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2024 Supreme(Del) 614
IN THE HIGH COURT OF DELHI AT NEW DELHI
Prateek Jalan, J.
Bihar State Backward Classes Finance And Development Corporation - Appellant
Versus
National Backward Classes Finance And Development Corpn. - Respondent
O.M.P. 3 of 2022 & I.A. 6531 of 2022
Decided On : 14-03-2024
Mr. Ajay Kumar, Mr. Dilip Singh, Mr. M.P. Singh and Ms. Supriya Berriwal, Advocates, for the Petitioner.
Mr. Ravindra Kanth, Advocate, for the Respondent-1.
Mr. Azmat H. Amanullah, Advocate, for the Respondent-2.
IMPORTANT POINT
Unilateral appointment of an arbitrator renders the award a nullity, and waiver of disqualification under Section 12(5) of the Act requires an express agreement in writing.
Headnote:
Arbitration - Unilateral Appointment - Section 12(5) of the Arbitration and Conciliation Act, 1996 - [Section 12(5)]
Fact of the Case:
The petitioner, Bihar State Backward Classes Finance and Development Corporation, challenged an arbitral Award passed apparently upon consent of the parties. The petitioner had taken financial assistance from respondent No. 1 under a General Loan Agreement. The impugned Award was passed in terms of a One Time Settlement proposal given by respondent No.1, relying upon a resolution of the petitioner's Board of Directors.
Finding of the Court:
The court found that the unilateral appointment of the arbitrator by respondent No. 1 rendered the Award a nullity. The court also held that the impugned Award was based on a partial and untenable reading of the Board resolution, depriving the petitioner of a hearing on merits.
Issues: Unilateral appointment of the arbitrator, waiver of objection under Section 12(5) of the Act, and the validity of the consent Award.
Ratio Decidendi: The court held that an award passed by a unilaterally appointed arbitrator is a nullity in law. It also emphasized that waiver of the disqualification under Section 12(5) of the Act requires an express agreement in writing. The court further ruled that the impugned Award was based on a document that could not reasonably be read as consent, and thus, was liable to be set aside on merits.
Final Decision: The petition was allowed, and the impugned Award was set aside. Respondent No. 1 was given the option to institute arbitration proceedings afresh in respect of the same cause of action.
JUDGMENT
Prateek Jalan, J. (Oral) - The petitioner-Bihar State Backward Classes Finance and Development Corporation assails an arbitral Award dated 18.11.2019, passed apparently upon consent of the parties.
A. Facts
2. The petitioner had taken financial assistance from respondent No. 1-National Backward Classes Finance and Development Corporation, under a General Loan Agreement dated 20.03.1993 ["the Agreement"]. Upon the petitioner's inability to repay the amount, arbitral proceedings were instituted by respondent No. 1, in terms of an arbitration clause contained in the Agreement.
3. The learned Arbitrator has passed the impugned Award on consent, in terms of a One Time Settlement ["OTS"] proposal given by respondent No.1 on 30.01.2019, relying upon a resolution of the petitioner's Board of Directors, dated 15.11.2019.
B. Submissions of learned counsel
4. Mr. Ajay Kumar, learned counsel for the petitioner, submits that the impugned Award is assailed principally on two grounds:
a. That the learned Arbitrator was unilaterally appointed by respondent No. 1, rendering the Award a nullity, and
b. That the learned Arbitrator has erred in inferring consent of the petitioner from the Board resolution.
5. Mr. Ravindra Kanth, learned counsel for respondent No. 1, submits that, although the learned Arbitrator was unilaterally appointed by respondent No. 1, the petitioner did not object at any stage, and in fact, consented to the extension of his mandate under Section 29A of the Act. On merits, Mr. Kanth submits that the resolution of the petitioner's Board of Directors was placed before the Arbitral Tribunal by learned counsel for the petitioner itself, and no contention was raised to the effect that further approval was required.
6. Mr. Azmat H. Amanullah, learned counsel for respondent No. 2 - State of Bihar, supports the case of the petitioner.
C. Analysis.
i. Re: Unilateral Appointment
7. Turning to the first contention, as noted above, it is factually undisputed that the learned Arbitrator was unilaterally appointed by respondent No. 1, and that the arbitration proceedings commenced after the coming into force of the Arbitration and Conciliation (Amendment) Act, 2015.
8. Mr. Kumar also submits that the petitioner had filed an application under Section 12(3) of the Arbitration and Conciliation Act, 1996 ["the Act"], on 26.10.2018, as reflected in the minutes of the arbitration proceedings held on that date, but the application was never adjudicated by the learned Arbitrator.
9. The only argument urged by Mr. Kanth, in this regard, is that the application was never pressed by the petitioner, and that the petitioner had participated in the arbitration proceedings, including by way of according consent to extension of the mandate of the Arbitral Tribunal, as recorded in the order of the learned Arbitrator dated 06.06.2019. It is contended that the petitioner has thus waived its objection under Section 12(5) of the Act.
10. The question of whether participation in arbitral proceedings can constitute waiver of the disqualification under Section 12(5) of the Act is no longer res integra. Interpreting the judgment of the Supreme Court in Bharat Broadband Network Limited v. United Telecoms Limited, (2019) 5 SCC 755 the Division Bench of this Court in Ram Kumar vs. Shriram Transport Finance Co. Ltd., (2022) SCC OnLine Del 4268 has clearly held that waiver must be express and in writing:
"28. Clearly, an award rendered by a person who is ineligible to act as an arbitrator would be of little value; it cannot be considered as an arbitral award under the A&C Act. While it is permissible for the parties to agree to waive the ineligibility of an arbitrator, the proviso to Section 12(5) of the A&C Act makes it clear that such an agreement requires to be in writing. In Proddatur Cable TV Digi Services v. Siti Cable Network Limited, (2020) 267 DLT 51, the learned Single Judge of this Court, following the decision in TRF Ltd. v. Energo Engineering Projects Ltd. (supr
