Unilateral appointment of arbitrator by a party ineligible under Section 12(5) read with Seventh Schedule is void ab initio; the resulting award is a nullity and can be set aside under Section 34 even if the objecting party participated in the proceedings, as waiver requires an express written agreement.

AVNEESH JHINGAN, J. (ORAL)

1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 (for short ‘the Act’) is filed against the arbitral award dated 06.07.2018.

2. The brief facts are that the petitioner/Engineering Projects India Limited (for short ‘EPIL’) on 15.11.2007 entered into a Memorandum of Understanding (for brevity ‘MOU’) with the Department of Agriculture, Government of Tripura (hereinafter ‘DOA’) to construct a college of agriculture building at Agartala. The Notice Inviting Tender (for short ‘NIT’) was issued by EPIL and the respondent was awarded the work vide Letter of Intent (LOI) dated 10.03.2008. Subsequently, an agreement dated 23.04.2008 was entered into between the parties to the lis.

2.1 Clause 76 of the General Conditions of Contract (for short ‘GCC’) provides for dispute resolution by arbitration. As per the said clause, disputes shall be referred to the sole arbitration of the Chairman and Managing Director of EPIL (for short ‘CMD’) or any person discharging the functions of the CMD and in case the CMD or such person is unable to act as the sole arbitrator then to a person appointed by the CMD. It is further stipulated that no objection will lie if the appointed arbitrator is an employee of EPIL.

2.2 The arbitration was invoked at the instance of the respondent by issuing a notice under section 21 of the Act on 14.03.2016. The CMD unilaterally appointed the arbitrator vide letter dated 10.01.2017. The proceedings culminated in the impugned award whereby the claims of the respondent were allowed. Hence, the present petition.

3. Learned counsel for EPIL submits that the unilateral appointment of the arbitrator by the CMD is in violation of the amended Section 12(5) read with Seventh Schedule of the Act. Reliance is placed upon the decision of the Supreme Court in Bhadra International (India) Pvt. Ltd. & Ors. v. Airports Authority of India, 2026 INSC 6 and of the Division Bench of this Court in Mahavir Prasad Gupta and Sons v. Govt. of NCT of Delhi , 2025 SCC OnLine Del 4241.

4. Learned counsel for the respondent contends that EPIL having appointed the arbitrator, participated in the arbitral proceedings, awaited for the outcome and having failed therein cannot challenge the appointment. It is submitted that this objection was never pressedbefore the arbitrator and the award was passed prior to the decision of the Supreme Court in Bhadra International (India) Pvt. Ltd. (supra).

5. Before proceeding further, it would be apposite to refer to the following decisions:

5.1 The Supreme Court in Bhadra International (India) Pvt. Ltd. (supra) dealt with the following three issues:

“29.…..i. Whether the sole arbitrator could be said to have become “ineligible to be appointed as an arbitrator” by virtue of sub-section (5) of Section 12 of the Act, 1996?

ii. Whether the parties could be said to have waived the applicability of sub-section (5) of Section 12 of the Act, 1996, by way of their conduct, either expressed or implied?

iii. Whether the appellants could have raised an objection to the appointment of the sole arbitrator for the first time in an application under Section 34 of the Act, 1996?”

Held:

“123... i. The principle of equal treatment of parties provided in Section 18 of the Act, 1996, 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.

ii. Sub-section (5) of Section 12 provides that any person whose relationship with the parties or counsel, or the dispute, whether direct or indirect, falls within any of the categoriesspecified in the Seventh Schedule would be ineligible to be appointed as an arbitrator. Since, the ineligibility stems from the operation of law, not only is a person having an interest in the dispute or its outcome ineligible to act as an arbitrator, but appointment by such a person would be ex facie invali