Summary
The Court set aside 'nil' arbitral awards made by a sole arbitrator whom the Chairman of the Airports Authority of India had appointed unilaterally under the licence agreement. The Chairman was ineligible under Section 12(5) read with the Seventh Schedule and so could not appoint anyone. Ineligibility can be waived only by an express written agreement made after the dispute arose, not by conduct. An award by an ineligible arbitrator is void and may be challenged at any stage, including for the first time under Section 34.
Issues
- Whether a sole arbitrator appointed unilaterally by the respondent's Chairman, on the appellants' invocation notice, was ineligible under Section 12(5) of the Arbitration and Conciliation Act, 1996.
- Whether the appellants waived the ineligibility by conduct: the 'no objection' recorded in the first procedural order, filing a statement of claim, joint Section 29A extension applications and continued participation.
- Whether the objection to the arbitrator's ineligibility could be raised for the first time in Section 34 proceedings.
Provisions considered
- Section 18, Arbitration and Conciliation Act, 1996Equal treatment of parties extends to the procedure for appointing arbitrators, so each party must have an equal say in constituting the tribunal; party autonomy under Section 11(2) operates within the Act's mandatory provisions. (¶¶ 32, 33, 34, 37, 38, 39, 123)
- Section 12(5) read with the Seventh Schedule, Arbitration and Conciliation Act, 1996Items 1, 2, 5, 12 and 13 of the Seventh Schedule attached to the respondent's Chairman. Being ineligible by operation of law, he could not appoint another, and the arbitrator so appointed was de jure ineligible. The provision applied because the arbitration commenced after the 2015 Amendment. (¶¶ 46, 47, 49, 50, 57, 60, 66, 67, 68)
- Proviso to Section 12(5), Arbitration and Conciliation Act, 1996Waiver requires a clear, unequivocal written agreement made after disputes arise, with knowledge of the ineligibility. It is distinct from deemed waiver under Section 4 and cannot be inferred from conduct; none existed here. (¶¶ 74, 75, 79, 84, 85, 89, 90, 96)
- Section 21, Arbitration and Conciliation Act, 1996A notice invoking arbitration sets the agreement in motion and fixes commencement, but does not by itself operate as consent to an appointment to be made in the future. (¶¶ 49, 50, 70, 96)
- Sections 14 and 15, Arbitration and Conciliation Act, 1996Ineligibility under Section 12(5) makes the arbitrator de jure unable to act, so his mandate terminates automatically. During the proceedings a party may apply to court under Section 14 and seek substitution under Section 15, without a Section 13 challenge. (¶¶ 61, 62, 63, 102, 103, 104, 105, 108, 123)
- Section 29A, Arbitration and Conciliation Act, 1996Joining in applications to extend the mandate does not amount to an express written waiver under the proviso to Section 12(5). (¶¶ 93, 94)
- Section 34(2)(b), Arbitration and Conciliation Act, 1996An award by an ineligible arbitrator is void ab initio and conflicts with the public policy of India, so it may be set aside under Section 34 even where the objection is first raised there. (¶¶ 109, 111, 112, 123)
Held
- Equal treatment under Section 18 applies to the constitution of the tribunal; party autonomy does not override it, and the 2015 Amendment only made explicit what was already implicit in the Act. (¶¶ 33, 37, 38, 39)
- A person who falls within the Seventh Schedule is ineligible by operation of law. Such a person cannot appoint another, so an appointment by the respondent's Chairman is ex facie invalid, and a unilateral appointment of a sole arbitrator in these circumstances is void ab initio. The High Court erred in holding that the appointment was not unilateral because it followed the appellants' invocation notice, which is not consent to a future appointment. (¶¶ 67, 68, 69, 70)
- Section 12(5) does not prohibit unilateral appointment as such; it renders the arbitrator ineligible whenever the bar applies, whether the appointment was unilateral or consensual, subject to waiver under the proviso. (¶¶ 47, 60)
- The ineligibility can be waived only by an express agreement in writing executed after the disputes arise and made with knowledge of the ineligibility. A recorded 'no objection' in a procedural order, filing a statement of claim, joint Section 29A applications, interim-relief applications and continued participation do not qualify. High Court decisions taking a contrary view stand overruled. (¶¶ 78, 79, 84, 85, 89, 90, 92, 93, 96, 98)
- During the arbitration, ineligibility under Section 12(5) automatically terminates the mandate and is raised by applying to the court under Section 14, with substitution under Section 15. After the award, it can be raised under Section 34, since an award by an ineligible arbitrator is a nullity and against the public policy of India; the same applies to an interim award. (¶¶ 102, 104, 108, 109, 110, 111, 112)
- In arbitration, the parties' consent confers jurisdiction on the tribunal; a unilaterally constituted tribunal lacks it, and inherent lack of jurisdiction cannot be cured by conduct and may be raised at any stage, including for the first time under Section 34. (¶¶ 113, 114, 115, 116, 120, 123)
- To guard against a party participating and then challenging an adverse award, the party making a unilateral appointment should secure an express written waiver. An arbitrator should, at the first hearing, insist on a written waiver agreement and record minutes, and should withdraw if a party does not appear despite notice. (¶¶ 97, 121, 122)
Result
Appeals allowed; the High Court's judgment set aside and the arbitral awards dated 30.07.2018 set aside, with liberty to the parties to initiate fresh arbitration proceedings in accordance with law.