Unilateral arbitrator appointment causes de jure ineligibility under Section 12(5); participation without objection does not waive rights, requiring express written agreement; challenge valid under Section 34 sans prior protest.

JUDGMENT:

Somasekhar Sundaresan, J.

Context and Factual Background:

1. The captioned proceedings are all under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”), with the Arbitral Awards having been passed by an Arbitrator, unilaterally appointed by the Respondent, Karvy Financial Services Ltd. (“Karvy”). Although the Learned Arbitral Tribunal was admittedly unilaterally appointed, the Petitioners had not protested against such unilateral appointment throughout the proceedings, and raised the contention only at the stage of these proceedings under Section 34 of the Act.

2. The implications of such conduct of the Petitioners, and whether the Petitioners are deemed to have waived their entitlement to object to the unilateral appointment, is what falls for consideration in these Petitions.

3. The Learned Advocates for the parties submit that adjudication of Arbitration Petition No. 324 of 2019 would be dispositive of all the captioned Petitions. Therefore, the facts are taken from Arbitration Petition No. 324 of 2019. In that Petition, the underlying transactions involved a loan amount of Rs.~1.22 crore, computed as of December 26, 2015, being the debt due along with further interest thereon at 14.25%, pursuant to the Loan Agreement dated March 31, 2011. Arbitration was invoked by Karvy, by notice dated November 30, 2016 (this date applies to all Petitions). All the Impugned Awards were passed on February 6, 2018.

4. The short issue that arises for consideration is whether the unilateral appointment of an arbitrator would render all the Impugned Awards liable to be quashed and set aside, or whether the uncontested participation in the arbitration proceedings by the Petitioners would denude them of the right to challenge the awards on the ground of the arbitral tribunal having been unilaterally appointed, without their autonomous consent.

5. The law on unilateral appointment has been declared emphatically by a five-judge bench of the Supreme Court in the case of Central Organisation[Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) –(2020) 14 SCC 712]. This ruling would come much later – the Arbitral Awards are all dated February 06, 2018. Therefore, whether the law declared in Perkins Eastman[Perkins Eastman Architects DPC v. HSCC (India) Ltd. – (2020) 20 SCC 760] and Bharat Broadband[ Bharat Broadband Network Limited v. United Telecoms Limited – 2019 (5) SCC 755], in terms of Section 12(5) of the Act, would lead to the Impugned Awards being a nullity is what was under consideration when this matter was heard.

Contentions of the Parties:

6. Mr. Rohan Sawant, Learned Advocate on behalf of the Petitioners, would submit that in view of the law declared in the aforesaid three judgements, unilateral appointment has been equated with ineligibility under the Seventh Schedule of the Act. An express consent in writing from the counterparty, that is, not the party making the unilateral appointment, is required to waive the objection to such unilateral appointment. He would submit that the counterparty to the unilaterally-appointing party ought to have positively reposed faith and confidence in such an Arbitrator despite the appointment being unilateral.

7. Therefore, Mr. Sawant would submit, in all these cases, the Arbitrator was de jure incapable of acting as such. Therefore, an objection need not