Delhi High Court Holds That Filing Of An Application Seeking Extension Of The Mandate Of The Arbitrator Is Not A Waiver Of The Ineligibility Of The Arbitrator

On June 1, 2023, the High Court of Delhi in the case of, Man Industries (India) Limited v. Indian Oil Corporation Limited, held that the filing of an application by a party seeking extension of the mandate of the Arbitrator, under Section 29A of the Arbitration and Conciliation Act, 1996 ("Act"), does not tantamount to a waiver of the ineligibility of the Arbitrator and therefore, does not meet the requirement of the Proviso to Section 12(5) of the Act.

Brief Facts:

The Petitioner filed a Petition under Section 34 of the Act, challenging the Award passed by the Ld. Sole Arbitrator adjudicating the disputes that had arisen between the parties.

During the pendency of the Petition and after the expiry of the period of limitation to file an appeal under Section 34 of the Act, the Petitioner filed an Application seeking to amend the Petition to include an additional ground to the challenge of the Award that the Ld. Arbitrator was de jure ineligible to adjudicate the dispute between the parties in terms of Section 12 (5) of the Act.

Submissions of the Petitioner:

The Ld. Sole Arbitrator having been appointed by the Respondent, even though in terms of the Arbitration Agreement between the parties, was de jure ineligible to act as an Arbitrator in view of Section 12 (5) of the Act.

There was no express waiver of the ineligibility of the Ld. Arbitrator by the Petitioner in terms of the Proviso to Section 12 (5) of the Act.

Although the Ld. Arbitrator was appointed at the request of the Petitioner and during the course of the arbitration proceedings, the Petitioner had not challenged the authority of the Ld. Arbitrator and had in fact filed Applications under Section 29A of the Act seeking extension of the mandate of the Ld. Arbitrator, the same would not satisfy the condition of the Proviso to Section 29A of the Act and thus, the Award passed by the Ld. Arbitrator is a nullity.

The plea of lack of jurisdiction of the Arbitrator can be raised at any stage of the proceedings, including before the Supreme Court. Incorporation of additional grounds by way of an amendment can be allowed depending on the facts of each case.

Submissions of the Respondent:

The Petitioner has never challenged the eligibility of the Ld. Sole Arbitrator to adjudicate the dispute between the parties. The Ld. Sole Arbitrator, in fact, was appointed at the request of the Petitioner.

The Ld. Arbitrator before entering reference, submitted his disclosure as required under Section 12 of the Act.

The Petitioner, in fact, has filed two applications under Section 29A of the Act seeking extension of the mandate of the Ld. Arbitrator. The filing of the Application by the Petitioner under Section 29A of the Act by the Petitioner, would satisfy the Proviso to Section 12(5) of the Act and the ineligibility, if at all, attached to the Ld. Sole Arbitrator would be waived.

Section 34(3) of the Act prescribes the period within which a challenge to the Award can be made. It also prescribes the period by which the Court can condone the delay in filing of the challenge to the Award. Any delay beyond the said period cannot be condoned by the Court. The Petitioner, therefore, cannot lay a new challenge to the Arbitral Award at a belated stage in the garb of filing an application seeking amendment to the original petition.

Decision of the Court:

The Court, while allowing the Petition, held that although it is undisputed that though in terms of the Arbitration Agreement and on the request of the Petitioner, the Ld. Sole Arbitrator was appointed by the Respondent alone, in terms of settled law laid down by the Supreme Court in a plethora of cases that the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a Sole Arbitrator, the Ld. Sole Arbitrator in the present case was de jure ineligible to act as such. Further, the plea of the Arbitrator being de jure ineligible to act as such is a plea of lack of jurisdiction, which can be allowed to be raised by way of an amendment or even without the same. The Petitioner by its participation in the arbitration proceedings or by filing applications under section 29A of the Act, seeking extension of the mandate of the Ld. Arbitrator, cannot be said to have waived the ineligibility of the Ld. Arbitrator under Section 12 (5) of the Act and this, the Award passed by the Ld. Arbitrator is invalid.

Relevant law:

Section 29A of the Act states as under:

"Time limit for arbitral award.- (1) The award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23:

Provided that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavor may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23.

(2) If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.

(3) The parties may, by consent, extend the period specified in sub-section (1) for making award for a further period not exceeding six months.

(4) If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period:

Provided that while extending the period under this sub-section, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent. for each month of such delay.

Provided further that where an application under sub-section (5) is pending, the mandate of the arbitrator shall continue till the disposal of the said application:

Provided also that the arbitrator shall be given an opportunity of being heard before the fees is reduced.

(5) The extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court.

(6) While extending the period referred to in sub-section (4), it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.

(7) In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.

(8) It shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.

(9) An application filed under sub-section (5) shall be disposed of by the Court as expeditiously as possible and endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party"

Section 12 (5) of the Act states as under:-

" (5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:

Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing."

Analysis:

By virtue of this Judgment it is abundantly clear that in case of a de jure ineligibility of an Arbitrator to act as such, the participation of a party in arbitration proceedings, including the filing of an Application under Section 29A of the Act seeking extension of the mandate of the Arbitrator, would itself not tantamount to a waiver by a party to such ineligibility and such an objection can be raised at any stage of the proceedings, including while preferring an Appeal under Section 34 of the Act. This judgment also provides a respite to parties as it clearly states that such an objection qua the ineligibility of an Arbitrator is a question of lack of jurisdiction, which can be raised for the very first time by way of an amendment to an Appeal under Section 34 (3) of the Act, which amendment can be filed beyond the period of limitation prescribed under Section 34 (3) of the Act. Further, the Judgment also assists an aggrieved party in challenging the eligibility of an Arbitrator, without a making a specific application in support thereof.

Please find attached a copy of the judgment.

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