5) of the 1996 Act, which states that any person whose relationship with the parties or counsel or subject-matter of the dispute falls under categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. This provision contains a non obstante clause overriding any prior agreement to the contrary.The Court referred extensively to Supreme Court precedents, including Perkins Eastman Architects DPC v. HSCC, Bharat Broadband Network Ltd v. United Telecoms Ltd, and Haryana Space Application Centre v. Pan India Consultants Pvt Ltd. These decisions clarify that the ineligibility under Section 12(5) is a de jure incapacity, meaning the arbitrator is legally barred from acting irrespective of any prior contractual provision.The Court noted that the arbitrator appointed by the respondent was a retired Chief Engineer of a government department, which likely placed him within the categories of the Seventh Schedule, rendering him ineligible under Section 12(5).Accordingly, the Court held that the arbitrator was de jure incapable of continuing to act.Issue 2: Applicability of the Proviso to Section 12(5) - Waiver by Express Agreement in WritingThe proviso to Section 12(5) allows parties, subsequent to the arising of disputes, to waive the ineligibility by an 'express agreement in writing.' The Court emphasized that this waiver must be explicit, written, and made with full knowledge of the arbitrator's ineligibility.The Court relied heavily on the decision in JMC Projects (India) Ltd. v. Indure Pvt. Ltd., which analyzed the nature of 'express agreement in writing' and distinguished it from waiver by conduct or implied waiver. The Court underscored that mere conduct, such as continuing with arbitration or filing pleadings, does not amount to an express waiver.Further, the Court rejected the respondent's contention that communications seeking extension of time or procedural orders confirming no objection to the arbitrator amounted to waiver. It held that these acts do not satisfy the statutory requirement of an express written agreement waiving Section 12(5).The Court also reiterated that the agreement must be made after disputes have arisen and with full knowledge of the arbitrator's ineligibility, which was not the case here.Issue 3: Whether Conduct of Parties Constitutes WaiverThe respondent argued that the petitioner's conduct, including requests for extension of time and other procedural communications, amounted to waiver of the right to object to the arbitrator's appointment.The Court examined the jurisprudence on waiver, citing authoritative Supreme Court rulings such as Inderpreet Singh Kahlon v. State of Punjab and State of Punjab v. Davinder Pal Singh Bhullar, which define waiver as an intentional relinquishment of a known right, requiring full knowledge and deliberate intent.The Court held that procedural conduct or requests for extension do not amount to an express waiver in writing. Waiver cannot be inferred from conduct inconsistent with the right unless there is clear, intentional relinquishment with full knowledge, which was absent.Issue 4: Consequences of Arbitrator's Ineligibility and Termination of MandateSection 14(1)(a) of the 1996 Act provides for termination of an arbitrator's mandate if the arbitrator becomes de jure unable to perform functions.The Court held that since the arbitrator was ineligible under Section 12(5), his mandate automatically terminated by operation of law. The Court distinguished this from challenge procedures under Sections 12(1) to 12(4), emphasizing that Section 12(5) cases do not involve challenge before the arbitrator but require court intervention for termination.The Court therefore terminated the mandate of the learned sole arbitrator and appointed a retired Supreme Court Judge as the new arbitrator to continue the proceedings.Issue 5: Procedural Challenge and LachesThe respondent contended that the petition was barred by laches given the advanced stage of arbitration.The Court rejected this contention, holding that the statutory right under Section 12(5) cannot be divested by delay or laches. The Court did not examine the issue of delay but made clear that the right to object to an ineligible arbitrator remains intact notwithstanding the stage of proceedings.Significant Holdings:'An 'express agreement in writing', waiving the applicability of Section 12(5), is the statutory sine qua non, for a person, who is otherwise subject to the rigour of Section 12(5), to remain unaffected thereby. Nothing less would suffice; no conduct, howsoever extensive or suggestive, can substitute for the 'express agreement in writing'.''The learned sole arbitrator, appointed by Mr. N.P. Gupta, before whom the arbitral proceedings have been continuing thus far, has been rendered de jure incapable of continuing to function as arbitrator, within the meaning of Section 14(1)(a) of the 1996 Act.''The filing of applications for extension of time for continuance and completion of the arbitral proceedings, or applications to the arbitrator, for extension of time to file the affidavit of evidence, etc., cannot constitute an 'agreement in writing' within the meaning of the proviso to Section 12(5) of the 1996 Act.''Waiver is an intentional relinquishment of a right. It involves conscious abandonment of an existing legal right... There can be no waiver unless the person who is said to have waived, is fully informed as to his rights and with full knowledge about the same, he intentionally abandons them.''The statutory right conferred by Section 12(5) of the 1996 Act cannot be divested by the Court, merely on the grounds that the petitioner has approached this Court.'The Court's final determinations were:- The appointment of the sole arbitrator was invalid under Section 12(5) of the 1996 Act, as he was de jure ineligible.- No express waiver in writing, as required by the proviso to Section 12(5), was made by the parties.- Conduct such as requests for extension or procedural orders do not amount to waiver of ineligibility.- The arbitrator's mandate stands terminated by operation of law under Section 14(1)(a).- The Court appointed a new arbitrator to continue the proceedings.