Reaffirming Institutional Arbitration - M/S. Mahavir Prasad Gupta and Sons vs Govt of NCT of Delhi

Facts of the Case;

This dispute was arisen between the Appellant and Respondent out of a contract for strengthening of the Road No.58 (Maharaja SurajmaL Marg) from Vivek Vihar to Junction on Road No.72. The Appellant was the successful bidder of the tender and work order was issued for a consideration of INR 5,16,82,612 and the work was to be accomplished within three months but it took around six months. When the inspection was conducted then it was found that some of the layers was significantly below asked thickness of 165mm. When the final invoice was submitted by the Appellant, respondent being dissatisfied with the work held the payment. In result there was a third party quality audit was conducted and the said party found out in its report that work accomplished by the Appellant was acceptable. Respondent still dissatisfied with the work did not release the final payment. In return the Appellant consequently invoked the arbitration clause and in pursuant to that the Respondent appointed the sole arbitrator to decide the dispute. The sole arbitrator concluded that the report submitted by the third party Audit was fair, unbiased and extensive and was of the view that work accomplished by the Appellant should be acknowledged and accepted, thereby the learned sole arbitrator passed the award. Discontented by the award, the Respondent challenged it under section 34 of the Act on the basis that the appointment of sole arbitrator violates section 12(5) of the Act and hence the award was null and void.

Pleadings:

From the Appellant side the learned counsel stated that since the sole arbitrator was appointed by the respondent himself, the respondent now cannot object to the appointment.  Appellant’s counsel quoted and relied on Kanodia Infratech Limited v. Dalmia Cement (Bharat) Limited 2021 SCC OnLine Del 4883 that if the respondent himself had actively participated in the proceedings and never objected to the jurisdiction of the sole arbitrator, then later the respondent cannot be permitted to take the ground of unilateral appointment. Appellant’s counsel relied on Perkins Eastman Architects DPC v. HSCC (India) Ltd 2019 SCC OnLine SC 1517 as well where he was of the view that in the Perkins case it was held that objection to unilateral appointment of an arbitrator is not a ground under section 34 of the Act, therefore the application under this section should not be permitted on the ground of the unilateral appointment.

From the Respondent side the counsel was of the view that the sole arbitrator was appointed unilaterally and it is violative of the section 12(5) of the Act and the public policy and hence the award passed by the sole arbitrator is null & void and all eligible to be set aside. For this the counsel relied on the decision of the Constitution bench of the Supreme Court in the case of Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Co. 2024 SCC OnLine SC 3219, it was held in this case that a clause permitting a party to unilaterally appoint an arbitration is contrary to the principle of equity. Arbitral proceedings are quasi-judicial process equity is the basic objective of it and a clause permitting the unilateral appointment of a sole arbitrator beats the basic objectivity of the arbitral proceedings.

Issues:

1. Can it be construed that the parties have relinquished the objection against the unilateral appointment of an arbitrator by the dint of mere participation in the proceedings and not raising the objection in front of the arbitrator.

2. Can the parties, particularly the party that has appointed the sole arbitrator unilaterally, entitled to object the appointment at any stage during the proceedings including challenging the award under section 34 and its enforcement under 36 of the Act.

JUDGMENT

Honourable Delhi High Court held that the unilateral appointment of an sole arbitrator by one of the parties to the contention is outlawed and barred as it is against the basic principle of the Act since it raises the doubts over the unbiasedness and independence of the proceedings. As the Supreme Court held in the case of Perkins Eastman Architects DPC v. HSCC (India) Ltd 2019 SCC OnLine SC 1517 that a party who can influence the decision of the proceedings must not enjoy the privilege to appoint a sole arbitrator. The decision of the Constitution bench of the Supreme Court in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Co. 2024 SCC OnLine SC 3219 held that a clause which permits the unilateral appointment of an arbitrator is totally against the scheme of the Act and Supreme Court was also of the view that clauses regarding the unilateral appointment in public private contracts are the infringement of Article 14 of the Constitution of India. Honourable High court also held that the proviso to section 12 (5) of the Act needs an express agreement in writing and hence the conduct (participation) of the parties does not make any ground to establish a acknowledged waiver under the proviso to section 12 (5) of the Act. Hence the incompetency of a unilaterally appointed arbitrator can be waived only by an express agreement and that too in writing. Since proviso to section 12(5) of the Act works as an exception to section 4 which talks about the deemed waiver shall not be applicable to the proviso to section 12(5). Now if award passed by a unilateral appointed arbitrator who is per se incompetent as the incompetency goes to the root of jurisdiction, hence the award is also null and void and can be set aside under section 34(2)(b) of the Act  and an objection to the incompetency of  a unilaterally appointed sole arbitrator including by a party has appointed can raise the objection at any stage during or after the proceedings as the act of appointment is not an express waiver of the ineligibility to the proviso to section 12(5) of the Act.

In the view of the above the honourable High Court dismissed the appeal and upheld the impugned order.

CONCLUSION

The essence of Article 14 of the Constitution is that all persons must experience an equal operation of law under alike circumstances. If we apply that essence in the context of judicial affirmations then we will find that all litigants under alike situations deserve to avail same procedural rights for seeking relief and for defence with the similar protection without any biasedness and discrimination. Since unilateral appointment of an sole arbitrator defies the essence of the Article 14 and the Act as well, these unilateral appointments are contrary to the public policy of India and very scheme of the equity. arbitration is a quasi-judicial proceeding therefore the independence and fairness of the arbitrator is the fundamental building block of any arbitral proceedings and we must welcome the landmark judgment of Hon. Supreme Court in the case of Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Co. 2024 SCC OnLine SC and the same reiterated by Hon. Delhi High Court in the case of M/s Mahavir Prasad Gupta and Sons v. Govt of NCT of Delhi.