An Award Issued By Unilaterally Appointed Arbitrator Can Be Contested For Invalidity Of Appointment, Even By The Appointing Party

Petitioner: Telecommunication Consultants India Ltd.

Respondent: Shivaa Trading

Date: April 9, 2024

Citation: 2024 SCC OnLine Del 2937.

Bench: Hon’ble Mr. Justice Anup Jairam Bhambhani

Facts:

• The dispute stems from a rural road’s construction contract under the Pradhan Mantri Gram Sadak Yojana.
• Parties agreed to a Memorandum of Understanding (MoU) with an arbitration clause giving the petitioner the authority to appoint a sole arbitrator.
• Contract termination prompted the petitioner to initiate arbitration following clause 19 of the MoU.
• Unilateral appointment of an arbitrator by the petitioner ensued, initiating proceedings.
• Arbitrator issued an award on 17.12.2021, challenged by the petitioner through the current petition under Section 34 of the Act.

Issue

Whether the appointment of the arbitrator was valid and whether the award rendered by the arbitrator is valid?

Judgement

The Court relied on Bharat Broadband Network Ltd. v. United Telecom Limited[1] wherein the Supreme Court had established that the party making the unilateral appointment retains the right to challenge it. Additionally, the Court emphasized that mere involvement in the arbitral process does not equate to a waiver of the right to raise objections as specified in S.12(5). It stated that individuals falling under the categories specified in the 7th Schedule are ineligible unless the parties expressly waive this ineligibility in writing after a dispute arises.

The High Court of Delhi has held that award passed by an arbitrator, unilaterally can be challenged on the grounds of invalidity of the arbitrator, which creates a lack of jurisdiction even though the party challenging such appointment is the one who appointed the arbitrator in the first place.

Hon’ble Justice Anup Jairam Bhambhani held that lack of jurisdiction can be challenged at any stage of the trial as it puts into question the power of the tribunal altogether. Section 12(5) of the A&C act has a provision of waiver of applicability, wherein the ineligibility of appointment is mentioned. It is held that participation in arbitral proceedings cannot be deemed to an ‘express waiver’ in terms of the section. Accordingly, the High Court disposed of the petition and set aside the arbitral award.

Conclusion 

In conclusion, the High Court of Delhi, upheld the petitioner’s right to challenge the unilateral appointment of the arbitrator despite being the appointing party. Emphasizing the significance of addressing jurisdictional defects, the court ruled that such defects fundamentally undermine the validity of arbitral proceedings. Prioritizing adherence to legal requirements and procedural fairness, the court set aside the arbitral award, ensuring the integrity of arbitral proceedings and safeguarding parties from decisions made by arbitrators lacking requisite authority.

[1] (2019) 5 SCC 755