The Delhi High Court clarified that a sole arbitrator appointed unilaterally, without an express written waiver of ineligibility under Section 12(5) of the Arbitration and Conciliation Act, 1996, renders the arbitral award a nullity and may be set aside under Section 34. The decision reinforces the statutory requirement of written waiver and curtails any reliance on conduct-based waivers.
Background & Facts
The Dispute
The Union of India (Petitioner) invited online bids for the supply of malted milk food with cocoa (MMF with Cocoa) for Defence procurement under RFP dated 17.04.2017. The submission deadline was 28.04.2017. M/s Goodrich Foodtech Ltd (Respondent) emerged as the successful bidder for 1,390 MT of MMF with Cocoa for the 2017-18 consumption year.
Key Facts
- Tender and Contracts: Acceptance letters were issued on 19.05.2017 for five identical contracts covering delivery periods of June 2017, November 2017, December 2017, January 2018 and March 2018, with quantities of 40 MT, 450 MT, 100 MT, 400 MT and 400 MT respectively.
- Performance Bank Guarantees: Respondent furnished five bank guarantees totalling Rs 2,49,87,020/-.
- Partial Delivery: Approximately 70 % of the total supply was scheduled for delivery by January 2018; 40 % of the supplies under three contracts (AT/13, AT/8, AT/19) were duly delivered and paid for.
- Defect Notice: Petitioner issued a Defect Notice on 19.01.2018 alleging that the product contained soya protein and palm oil, contrary to specifications.
- Show-Cause Notice: Issued on 24.03.2018 alleging violation of Warranty provisions (Clause 7.2 of the RFP).
- Termination: Petitioner terminated four contracts on 21.08.2018, forfeiting the bank guarantees and encashing them.
- Writ Petition: Respondent filed W.P. (C) No. 10986/2018 seeking quash of the termination letter; the petition was withdrawn on 12.10.2018, though the court granted liberty to pursue alternative remedies.
- Arbitration Invocation: Respondent invoked arbitration on 25.10.2018 under Clause 21 of the RFP, which mandated appointment of an arbitrator by the Competent Financial Authority (CFA).
- Arbitrator Appointment: The Petitioner unilaterally appointed a sole arbitrator (Shri Khan) on 17-01-2017, prior to the Supreme Court’s decision in TRF Ltd. v. Energo Engg. Projects Ltd. (3-07-2017) that rendered such appointment ineligible.
- Proceedings: Statement of Claims filed by Respondent on 13.05.2019; Statement of Defence & Counter-claims filed by Petitioner on 07.08.2019. The sole arbitrator framed four issues and found all against the Petitioner.
- Arbitral Award: Award dated 27.04.2022, modified on 06.05.2022, granted monetary reliefs including Rs 1,34,30,877/- (Claim 1) and Rs 5,01,66,660/- (Claim 2) among others, and ordered refund of bank guarantees with 8 % interest.
- Petition under Section 34: Union of India filed O.M.P. (COMM) 375/2022 on 06 August 2026 seeking to set aside the award.
Procedural History
- 17-01-2017: Appointment letter issued by Petitioner appointing Shri Khan as sole arbitrator.
- 03-07-2017: Supreme Court decision in TRF Ltd. v. Energo Engg. Projects Ltd. clarifying ineligibility of certain arbitrators.
- 25-10-2018: Respondent invoked arbitration under the RFP clause.
- 13-05-2019: Respondent filed Statement of Claims.
- 07-08-2019: Petitioner filed Statement of Defence and Counter-claims.
- 14-01-2021: Sole arbitrator entered reference.
- 27-04-2022: Arbitral award rendered.
- 06-05-2022: Award modified.
- 06-August-2026: Petition under Section 34 filed (O.M.P. (COMM) 375/2022).
- 06-August-2026: Judgment delivered.
Relief Sought
The Petitioner sought a declaration that the award is void for being rendered by an ineligible arbitrator appointed unilaterally, and prayed for the award to be set aside under Section 34 of the Arbitration Act.
The Legal Issue
Whether a sole arbitrator appointed unilaterally by one party, without an express written waiver of the ineligibility provisions of Section 12(5) of the Arbitration and Conciliation Act, 1996, renders the arbitral award a nullity that can be set aside under Section 34.
Arguments Presented
For the Petitioner
- The appointment of Shri Khan was unilateral and contravened Section 12(5) because no express written waiver existed after the dispute arose.
- Conduct-based waiver cannot satisfy the statutory requirement of an “express agreement in writing” (citing Bhadra International (India) P Ltd. v. Airports Authority of India and Bharat Broadband).
- The award is therefore a nullity and must be set aside under Section 34(2)(b).
For the Respondent
- Participation in the arbitration, including filing of the Statement of Claim, amounted to a waiver of the ineligibility provision.
- The appointment letter and subsequent conduct demonstrated an implied agreement, rendering the arbitrator’s appointment valid.
- The petition fails to raise the ground of ineligibility at the appropriate stage.
The Court's Analysis
The Court began by examining the language of the proviso to Section 12(5), emphasizing that the legislature deliberately prefixed “express” and “in writing”. It held that the requirement cannot be satisfied by implication or conduct, referencing Bhadra International and Bharat Broadband.
"The expression ‘express agreement in writing’ refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct."
The Court noted that the appointment letter dated 17-01-2017 preceded the Supreme Court’s clarification on 03-07-2017, meaning the parties could not have known the ineligibility at the time of appointment. Subsequent participation by the Respondent, including filing a Statement of Claim, did not create a written waiver because the statutory provision demands a clear, unequivocal written agreement after the dispute has arisen.
The Court further observed that the unilateral appointment itself is a violation of the equal-treatment principle under Section 18, and that an arbitrator who is ineligible under the Seventh Schedule lacks jurisdiction ab initio. Consequently, any award rendered by such an arbitrator is a nullity, irrespective of whether the parties later acquiesced.
The Court rejected the Respondent’s argument that conduct amounted to a waiver, stating that “the conduct of the parties is inconsequential and does not constitute a valid waiver under the proviso.” It also clarified that an objection to the arbitrator’s ineligibility may be raised at any stage, including under Section 34, even by the party that made the unilateral appointment.
The Verdict
The petition is allowed. The Court sets aside the arbitral award dated 27 April 2022 (as modified on 06 May 2022), declares it a nullity, and quashes the termination letter dated 21 August 2018, the freezing letters dated 06 September 2018 and 24 October 2018, and the debarment letter dated 20 November 2018. All pending applications, if any, are disposed of.
What This Means For Similar Cases
Unilateral Appointment Is Void Ab Initio
- Parties cannot rely on unilateral appointment clauses; the appointment must be made by the Competent Financial Authority or by mutual agreement.
- Any arbitral proceeding conducted after such an appointment is void and cannot yield an enforceable award.
Express Written Waiver Is Mandatory
- A waiver of the ineligibility provision must be a clear, signed document executed after the dispute arises.
- Conduct-based waivers, such as filing pleadings or participating in hearings, are insufficient.
Right to Object Remains Unaffected
- Even the appointing party retains the right to object to the arbitrator’s appointment at any stage, including during enforcement under Section 36.
- Courts may set aside awards on jurisdictional grounds without requiring a prior objection.
Practical Takeaways
- Draft arbitration clauses that appoint arbitrators through a neutral authority rather than unilateral party power.
- If a party wishes to waive ineligibility, obtain a written waiver signed by both parties after the dispute has arisen.
- Monitor statutory developments; the Seventh Schedule’s categories are strictly applied.
