TaxTMI 
TaxTMI 
2023 (12) TMI 1447
X X X X Extracts X X X X
X X X X Extracts X X X X
....vision of High Courts Act, 2015, challenging the Arbitral Award dated 16.11.2021 passed by the learned Arbitrator in Arbitration Case No.116/2020 titled 'Ambience Commercial Developers Pvt. Ltd. v. M/s SMAAASH Leisure Limited'. O.M.P. (COMM) 181/2022 has been filed assailing the impugned Arbitral Award dated 23.12.2021 passed by the learned Arbitrator in Arbitration Case No.115/2020 titled 'Ambience Developers & Infrastructure Pvt. Ltd. v. M/s SMAAASH Leisure Limited'. On account of similitude of facts, same parties and similar questions of law in both these petitions, they were heard together and are being decided by this common judgment. O.M.P. (COMM) 180/2022 2. Factual matrix to the extent relevant and emerging from the petition is that Petitioner is a company incorporated under the Companies Act, 1956, inter alia, involved in the business of gaming and entertainment centres, setting up virtual reality-led entertainment gaming centres, motor and bike racing simulators, twilight bowling zones and the go-karting tracks. Respondent is a Real Estate Group engaged in the business of Integrated Townships, Residential and Commercial Complexes, Retail, IT & SEZ, Hospitality, Faci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quipments within 7 days of receipt of the letter. On account of the Pandemic and rising cases in India in the month of March, 2020, followed by a nationwide lockdown, Petitioner was unable to remove the goods. In the midst of Pandemic COVID-19, Respondent vide its e-mail dated 25.09.2020 invoked the dispute resolution Clause 25, contained in the lease deed and proposed the names of three former Judges of this Court, requesting the Petitioner to nominate one of them as the sole Arbitrator. Vide e-mail dated 06.10.2020, Petitioner communicated its unequivocal non-acceptance of the three names. 7. Despite the opposition, Respondent appointed a sole Arbitrator and sent a communication to the Arbitrator on 07.10.2020 in this regard, also requesting the Arbitrator to give a declaration under Section 12 of the 1996 Act. Aggrieved by the unilateral appointment, Petitioner wrote to the Arbitrator on 08.10.2020 apprising that the arbitration clause under both the lease deeds does not contain any provision to deal with a situation where the lessee does not accept the proposal of the appointment of the sole Arbitrator made by the lessor. Petitioner requested the Arbitrator to take on record....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t/occupational charges, CAM, electricity, water, LPG and late payment charges. The amount was to be paid within two months from the date of communication of the award failing which Petitioner was liable to pay simple interest @ 9% per annum on the aforesaid amount from the date of award till realization. A sum of Rs.20,00,000/- was awarded towards cost of proceedings and counsel's fee. O.M.P. (COMM) 181/2022 11. Additional/different facts in the present petition are that lease deed dated 04.08.2017 was executed between the Petitioner and the Respondent in respect of premises having a super area admeasuring 42,500 sq. ft. on Fourth Floor, Ambience Mall Complex, Gurgaon ('Leased Premises') for operating and managing an entertainment centre comprising bowling alleys and other activities. The lease period was 12 years 1 month and 22 days. Rent was payable in accordance with Clause 2 of the lease deed and Clause 4 contemplated a security deposit by the Petitioner. On 01.03.2018, parties executed an Addendum to the lease deed whereby they agreed that the CAM charges payable between 28.10.2017 to 27.10.2018 shall stand deferred to 28.10.2018 to 27.10.2019. 12. On account of the f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sum of Rs.10,00,000/- was awarded towards cost of arbitral proceedings and counsel's fees. 15. The first and foremost contention raised by learned counsel for the Petitioner, common to both the petitions, is that the impugned Awards are void-ab-initio on the ground of ineligibility of the learned Arbitrator since the appointment was a unilateral appointment. From the very inception, Petitioner was opposed to the appointment of the learned Arbitrator. Respondents had invoked arbitration clause 25 in the midst of Pandemic COVID-19 and vide email dated 06.10.2020, Petitioner had communicated its unequivocal non-acceptance of the three names proposed by the Respondents, despite which the Respondents proceeded to appoint the learned Arbitrator on 07.10.2020. Petitioner wrote to the learned Arbitrator also apprising of the mala fide conduct of the Respondents in making unilateral appointment and that the Petitioner would be taking recourse to Section 11(5) of the 1996 Act for appointment of the Arbitrator. The contention is that unilateral appointment of an Arbitral Tribunal cannot be sustained in view of the settled position of law in this regard. Reliance was placed on the judgment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iance was also placed, to further this proposition, on the judgment of this Court in Larsen and Toubro Limited v. HLL Lifecare Limited, 2021 SCC OnLine Del 4465, amongst other judgments. 