The Delhi High Court clarified that where an arbitrator's appointment is found to be invalid due to lack of jurisdiction, the entire arbitral award cannot be sustained in part, even if a party challenges only specific claims under Section 34 of the Arbitration and Conciliation Act, 1996. The Court emphasized that invalidity of the arbitral tribunal's constitution goes to the root of the award's validity, making partial setting aside legally untenable.
Background & Facts
The Dispute
The dispute arose from a contract between Life Insurance Corporation of India (LIC) and N.S. Associates Pvt. Ltd. (NSA) for civil works at LIC's New Delhi office. LIC appointed its Executive Director (Engineering) as the sole arbitrator unilaterally on 14.11.2019, after which the arbitrator passed an award on 10.01.2022. NSA challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, alleging the arbitrator's appointment was impermissible.
Key Facts
- The arbitrator was appointed by LIC's Executive Director (Engineering) on 14.11.2019 without mutual consent
- The Arbitral Award was passed on 10.01.2022, allocating sums across ten claims:
- Claim 1: Final bill - Rs. 35,90,263 awarded (claimed Rs. 1,28,15,705)
- Claim 2: Overheads in extended period - Rs. 11,85,600 awarded (claimed Rs. 1,97,81,515)
- Claim 3: Loss of overheads in original period - NIL awarded
- Claim 4: Loss of profit in original period - NIL awarded
- Claim 5: Additional BG charges - NIL awarded
- Claim 6: Extending BGs in extended period - Rs. 10,13,237 awarded (claimed Rs. 20,77,755)
- Claim 7: Insurance covers in extended period - Rs. 4,45,187 awarded (claimed Rs. 8,86,698)
- Claim 8: Pending litigation interest - Pendent lite interest from 14.11.2019 @ 8% p.a.
- Claim 9: Issuance of updated completion certificate - Directions to issue within 20 days
- Claim 10: Cost of arbitration and litigation - Rs. 7,00,000
- NSA filed a Section 34 Petition seeking, inter alia, to set aside the award regarding Claims 1(ii), 1(iii), non-grant of GST@18% on awarded amount in Claims 1-4, Claims 2, 3, 4, and 8 (except where already granted in NSA's favor)
- The Learned Single Judge, on 29.10.2024, held the unilateral appointment of the arbitrator impermissible but set aside the award only to the extent of prayer (a) of the Section 34 Petition
- LIC filed a Section 152 Application under CPC on 21.05.2025 seeking correction of the operative paragraph of the impugned judgment
- The Section 152 Application was dismissed on 21.08.2026
- The present Appeal was filed on 21.09.2026, within 30 days of the dismissal of the Section 152 Application
Procedural History
- 14.11.2019: Unilateral appointment of Sole Arbitrator by LIC's ED
- 10.01.2022: Arbitral Award passed by Sole Arbitrator Shri Bharat Bhushan Gupta
- Date of Section 34 Petition filing by NSA: Not explicitly stated but after 10.01.2022 and before 29.10.2024
- 29.10.2024: Impugned Judgment pronounced by Learned Single Judge (setting aside award partially per prayer (a))
- 21.05.2025: LIC files Section 152 Application (I.A. No.13737/2025) seeking correction of impugned judgment
- 21.08.2026: Order dated 21.08.2026 dismissing Section 152 Application
- 21.09.2026: Present Appeal (FAO(OS) (COMM) 261/2026) filed by LIC
- 06.10.2026: Judgment under analysis pronounced
Relief Sought
LIC sought:
- Setting aside of the Impugned Judgment dated 29.10.2024
- Setting aside of the Order dated 21.08.2026 dismissing I.A. No.13737/2025
- Complete setting aside of the Arbitral Award dated 10.01.2022
- consequential relief including possibility for NSA to seek recovery of amounts already paid under the award
The Legal Issue
The central question was whether, having held that the unilateral appointment of the Sole Arbitrator was impermissible and that the arbitral proceedings were non-est, the Learned Single Judge was justified in confining the setting aside of the Arbitral Award to the relief sought in prayer (a) of the Section 34 Petition, rather than setting aside the award in its entirety.
