The Delhi High Court has affirmed that a sole arbitrator appointed unilaterally by one party, without an express written waiver, is ineligible under the amended Section 12(5) of the Arbitration and Conciliation Act, 1996, rendering any award issued by such arbitrator void ab initio.
Background & Facts
The Dispute
The petitioner, Bharat Heavy Electricals Ltd. (BHEL), was awarded a contract by National Thermal Power Corporation Ltd. (NTPC) for the material handling, erection, testing, commissioning and trial operation of Pelton-type turbines and associated equipment for the 4 × 130 MW Tapovan Hydro Electric Project in Chamoli, Uttarakhand. The contract was executed through a sub-contract with the respondent, Fitwell Constructions.
Key Facts
- Letter of Intent between BHEL and NTPC dated 27 September 2010.
- Main contract between BHEL and Fitwell dated 21 February 2011 (Contract No. 740/2011) for Rs 13,93,00,000, with a stipulated completion date of 11 April 2013.
- Clause 33 of the General Conditions of Contract mandated arbitration by the General Manager of BHEL or his nominee.
- Dispute over project delays and payment of compensation arose; Fitwell issued a notice on 03 August 2020 invoking arbitration.
- BHEL appointed the sole arbitrator on 16 August 2021.
- The arbitrator rendered an award dated 08 February 2023.
Procedural History
- 08 February 2023: Arbitration award issued.
- Date not specified: Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, challenging the award.
- 13 August 2026: Delhi High Court delivered the judgment, setting aside the award.
Parties' Positions
- Petitioner (BHEL) argued that the appointment breached the amended Section 12(5) and that no express written waiver existed, relying on Bhadra International (India) Pvt. Ltd. v. Airports Authority of India, Central Organisation for Railway Electrification v. ECI, and Railways Board v. Titagarh Rail Systems Ltd..
- Respondent (Fitwell) contended that the appointment was a joint selection from three names proposed by BHEL, invoking Perkins Eastman Architects DPC v. HSCC (India) Ltd. and asserting that the objection was waived.
Relief Sought
The petitioner sought a declaration that the appointment was invalid and that the award be set aside. No monetary relief was claimed.
The Legal Issue
What is the correct legal position on a sole arbitrator appointed unilaterally by one party in violation of the amended Section 12(5) of the Arbitration and Conciliation Act, 1996, and does the absence of an express written waiver render the award void?
Arguments Presented
For the Petitioner
- The appointment contravened Section 12(5), which disqualifies any person whose relationship with the parties falls within the Seventh Schedule.
- Cited Bhadra International for the principle that ineligibility is a matter of law and cannot be waived by implication; an express written waiver is mandatory.
- Emphasised that the award was rendered by an arbitrator lacking jurisdiction, making it a nullity under Section 34(2)(b).
For the Respondent
- Asserted that BHEL proposed three names and Fitwell selected one, characterising the appointment as joint rather than unilateral.
- Relied on Perkins Eastman Architects DPC v. HSCC (India) Ltd. to argue that the conduct of parties could amount to a waiver.
- Maintained that the award should stand as the parties had proceeded with the arbitration.
The Court's Analysis
The Court began by reaffirming the principle of equal treatment enshrined in Section 18 of the Act, extending it to the appointment process. It noted that Section 12(5), read with the Seventh Schedule, creates an automatic ineligibility for any person with a direct or indirect interest, and that such ineligibility cannot be cured by conduct.
"The principle of equal treatment of parties provided in Section 18 of the Act, applies not only to the arbitral proceedings but also to the procedure for appointment of arbitrators. Equal treatment of the parties entails that the parties must have an equal say in the constitution of the arbitral tribunal."
The Court quoted the Supreme Court’s observations in Bhadra International that the proviso requires an "express agreement in writing"; any waiver inferred from conduct is invalid. It further relied on the Division Bench decision in Mahavir Prasad Gupta & Sons v. Govt. of NCT of Delhi that unilateral appointment is void ab initio and that the award of such an arbitrator is a nullity.
Applying these precedents, the Court found:
- BHEL, a party to the contract, unilaterally appointed the arbitrator on 16 August 2021 without an express written waiver from Fitwell.
- Fitwell’s objection under Section 21 of the Act, raised in its notice dated 03 August 2020, demonstrated the absence of any waiver.
- Consequently, the appointment violated amended Section 12(5), rendering the arbitrator ineligible and the award void.
- The Court emphasized that the right to challenge such an appointment survives even if the appointing party later seeks enforcement, and that the challenge can be made under Section 34 irrespective of the stage of proceedings.
The Court therefore concluded that the award dated 08 February 2023 must be set aside, and the petition allowed.
The Verdict
The petition was allowed. The Delhi High Court set aside the arbitration award dated 08 February 2023, holding that the appointment of the sole arbitrator on 16 August 2021 was unilateral and violated Section 12(5) of the Arbitration and Conciliation Act, 1996. The pending application was also disposed of. No monetary award or costs were granted.
What This Means For Similar Cases
Unilateral Appointment Is Void
- Practitioners must ensure that both parties consent in writing to any arbitrator who falls within the categories of the Seventh Schedule.
- Any appointment made by a single party, even if the other party later selects from a list, will be treated as unilateral and invalid.
Express Written Waiver Is Mandatory
- Parties cannot rely on conduct, silence, or participation in proceedings as a waiver.
- A clearly drafted written waiver must be executed after the dispute arises and before the appointment takes effect.
Awards by Ineligible Arbitrators Are Nullities
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Courts will set aside awards ex parte if the arbitrator lacked jurisdiction, regardless of whether the award has been partially performed.
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Parties may invoke Section 34 to challenge such awards even post-enforcement.
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Verify arbitrator eligibility before acceptance.
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Draft explicit waiver clauses if parties intend to relax Section 12(5) restrictions.
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Advise clients that participation in arbitration does not constitute implied consent to an ineligible arbitrator.