18. Per contra, counsel for the Respondents strenuously urged that it is not open to the Petitioner to raise a plea that there was no waiver to the applicability of Section 12(5) and/or the appointment was in contravention of the judgment of the Supreme Court in Perkins (supra), allegedly being a unilateral appointment. The objection qua appointment of the sole Arbitrator was raised by the Petitioner at the initial stage, but was consciously withdrawn during the hearing on 09.11.2020, wherein counsel for the Petitioner had specifically stated that the objection be dismissed as not pressed. The statement was duly recorded in the order sheet dated 09.11.2020 and the objection was dismissed as withdrawn. It is on account of this concession that the sole Arbitrator proceeded with the matter directing the Respondent to file the Statement of Claim and thereafter the Statement of Defence. Even after 09.11.2020, Petitioner participated in the proceedings, albeit selectively, but no objection was raised ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....chosen and appointed to resolve the disputes and which is why Arbitrators are commonly referred to as creatures of a contract. The ethos and first principle on which the arbitration mechanism functions is party autonomy i.e. freedom to choose an Arbitrator acceptable to both parties to the agreement, embedded in the principle of natural justice that 'no man can be a judge of his own cause' i.e. 'Nemo judex in causa sua'. 23. In its landmark judgment in Perkins (supra), the Supreme Court crystallized the position in law that unilateral appointment of the Arbitrator will be vitiated under Section 12(5) of the 1996 Act as it hits the principle of autonomy. Relevant paragraph is as follows:- "20. We thus have two categories of cases. The first, similar to the one dealt with in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second category, the Managing Director is not to act as an arbitrator himself but is empowered or authorised to appoint any other person of his choice or discretion as an a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vt. Ltd. and Another, 2023 SCC OnLine Del 37 and Kotak Mahindra Bank Ltd. v. Narendra Kumar Prajapat, 2023 SCC OnLine Del 3148. 25. Coming to the facts of the present case, it would be first necessary to have a close look at the arbitration clause incorporated in the lease deeds executed between the parties. Clause 25 is extracted hereunder, for ready reference:- "Clause25 - 25.1. The parties have agreed to amicably settle and/or resolve all disputes and differences arising out of these presents or otherwise concerning the Lease/Occupation/Use of the Space amongst themselves; but in the event any dispute of whatsoever nature is incapable of being resolved amongst the parties hereto amicably then and in event the parties have agreed to refer and disputes and differences including the construction scope or effect of any of the terms and conditions herein contained or otherwise concerning the Lease/Occupation/Use of the space and/or the determination of any right and/or liability and/or in any way touching or concerning these presents or otherwise concerning the Lease/Occupation/Use of the Space to the sole Arbitration of an independent arbitrator to be appointed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... arise, would be of technical nature. There can be disputes involving purely or substantially legal issues, that too, complicated in nature. Likewise, some disputes may have the dimension of accountancy, etc. Therefore, it would also be appropriate to include persons from this field as well. 30. Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the Law Commission also in its report, duty becomes more onerous in government contracts, where one of the parties to the dispute is the Government or public sector undertaking itself and the authority to appoint the arbitrator rests with it. In the instant case also, though choice is given by DMRC to the opposite party but it is limited to choose an arbitrator from the panel prepared by DMRC. It, therefore, becomes imperative to have a much broad based panel, so that there is no misapprehension that principle of impartiality and independence would be discarded at any stage of the proceedings, specially at the stage of constitution of the Arbitral Tribunal. We, therefore, dire....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he procedure stipulated in Clause 25 of the lease deeds, for appointment of a sole Arbitrator, where Petitioner is called upon to choose from the restricted panel of 3 names prepared by the Respondents, is not in consonance with the law laid down by the Supreme Court. Hence, the first question is answered in favour of the Petitioner and against the Respondents. 30. Coming to the second question, it is pertinent to mention that the Respondents, exercising their right under Clause 25 invoked the arbitration clause on 25.09.2020 and proposed the names of three former Judges of this Court to the Petitioner, vide letter dated 25.09.2020. Petitioner did not accept the proposal and by a communication dated 06.10.2020 unequivocally and unambiguously conveyed its non-acceptance of the three names proposed. Having been aware or at least ought to have been aware of the law that Respondents were precluded from making a unilateral appointment from a restricted panel and that too in the light of objection by the Petitioner, Respondents in complete contravention of the legal position, proceeded to nominate the sole Arbitrator. Petitioner immediately sent a communication to the Arbitrator on 08....