The Delhi High Court clarified that under the proviso to Section 12(5) of the Arbitration and Conciliation Act, 1996, a party cannot waive the right to object to an arbitrator’s appointment through conduct or participation alone; an express written agreement post-dispute is mandatory. The Court dismissed an appeal challenging the setting aside of an arbitral award on the ground of unilateral appointment, emphasizing that statutory waiver cannot be implied.
Background & Facts
The Dispute
The dispute arose from a construction contract awarded by the Airports Authority of India (AAI) to M/s Ahluwalia Contracts (India) Ltd. (ACIL) on 21.01.2009, with the contract executed on 02.02.2009 and work scheduled to commence on 31.01.2009. Subsequent disagreements over compensation led to AAI issuing a Show Cause Notice on 18.09.2015 proposing levy of compensation, to which ACIL replied on 06.10.2015. AAI then levied compensation of Rs. 1,45,50,192/- retrospectively via communication dated 29.12.2015.
Key Facts
- Contract awarded: 21.01.2009
- Contract executed: 02.02.2009
- Stipulated commencement: 31.01.2009
- Show Cause Notice by AAI: 18.09.2015
- ACIL’s reply: 06.10.2015
- Compensation levied by AAI: 29.12.2015 (Rs. 1,45,50,192/-)
- ACIL requested constitution of Dispute Resolution Board (DRB): 07.05.2016
- DRB recommendations: 05.10.2017
- AAI’s decision rejecting DRB review and confirming compensation: 01.03.2019
- ACIL invoked arbitration under Clause 57(b) and sought appointment of independent arbitrator: 16.04.2019
- AAI intimated proposed Sole Arbitrator (Shri S.C. Gupta) via email: 10.05.2019
- Sole Arbitrator’s consent and declaration under Section 12(1)(b): 12.05.2019
- Formal appointment letter from AAI: 13.05.2019
- Sole Arbitrator’s acceptance of appointment: 26.05.2019
- Arbitral proceedings conducted: 2019 to 2023
- Award rendered by Sole Arbitrator: 10.08.2023 (Claim No.1 allowed, Claim No.4 partly allowed in favour of ACIL, interest under Claim No.5; Claim Nos.2,3,6 and AAI’s counter-claims rejected)
- AAI filed Section 34 Petition challenging Award: November 2023
- Section 34 Petition heard: 13.07.2026
- Learned Single Judge set aside Award on appointment ground: 20.07.2026
- Present appeal filed: FAO (OS) (COMM) 246/2026
Procedural History
- 21.01.2009: AAI awards work to ACIL
- 02.02.2009: Contract Agreement executed
- 31.01.2009: Stipulated date of commencement
- 18.09.2015: Show Cause Notice issued by AAI
- 06.10.2015: ACIL’s reply to Show Cause Notice
- 29.12.2015: AAI levies compensation of Rs. 1,45,50,192/-
- 07.05.2016: ACIL requests constitution of DRB
- 05.10.2017: DRB submits recommendations
- 01.03.2019: AAI rejects DRB review and confirms compensation
- 16.04.2019: ACIL invokes arbitration and seeks arbitrator appointment
- 10.05.2019: AAI emails proposed Sole Arbitrator (Shri S.C. Gupta)
- 12.05.2019: Sole Arbitrator furnishes consent and declaration under Section 12(1)(b)
- 13.05.2019: AAI formally appoints Shri S.C. Gupta as Sole Arbitrator
- 26.05.2019: Sole Arbitrator conveys acceptance of appointment
- 2019-2023: Arbitral proceedings continue
- 10.08.2023: Sole Arbitrator renders Award
- November 2023: AAI files Section 34 Petition before Single Judge
- 13.07.2026: Section 34 Petition taken up for hearing
- 20.07.2026: Learned Single Judge allows Section 34 Petition, sets aside Award
- Present appeal: FAO (OS) (COMM) 246/2026 filed thereafter
Relief Sought
ACIL sought to set aside the Single Judge’s order dated 20.07.2026, restore the arbitral award dated 10.08.2023, and obtain consequential relief including interest and costs.
The Legal Issue
The central question was whether, after the enforcement of the Arbitration and Conciliation (Amendment) Act, 2015, the appointment of an arbitrator by one party without an express written agreement subsequent to the arising of disputes amounts to a waiver of the applicability of Section 12(5) of the Act, thereby precluding the appointing party from later challenging the arbitrator’s eligibility.