Arguments Presented
For the Appellant (LIC)
LIC argued that once the constitution of the Arbitral Tribunal was found to be invalid due to the arbitrator's de jure ineligibility under Section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, 1996, the tribunal lacked legal competence to adjudicate the dispute. Consequently, the entire Arbitral Award could not be sustained in part, as the defect went to the root of the award's validity. LIC contended that the Respondent could not approbate and reprobate by challenging only specific claims while relying on the tribunal's invalidity for those claims. LIC emphasized that the Supreme Court in Bhadra International (India) Pvt. Ltd. v. Airports Authority of India had clarified that an award passed by an ineligible arbitrator is a nullity, void ab initio, and against public policy.
For the Respondent (NSA)
NSA argued that it had not filed any petition under Section 34 challenging the entire award, and that certain payments under the award had already been made. NSA submitted that LIC could not seek setting aside of the award in the present Appeal since it had not initiated Section 34 proceedings. NSA relied on Paragraph 109 of the Bhadra International judgment, which states that a party aggrieved by an arbitrator's ineligibility may challenge the award under Section 34, as such an award is a nullity. NSA contended that the Single Judge correctly limited the setting aside to the specific claims challenged in prayer (a) of its Section 34 Petition.
The Court's Analysis
The Court began by noting that neither party challenged the Single Judge's finding that the unilateral appointment of the arbitrator was impermissible under Section 12(5) read with the Seventh Schedule. The Court then examined the consequence of such a finding, stating: "Once the constitution of the Arbitral Tribunal itself was found to be contrary to Section 12(5) read with the Seventh Schedule to the A&C Act, the arbitral proceedings conducted by such Tribunal could not sustain in law. The defect goes to the root of the constitution of the Arbitral Tribunal and, consequently, to the validity of the Arbitral Award itself."
The Court distinguished the Bhadra International precedent relied upon by NSA, clarifying that Paragraph 109 dealt only with the procedure for raising a challenge after the award was passed, not the substantive consequence of an invalid appointment. The Court emphasized: "Paragraph No.109, upon which reliance has been placed by learned counsel representing the Respondent, is concerned with the procedure for raising a challenge to the ineligibility of an Arbitrator after the Arbitral Award has been rendered. It does not alter the substantive consequence flowing from a finding that the appointment itself was impermissible under Section 12(5) read with the Seventh Schedule."
The Court held that once the tribunal's constitution was invalid, the award could not be sustained in part, reasoning: "The resultan t proceedings and the Arbitral Award cannot, therefore, be sustained in part merely because the challenge under Section 34 had been framed by the Respondent with reference to specified claims." The Court further noted that allowing partial setting aside would permit the Respondent to "approbate and reprobate" by relying on the tribunal's invalidity for some claims while seeking to sustain others from the same proceedings.
Consequently, the Court concluded that the Single Judge should have set aside the entire award, stating: "The learned Single Judge, having held that the Arbitral Award was clearly unsustainable on account of the invalid appointment of the Arbitrator, should have set aside the Arbitral Award in its entirety."
The Verdict
The Appeal was allowed. The Impugned Judgment dated 29.10.2024 was modified to set aside the entire Arbitral Award dated 10.01.2022 passed by the Sole Arbitrator. The Order dated 21.08.2026 dismissing I.A. No.13737/2025 was also set aside as it could not be sustained after the modification. The Court clarified that NSA, if advised, may seek recovery of amounts already paid under the award in accordance with law, though no opinion was expressed on NSA's entitlement to such recovery.
What This Means For Similar Cases
Invalid Tribunal Composition Voidifies Entire Award
This judgment establishes that where an arbitrator's appointment is invalid due to lack of jurisdiction or statutory non-compliance, the entire arbitral award is a nullity and cannot be sustained in part. Practitioners must challenge the tribunal's constitution at the outset; if successful, they cannot selectively uphold favorable portions of the award while setting aside unfavorable ones.
Section 34 Challenges Must Address Tribunal Validity Holistically
When filing a Section 34 petition, parties must consider whether the challenge pertains to specific claims or the tribunal's foundational validity. If the latter, the petition should seek complete setting aside of the award. The Respondent cannot rely on the tribunal's invalidity for some claims while attempting to preserve benefits from others under the same award.
Payments Under Invalid Award Do Not Confer Legality
The fact that partial payments have been made under an award does not validate the award if the tribunal's constitution was invalid. Recipients of such payments may be required to return amounts received, as the award lacks legal enforceability from its inception.