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h 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. xxx xxx xxx 17. The scheme of Sections 12, 13 and 14, therefore, is that where an arbitrator ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess 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 Contract Act, 1872 becomes important. It states: "9. Promises, express and implied.-Insofar as the proposal or acceptance of any promise is made in words, the promise is said to be express. Insofar 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "28. The import of these decisions is as unequivocal as it is inexorable. 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". Sans such "express agreement in writing", Section 12(5), by operation of law, invalidates the appointment, of any person whose relationship, with the parties to the disputes, falls under any of the categories specified in the Seventh Schedule of the 1996 Act. The invalidity, which attaches to such a person would also, ipso facto, attach to her, or his, nominee. 29. Mr. N.P. Gupta, who was authorized by the arbitration clause in the present case, to appoint the arbitrator being the Chairman of the respondent, was, therefore, invalidated from either acting as the arbitrator or nominating or appointing any arbitrator. 30. Conscious of the statutory interdict, Mr. Prashant Mehta, learned counsel appearing for the respondent, sought to pitch his case on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tly that, and no less; in other words, the parties must expressly agree in writing to a waiver of Section 12(5) of the 1996 Act. 38. The said agreement in writing must reflect awareness, on the parties, to the applicability of the said provision as well as the resultant invalidation, of the learned arbitrator, to arbitrate on the disputes between them, as well as a conscious intention to waive the applicability of the said provision, in the case of the disputes between them. 39. It is obvious that 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. 40. In view of the aforesaid discussion, it is apparent that, by the operation of Section 12(5) of the 1996 Act, in the light of the decisions of the Supreme Court in TRF Ltd., Perkins Eastman Architects DPC and Bharat Broadband Network Ltd., the learned sole arbitrator, appointed by Mr. N.P. Gupta, before whom the arbitral proceedings have been con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....without merit. The question whether a party can, by its conduct, waive its right under Section 12(5) of the A&C Act is no longer res integra. The Supreme Court in the case of Bharat Broadband Network Limited v. United Telecoms Limited : (2019) 5 SCC 755 had explained that any waiver under Section 12(5) of the A&C Act would be valid only if it is by an express agreement in writing. There is no scope for imputing any implied waiver of the rights under Section 12(5) of the A&C Act by conduct or otherwise. The relevant extract of the said decision reads as under:- "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 c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e arbitral award rendered by the arbitral tribunal would be without jurisdiction." 35. In view of these judgments, the argument of the Respondents that Petitioner has waived its right by conduct, owning to participation in the arbitral proceedings, under proviso to Section 12(5) cannot be countenanced in law. Coming to the next limb of the argument of waiver, heavy reliance was placed by the Respondents on the statement made by the counsel for the Petitioner before the Arbitrator that Petitioner was giving up the objection to the appointment. This very issue came up for consideration before a Bench of this Court in Larsen and Toubro Limited (supra), wherein Petitioner had filed an application under Section 14 of the 1996 Act seeking termination of the mandate of the Arbitrator on the ground that Respondent had unilaterally appointed the sole Arbitrator and the grievance was predicated on Section 12(5) and the judgments of the Supreme Court in Perkins (supra), Bharat Broadband Network Limited (supra) and Haryana Space Application Centre v. Pan India Consultants Pvt. Ltd., AIR 2021 SC 653. Petition was resisted by the Respondent inter alia on the consent given by the Petitioner be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion Technologies Limited (supra) and relevant paragraphs are as follows:- "29. In terms of the proviso to Sub-section 12(5) of the A&C Act, the parties may waive the applicability of Section 12(5) of the Act. However, the said waiver has to be (i) subsequent to the disputes having arisen; and (ii) made by way of "an express agreement in writing". 30. Concededly, in this case, there is no written agreement between the parties, whereby the petitioner has agreed to waive the applicability of Section 12(5) of the A&C Act. 31. This Court is also unable to accept that the proceedings recorded by the Arbitrator would constitute such an express agreement in the facts of this case. The petitioner had pointed out that on that date, its representatives were not assisted by any counsel. It is also averred by the petitioner that the proceedings of the day, which are not signed by the parties, incorrectly record that the petitioner had no objection for the appointment of the learned Arbitrator. The petitioner had immediately on receipt of the notice of appointment of the learned Arbitrator, had objected to such appointment." 37. Therefore, the import of all the afo....