Failure To Object To Unilateral Appointment Of Sole Arbitrator Cannot Be Construed As Waiver Of Right U/s. 12(5) Of A&C Act: Delhi HC

The Delhi High Court while upholding the order of the lower court refusing to enforce an ex-parte award has held that the failure to object to the unilateral appointment of a sole arbitrator cannot be construed as a waiver of his right under Section 12(5) of the Arbitration and Conciliation Act, 1996 (A&C Act).

A Division Bench of Justice Vibhu Bakhru and Justice Amit Mahajan said, “... 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 award rendered by an arbitrator who is ineligible to be appointed as such cannot be enforced.”

The Bench was deciding a case wherein an ex-parte award was passed by an arbitrator who was unilaterally appointed by a finance company in a dispute with some persons.

In this matter, the appellant i.e., Kotak Mahindra Bank Ltd. filed an appeal against an order passed by the Commercial Court whereby the appellant’s application for enforcement of an ex-parte arbitral award passed by a sole arbitrator in favour of a finance company was rejected in July 2021. The appellant claimed that it was an assignee of the said finance company and hence was entitled to enforce the arbitral award rendered in favour of the said entity.

In terms of the arbitral award, the sum of Rs. 4,46,103/- along with an interest @ 18% per annum was awarded in favour of the finance company which was a claimant before the Arbitral Tribunal. The said court found that the arbitral award was rendered ex-parte by an arbitrator who was unilaterally appointed by said entity without any recourse or consent of the respondent and that such an arbitrator was ineligible for being appointed in terms of Section 12(5) of the A&C Act.

The High Court in view of the above facts observed, “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.”

The Court noted that a person who is ineligible to act as an Arbitrator lacks the inherent jurisdiction to render an arbitral award under the A&C Act.

“The Learned Commercial Court has held that an award rendered by a person who is ineligible to act as an Arbitrator by virtue of the provisions of Section 12(5) of the A & C Act is a nullity and, therefore, cannot be enforced. It has accordingly dismissed the enforcement petition under Section 36 of the A&C Act with the cost quantified as ₹25,000/-”, also noted the Court.

The Court further said that a decision, by any authority, which lacks inherent jurisdiction to make such a decision, cannot be considered valid and thus, such an award cannot be enforced.

“We also find that the present appeal has been filed belatedly, i.e., after the delay of 68 days. … there is no material to show that the appellant was impeded in any manner in retrieving the documents available with it. … any delay or procrastination in taking necessary steps for recovering the documents from its own office cannot be a ground for condoning the delay unless certain extenuating circumstances exist”, also said the Court.

The Court observed that apart from a copy of the award, order, and written submissions, no other documents were readily available with the appellant.

“We are, thus, at a loss to understand as to which further documents were required to be retrieved by the appellant that took additional sixty-eight days, over and above the time available to file the present appeal, to retrieve. In addition, there is also a 20 days delay in refiling the appeal”, concluded the Court.

Accordingly, the High Court dismissed the appeal.

Cause Title- Kotak Mahindra Bank Ltd. v. Narendra Kumar Prajapat (Neutral Citation: 2023:DHC:3705-DB)

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