2023 (5) TMI 1444 - HC - Indian Laws

Rejection of appellant s application for enforcement of an ex-parte arbitral award - enforcement of arbitral award rendered by an arbitrator who was unilaterally appointed by one party without consent of the other and who was ineligible under Section 12(5) of the Arbitration and Conciliation Act 1996 - HELD THAT - The proviso to Section 12(5) of the A C Act is unambiguous. A party can waive its right to object to the ineligibility of an arbitrator under Section 12(5) of the A C Act but the same is subject to two conditions. First that the waiver is required to be by and done by an express agreement in writing; and second that such agreement is entered into after the disputes have arisen. Unless both the aforesaid conditions are satisfied there can be no waiver of the ineligibility of an arbitrator. In Bharat Broadband Network Limited v. United Telecoms Limited 2019 (4) TMI 983 - SUPREME COURT the Supreme Court had authoritatively held that waiver of a right to object to ineligibility of an arbitrator under Section 12(5) of the A C Act cannot be inferred by conduct of a party. Such waiver can only be by an express agreement in writing. The Court had also clarified that the expression express agreement in writing refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct . The failure if any on the part of the respondent to object to the unilateral appointment of the sole arbitrator cannot be construed as waiver of his right under Section 12(5) of the A C Act. The appeal indicates that apart from a copy of the impugned award the impugned order an internet copy of an order passed by the learned Single Judge of this Court in another matter and the written submissions filed on behalf of the petitioner no other documents have been filed. It is obvious that the necessary documents were readily available with the appellant. The appeal is accordingly dismissed both on the grounds of delay as well as on merits.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

• Whether an arbitral award rendered by an arbitrator who was unilaterally appointed by one party without consent of the other and who was ineligible under Section 12(5) of the Arbitration and Conciliation Act, 1996 ("the A&C Act") can be enforced.
• Whether the respondent's failure to object to the unilateral appointment of the arbitrator amounts to a waiver of the right to challenge the arbitrator's ineligibility under Section 12(5) of the A&C Act.
• The legal effect of an arbitrator's ineligibility on the validity and enforceability of the arbitral award.
• Whether the delay in filing the appeal against the rejection of enforcement can be condoned on the grounds stated by the appellant.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Enforceability of an arbitral award rendered by an arbitrator unilaterally appointed and ineligible under Section 12(5) of the A&C Act

The relevant legal framework includes Section 12(5) of the A&C Act, which specifies categories of persons who are ineligible to be appointed as arbitrators. The Court relied on authoritative precedents, including TRF Ltd. v. Energo Engineering Projects Ltd. and Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd., where the Supreme Court held that an arbitrator who becomes ineligible by operation of law cannot validly act as an arbitrator and cannot nominate another arbitrator. The Court also referred to Proddatur Cable TV Digi Services v. Siti Cable Network Limited, which held that unilateral appointment of an arbitrator without consent of the other party is impermissible under Section 12(5).

The Commercial Court had found that the arbitrator appointed by the claimant was ineligible under Section 12(5) as interpreted by these precedents. The appellant did not seriously dispute this finding. The Court emphasized that an arbitrator who is ineligible lacks inherent jurisdiction to act as an arbitrator and that an award rendered by such a person is a nullity.

In HRD Corporation v. GAIL (India) Ltd., the Supreme Court clarified that ineligibility under Section 12(5) goes to the root of the arbitrator's appointment and that such arbitrator is de jure unable to perform functions, rendering any award passed by such arbitrator invalid. Similarly, this Court in Govind Singh v. M/S Satya Group Pvt Ltd & Anr. held that an award rendered by an ineligible arbitrator cannot be considered a valid arbitral award and is liable to be set aside as without jurisdiction.

The Court applied these principles to the facts, holding that since the arbitrator was unilaterally appointed and ineligible, the award is void and cannot be enforced under Section 36 of the A&C Act.

Issue 2: Whether the respondent's failure to object to the arbitrator's appointment amounts to waiver of the right to challenge under Section 12(5)

The appellant contended that the respondent was aware of the arbitrator's appointment and did not object, thus waiving the right to challenge. The Court rejected this contention based on the proviso to Section 12(5) of the A&C Act, which allows waiver of objection only by an express agreement in writing entered into after the dispute has arisen.

The Court relied on Bharat Broadband Network Limited v. United Telecoms Limited, where the Supreme Court held that waiver of the right to object to an arbitrator's ineligibility cannot be inferred by conduct but must be by express written agreement. The Court found no such agreement here, and therefore the respondent's silence or failure to object did not constitute waiver.

Issue 3: Effect of arbitrator's ineligibility on the validity of the arbitral award

The Court reiterated that the arbitrator's ineligibility under Section 12(5) goes to the root of jurisdiction. An arbitrator who is ineligible lacks inherent jurisdiction to act, and any award passed by such arbitrator is void and unenforceable. This principle was supported by the Supreme Court's rulings in HRD Corporation and the Court's own earlier decision in Govind Singh.

The Commercial Court's conclusion that the award is a nullity and cannot be enforced was upheld as consistent with settled law.

Issue 4: Condonation of delay in filing the appeal

The appeal was filed with a delay of 68 days, with the appellant attributing the delay to difficulty in obtaining documents from the bank. The Court found this explanation unsatisfactory, noting the absence of any material showing impediment in retrieving documents. The Court emphasized that delay caused by internal procrastination or routine administrative difficulties does not justify condonation unless exceptional circumstances exist.

The Court observed that the appellant had filed only minimal documents, indicating the necessary papers were readily available. The explanation for delay was therefore rejected, and the appeal was dismissed on grounds of delay in addition to merits.

3. SIGNIFICANT HOLDINGS

"Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes 'ineligible' to act as arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as 'ineligible'. In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground."

"Clearly, the answer must be in the negative. The arbitral award rendered by a person who is ineligible to act as an arbitrator cannot be considered as an arbitral award. The ineligibility of the arbitrator goes to the root of his jurisdiction. Plainly an arbitral award rendered by the arbitral tribunal which lacks the inherent jurisdiction cannot be considered as valid. In the aforesaid view, the impugned award is liable to be set aside as being wholly without jurisdiction."

"The proviso to Section 12(5) of the A&C Act is unambiguous. A party can waive its right to object to the ineligibility of an arbitrator under Section 12(5) of the A&C Act but the same is subject to two conditions. First, that the waiver is required to be by and done by an express agreement in writing; and second, that such agreement is entered into after the disputes have arisen. Unless both the aforesaid conditions are satisfied, there can be no waiver of the ineligibility of an arbitrator."

Core principles established include:

• An arbitrator who is ineligible under Section 12(5) of the A&C Act lacks inherent jurisdiction to act and any award passed by such arbitrator is void and unenforceable.
• Unilateral appointment of an arbitrator by one party without consent of the other is impermissible under Section 12(5).
• Waiver of objection to arbitrator's ineligibility under Section 12(5) can only be by express written agreement after dispute arises; it cannot be inferred from conduct or silence.
• Delay in filing appeals cannot be condoned on vague or unsubstantiated grounds of document retrieval delays.

Final determinations:

• The arbitral award rendered by the arbitrator unilaterally appointed and found ineligible under Section 12(5) is a nullity and cannot be enforced.
• The respondent's failure to object to the arbitrator's appointment does not amount to waiver of the right to challenge ineligibility.
• The appeal against the rejection of enforcement petition is dismissed on merits and for want of condonation of delay.