Arbitration In IndiaWaiver of Right under Section 12(5) of the Arbitration & Conciliation Act, 1996 can only be through Express Written Agreement

The Delhi High Court in the case of A.K. Builders v. Delhi State Industrial Infrastructure Development Corporation Limited [O.M.P. (T) (Comm.) 12/2022 and IA No. 1395/2022] decided on 25.02.2022, held that mere participation in the Arbitral proceedings does not amount to a waiver of rights under Section 12(5) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”), but requires an express written agreement to that effect between the parties.

FACTS

Delhi State Industrial Infrastructure Development Corporation Ltd. (hereinafter referred as the “Respondent”) following issuance of an inviting tender, had entered into a contract with  A K Builders, (hereinafter referred as the “Petitioner”)

In lieu of certain disputes within the parties, the Petitioner invoked the Arbitration clause on 17.01.2020., after which the Chief Engineer of the Respondent appointed Sh. D. S. Pandit, IAS (Retired) as the Sole Arbitrator on 19.02.2020. The Petitioner has been attending the Arbitration proceedings commencing from 13.03.2020, but on 21.01.2022,  the Petitioner filed for the termination of the mandate of the learned Sole Arbitrator on the grounds that the he is ineligible to act as an Arbitrator.

ISSUES BEFORE THE HIGH COURT

• Whether or not the petition for termination of the Arbitral award is maintainable under Section 14 of the Act?
• Whether or not the conduct amounts to waiver of the rights stipulated under Section 12(5) of the Act?

CONTENTIONS OF THE PARTIES

The Petitioner argued that a person who is ineligible to be appointed as an Arbitrator is also ineligible to appoint an Arbitrator claiming that the Chief Engineer of the Respondent  falls within the purview of Schedule Act. Hence, is ineligible to be appointed as or to appoint an Arbitrator.

The Respondent contended that the participation of the Petitioner in the Arbitral proceedings, through conduct implies that the right to challenge the appointment of the Arbitrator as under Section 12(5) of the Act has been waived.

The Respondent further claimed as that the Petitioner had not immediately filed for the termination of Arbitration on the grounds of ineligibility and  has been participating in the Arbitral proceedings, thus waiving off the right to challenge such appointment under Section 12(5) of the Act.

DECISION AND FINDINGS

The Delhi High Court (hereinafter referred to as the “High Court”) observed that the literal proviso of Section 12(5) of the Act states that the waiver of the right to challenge the appointment of an Arbitrator under the provisions of the Act has to be in express written agreement.

The High Court relied on the case of TRF Ltd. v. Energo Engineering Projects Ltd. [(2017) 8 SCC 377] and held that a person who is ineligible to act as an Arbitrator would also be ineligible to appoint an Arbitrator. The High Court also relied on the case of Bharat Broadband Network Limited v. United Telecoms Limited (2019) 5 SCC 755 and held that Section 12(5) of the Act necessitates express agreement in writing for waiving off the rights.

It further observed that as the Arbitrator had been appointed solely through the contract and not through consent, and mere participation in the Arbitral proceedings does not amount to waiving off the concerned right. The High Court further observed that a petition under Section 14 of the Act is maintainable if the Arbitrator was ineligible to act as per Section 12(5) of the Act.

The High Court allowed the petition, and held that the Arbitrator is ineligible as per the proviso of  Section 12(5) read with Schedule VII of the Act.

AMLEGALS REMARKS

The proviso to Section 12(5) of the Act is to be construed literally, and hence in absence of express written agreement, the right to challenge the ineligibility of the appointment of the Arbitrator cannot be waived off. The waiver has to be express and cannot be implied from the conduct of the parties.

Moreover, a Petitioner under Section 14 of the Act is maintainable only if the Arbitrator is ineligible. The main objective of the alleged proviso of Section 12(5) was to have an express written agreement to waive off a right, and not to imply from the conduct of the parties. Hence, it is necessary that there is written agreement for the waiver of rights under Section 12(5) and cannot be implied from the conduct of parties.

– Team AMLEGALS assisted by Ms. Jahnavi Pandey (Intern)