Citation Codes: 2023:DHC:9087 ; 2023 SCC OnLine Del 8322 ; (2024) 306 DLT 28
Date of Judgement: 18 December 2023
Court: High Court of Delhi
Coram: Justice Jyoti Singh
Factual Background
Smaaash Leisure Limited (hereinafter “Petitioner”) is a company involved in the business of gaming and entertainment centers etc. Ambience Commercial Developers Private Limited/ Ambience Developers and Infrastructure Private Limited (hereinafter “Respondent”) is a Real Estate Group engaged in the construction and business of Integrated Townships, Residential and Commercial Complexes etc.
The present case pertained to the two lease deeds executed between the parties in August 2017 for maintaining the entertainment center at Ambience Mall, Vasant Kunj (hereinafter “First lease”) and Ambience Mall, Gurgaon (hereinafter “Second lease”)
In March 2018, the parties executed an addendum to the lease deeds whereby they agreed that the maintenance charges payable between 28 September 2017 to 27 September 2018 shall stand deferred from 28 September 2018 to 27 September 2019. In the same year, the Petitioner’s expansion efforts led to substantial losses, which were further exacerbated by the COVID-19 pandemic. Because of the financial distress, the Petitioner had to terminate the lease deeds on 20 February 2020.
On 25 September 2020, the Respondent invoked the dispute resolution clause contained in the lease deeds and proposed the names of three former Judges, requesting the Petitioner to nominate one of them as the sole Arbitrator. The Petitioner communicated its unequivocal non-acceptance of the three names. Despite Petitioner’s objections, the Respondent appointed the sole Arbitrator and vide letter dated 07 October 2020 wrote to the Arbitrator intimidating the appointment and requesting the Arbitrator to give a declaration under Section 12 of the Arbitration and Conciliation Act, 1996 (hereinafter “A&C Act”).
During the proceedings, the petitioner withdrew its objections regarding the appointment of the arbitrator. However, the Petitioner did not participate in the proceedings and did not submit a statement of defence. The proceedings proceeded ex-parte leading to the arbitral awards in favor of the Respondent. Thereafter, the Petitioner proceeded under Section 34 of the A&C Act against the arbitral awards.
Issue
Whether the unilateral appointment be sustained in law when the party withdrew their objections during arbitral proceedings.
Petitioner’s Position
The Petitioner argued that the arbitral awards are void ab initio due to the unilateral appointment of the arbitrator. The Petitioner relied on the Supreme Court’s decision in Perkins Eastman Architect DPC v. HSCC. Additionally, the Petitioner emphasized that the Respondent incorrectly informed the arbitrator about the fulfilment of conditions for the appointment, despite the Petitioner’s objections.
Furthermore, the Petitioner addressed that the recording of withdrawal of the objection on the appointment of the Arbitrator in the order will not constitute a waiver under Section 12(5) of the A&C Act, given that the provision requires “an express agreement in writing”. To support the submission, Petitioner referred to the decision of the Delhi High Court in Score Information Technologies Ltd v. GR Infra Projects Limited, the court dismissed the argument of waiver in the absence of a written agreement between the parties to waive the applicability of Section 12(5) of the A&C Act, noting that the mere recording by the arbitrator cannot be considered an express agreement [¶31].
Respondent’s Position
The Respondent contended that the plea of unilateral appointment is not available to the petitioner for three reasons: they initially withdrew their objections, subsequently participated selectively in the proceedings, and did not seek the legal remedy of Termination of the mandate.
It was further contended that the Supreme Court’s judgment in Perkins Eastman Architects DPC and Another v. HSCC (India) Limited, as well as other judgments concerning unilateral appointments, are of no avail to the Petitioner, as both parties consciously and willingly agreed to the arbitrator’s appointment and accepted the jurisdiction. The Respondent also added that it would be prejudicial if Petitioner is allowed to challenge the appointment of arbitrator at this late stage. The Respondent relied on Quippo Construction Equipment Limited v. Janardan Nirman Private Limited, wherein the Supreme Court ruled that in case the respondent fails to participate in the proceedings before the arbitrator and their lack of objection to the arbitrator’s jurisdiction, the respondent is deemed to have waived any such objections [¶23].
Decision and Reasoning
The Court held that the dispute resolution clause in the lease deeds provided for the appointment of a sole arbitrator from a panel of 3 persons prepared by the Respondent. The court held that when an arbitrator must be appointed from a panel then such panel needs to be broad. The court added that the preparation of such a narrow panel is invalid. The Court underscored the importance of having a broad-based panel to instill confidence in the parties. In this context, the court referred to the judgment of L&T Hydrocarbon Engineering Limited v. Indian Oil Corporation Limited, where the court held that the choice from a narrow panel raises apprehension of bias, which should be avoided [¶96].
Furthermore, regarding the unilateral appointment, the Court noted that after the petitioner refused to nominate an arbitrator from the three proposed candidates, the proper procedure for the respondent was to request the appointment of an arbitrator through the court under Section 11(5) and (6) of the A&C Act, rather than proceeding with a unilateral appointment.
Addressing the Respondents’ argument that the Petitioner’s participation in the arbitral proceedings constituted a waiver by conduct. The Court relied on the decision of Bharat Broadband Network Limited v. United Telecoms Limited, wherein it was held that a waiver under Section 12(5) of the A&C Act is valid only if it is made through an ‘express agreement in writing. Furthermore, relying on the decision of Govind Singh vs M/s Satya Group Pvt Ltd, the Court stated that once the Arbitrator becomes disabled and ineligible to act under Section 12(5) of the A&C Act, there is no need to examine whether the party opposing the appointment had objected to it. Even if it is assumed that the party participated in the arbitral proceedings without objecting to the appointment, it cannot be said that they waived their right under Section 12(5) of the A&C Act [¶20].
Additionally, with respect to the Respondent’s argument of waiver on account of the statement made by the counsel for the Petitioner before the Arbitrator, the Court noted that the statement made before the Arbitrator in the procedural hearing does not constitute an express waiver in writing as required under the proviso to Section 12(5) of the A&C Act.
Lastly, addressing the Respondent’s argument that the challenge to the impugned Awards should not be entertained in a petition under Section 34 of the A&C Act, the court held that an arbitral award rendered by an Arbitrator, who is ineligible to act as an Arbitrator cannot be termed as an arbitral award and is not binding on the parties. The court highlighted the Kotak Mahindra Bank Ltd. v. Narendra Kumar Prajapat wherein it was held that that an award rendered by a person who is ineligible to act as an Arbitrator by Section 12(5) of the A&C is a nullity and cannot be enforced [¶14].
The award was set aside by the court.
Author(s)
Ishita Pandey
Graduate from Llyod Law College