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: Central Warehousing Corporation's unilateral arbitrator appointment
A Division Bench of the has upheld the setting aside of an arbitral award, ruling that the of an arbitrator by the Managing Director of the was and that a cannot override the mandatory under .
A Contractor's Award Overturned
The case arose from a construction contract for a 2,400 MT capacity godown at Santragachi, awarded to Amal Krishna Dey in for ₹80.34 lakh. After disputes over deductions and withheld payments, Dey invoked the arbitration clause. The Managing Director of CWC, acting under Clause 25 of the General Conditions of Contract, appointed a retired CWC employee, Madhuresh Kumar, as the sole arbitrator. The arbitrator awarded Dey ₹16.15 lakh with 10% interest, rejecting CWC's counterclaim. CWC challenged the award under of the Act, and the set it aside, holding the appointment unilateral and void. Dey appealed.
The Core Legal Issue
The appeal centered on whether the of an arbitrator by an interested party's Managing Director is valid under the amended Arbitration Act. Dey argued that the appointment was made under the contract, CWC had participated without objection, and the arbitrator's status as a retired employee did not establish bias. He relied on for the proposition that participation can waive procedural objections.
CWC countered that after the amendment, the Managing Director was statutorily ineligible to appoint an arbitrator unilaterally. Mere participation in the proceedings could not amount to waiver, as Section 12(5) requires an after disputes have arisen.
Clause 25 Cannot Replace Statutory Mandate
The court examined Clause 25, which vested the power to appoint the sole arbitrator exclusively in the Managing Director or the Administrative Head of CWC. It also stipulated that no objection could be taken to the appointee being an employee or retired employee of the Corporation. The Division Bench held that Section 12(5) opens with a that overrides any prior agreement to the contrary.
"The proviso to Section 12(5) permits only one route out: an express agreement in writing entered into after the disputes have arisen. A pre-dispute clause of general application, drafted into the standard conditions of contract, does not meet that description, however clearly worded."
The court further clarified that the ineligibility attaches not merely to the identity of the arbitrator but to the appointing authority itself. Citing and , the court reiterated that once the appointing authority is itself ineligible to act as arbitrator, it cannot nominate any other person.
"Once the infrastructure collapses, the superstructure is bound to collapse."
Participation Does Not Cure the Vice
The court rejected Dey's argument that CWC's participation in the arbitration without objection constituted a waiver. Relying on , the court held that waiver under Section 12(5) can only be effected by an after the dispute has arisen. Filing pleadings and contesting claims on merits does not meet that standard.
The distinction from Hindustan Construction Company was also drawn: that case dealt with the finality of an appointment under and waiver under , which operate on a different footing from the specific statutory mode of waiver prescribed in Section 12(5).
The Appointment Was Void at Its Source
The court emphasized that the appointment was invalid because of its source—the unilateral exercise of power by an interested Managing Director—not merely because the arbitrator was a retired employee. disqualifies any person who has a past or present relationship with a party, but the more fundamental flaw was that the appointing authority was itself ineligible. The court found the arbitrator de jure incapable of performing his functions for want of .
Appeal Dismissed, Award Left Intact
The Division Bench dismissed the appeal with no order as to costs, finding no infirmity in the Commercial Court's decision. The judgment reinforces the strict requirements of Section 12(5) and serves as a reminder that pre-dispute arbitration clauses vesting powers in interested parties are unenforceable under the amended Act. Any waiver of ineligibility must be by an entered into after the dispute has crystallized.