Arguments Presented
For the Appellant (ACIL)
The Appellant contended that the learned Single Judge erred in relying on Bhadra International (India) Pvt. Ltd. & Ors. v. Airports Authority of India because that case involved a challenge by the party which had not appointed the arbitrator, whereas here AAI itself had appointed the Sole Arbitrator and participated in the proceedings without objection. It argued that the expression “aggrieved party” under the proviso to Section 12(5) requires a party aggrieved by the manner of constitution of the Tribunal, not merely dissatisfied with the award. The Appellant further submitted that AAI’s appointment of the arbitrator, its participation in the arbitral proceedings for nearly four years, and the absence of any objection until after the Award could not constitute an express agreement in writing as mandated by the proviso. It emphasized that a unilateral appointment cannot be equated to an express waiver and that the proviso’s requirement of a written agreement subsequent to dispute was not satisfied.
For the Respondent (AAI)
AAI defended the Single Judge’s reasoning, asserting that the mandate of Section 12(5) cannot be defeated by the subsequent conduct of the parties. It submitted that the learned Single Judge was justified in examining the validity of the arbitrator’s appointment suomotu, as the defect went to the root of the proceedings. AAI contended that the failure to raise an objection in the Section 34 Petition did not preclude the Court from considering the illegality of the Tribunal’s constitution, citing the principle that jurisdictional objections can be raised at any stage. It relied on the reasoning in Bhadra International and the decisions of this Court in Titagarh Rail Systems Ltd. v. Allied Construction and Mahavir Prasad Gupta & Sons v. Govt. of NCT of Delhi to argue that participation or acquiescence cannot substitute for an express written waiver.
The Court's Analysis
The Court began by noting that the controversy was confined to the constitution of the Arbitral Tribunal and the appointment of the Sole Arbitrator. It examined Section 12(5) of the Arbitration and Conciliation Act, 1996, as amended by the 2015 Amendment Act, which provides that notwithstanding any prior agreement, a person falling under the Seventh Schedule shall be ineligible to be appointed as an arbitrator, but parties may, subsequent to disputes having arisen, waive the applicability of this subsection by an express agreement in writing.
The Court held that the legislature had consciously prescribed three essential requirements for waiver: (i) the waiver must be subsequent to the disputes having arisen; (ii) it must be by agreement between the parties; and (iii) such agreement must be express and in writing. It emphasized that the proviso does not contemplate waiver by implication or conduct.
Drawing on Bhadra International, the Court observed that the Supreme Court had clarified that a right to object under Section 12(5) cannot be taken away by mere implication; for a waiver to be valid, there must be a conscious and unequivocal expression of intent to relinquish the right, demonstrated through an express written agreement. The Court further noted that the Supreme Court in Bharat Broadband Network Ltd. v. United Telecoms Ltd. had rejected the contention that a party’s appointment of an arbitrator could itself amount to an express waiver under the proviso.
The Court also relied on the Division Bench decisions in Titagarh Rail Systems Ltd. and Mahavir Prasad Gupta & Sons, which had expressly rejected the argument that following a contractual procedure for appointment could result in waiver of Section 12(5) without an express written agreement. It concluded that the mere fact that a party has acted in accordance with a contractual mechanism cannot, in the absence of an express written agreement subsequent to dispute, constitute a waiver.
Applying these principles, the Court found that although AAI had appointed the Sole Arbitrator after disputes had arisen and had participated in the arbitral proceedings, there was no material on record to show that the parties had entered into any express agreement in writing subsequent to the disputes waiving the applicability of Section 12(5). Consequently, the appointment of the Sole Arbitrator was contrary to the mandatory provisions of Section 12(5) read with the Seventh Schedule, and the resulting Award could not be sustained.
The Verdict
The appeal was dismissed. The learned Single Judge’s order dated 20.07.2026 setting aside the arbitral award dated 10.08.2023 was upheld. No costs were awarded. The Award remains set aside, and the parties are left to pursue their remedies, if any, under the contract.
What This Means For Similar Cases
Waiver Must Be Express and In Writing
Practitioners must ensure that any waiver of the right to object under Section 12(5) is captured in a separate written agreement executed after the dispute arises. Mere participation in arbitral proceedings, failure to object, or conduct consistent with the appointment will not suffice.
Unilateral Appointment Does Not Bar Objection
A party that appoints an arbitrator may still challenge the appointment on grounds of ineligibility under Section 12(5) if no express written waiver exists. The identity of the appointing party is irrelevant to the statutory requirement.
Early Scrutiny of Tribunal Constitution
Courts may examine the validity of an arbitrator’s appointment suomotu where the defect goes to the root of the proceedings, even if not raised by the parties. Parties should proactively address eligibility concerns before or during arbitration to avoid post-award challenges.
