On January 6, 2023, the Division Bench of the High Court of Delhi in the matter, Govind Singh v. Messrs. Satya Group Private Limited, [FAO (Comm.) 136 of 2022], has held that the participation of a party in the arbitral proceedings, without raising any objection to the appointment of the Ld. Arbitrator, would not tantamount to waiver of its right under Section 12 (5) of the Arbitration and Conciliation Act, 1996.

Brief Facts: 

1. Govind Singh (“the Appellant”), in the month of January, 2014, booked a flat in a building being developed by Satya Group Pvt. Ltd. (“the Respondent No. 1”) and paid a sum of Rs. 50,000/- (Rupees fifty thousand) towards the same.
2. Subsequently, on June 30, 2014, the Appellant and the Respondent No. 1 executed a Buyer’s Agreement with respect to the flat so booked by the Appellant. On receipt of the Buyer’s Agreement, the Appellant noticed an increase in the cost of the flat and thus, sought cancelation of his allotment. The Appellant was informed by the Respondent No. 1 that in case of cancelation of the transaction, the amount paid by the Appellant would stand forfeited.
3. It was thereafter agreed between the parties that the amount paid by the Appellant towards the earlier flat would stand transferred to a smaller unit and thus, a new Buyer’s Agreement dated August 29, 2017, was executed between the parties. The Appellant claimed that the Buyer’s Agreement dated August 29, 2017, did not contain the adjustment of the amount already paid by the Appellant to the Respondent No. 1 and that the Appellant was made to execute the Buyer’s Agreement dated August 29, 2017, under coercion.
4. After signing of the Buyer’s Agreement, the Respondent failed to implement the changes required by the Appellant and thus, the Appellant sought to cancel the transaction.
5. The Appellant invoked arbitration under the Buyer’s Agreement dated June 30, 2014, raising various allegations against the Respondent No. 1 and the Managing Director of the Respondent No. 1, in terms of the aforementioned Buyer’s Agreement, referred a letter to the Respondent No. 2, a practicing advocate, to act as the Sole Arbitrator to adjudicate the dispute between the parties.
6. The Respondent No. 2 accepted the appointment and declared that there were no circumstances that gave rise to any justifiable doubts as to his independence or impartiality.
7. The Appellant had appeared before the Respondent No. 2 on February 24, 2019 and had objected to the procedure adopted for the appointment of the Respondent No. 2. Thereafter, the Appellant and the proxy counsel accompanying him had left the proceedings.
8. Notwithstanding the objections raised by the Appellant, the Respondent No. 2 proceeded ex-parte and delivered the Award dated January 17, 2019 (“Impugned Award”) in favour of the Respondent No. 1 and against the Appellant.
9. In view of the same, the Appellant filed an Application under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) before the High Court of Delhi, seeking to set aside the Impugned Award, which Application was rejected by the High Court of Delhi vide Order dated December 07, 2021 (“Impugned Order”). While rejecting the Application of the Appellant under Section 34 of the Act, the High Court of Delhi, in the Impugned Order held that the Respondent No. 2 had complied with the provisions of Section 12 of the Act by making necessary disclosures before accepting his appointment as the Sole Arbitrator. The Court further held that the Appellant had not challenged the appointment and thus, the appointment of the Respondent No. 2 was in accordance with the Act.
10. Aggrieved by the Impugned Order, the Appellant filed an Appeal under Section 37 of the Act before the Division Bench of the Delhi High Court.

Issues: 

1. Whether the Respondent No. 2 was ineligible to be appointed as the Ld. Sole Arbitrator to adjudicate the disputes between the parties?
2. Whether the Appellant by his conduct had waived his right to object to the appointment of the Respondent No. 2?

Decision of the Court: 

The Division Bench of the High Court of Delhi, while allowing the Appeal filed by the Appellant, held that the Respondent No. 2 was ineligible to act as an arbitrator under Section 12 (5) of the Act, since the Respondent No. 2 was unilaterally appointed by the Managing Director of the Respondent No. 1. As a result of this, the Impugned Award was liable to be set aside as being wholly without jurisdiction. The Court also held that even if it was assumed that the Appellant had participated in the arbitral proceedings, without raising any objection to the appointment of the Respondent No. 2, the same would not tantamount to a waiver of the right of the Appellant under Section 12 (5) of the Act.

Comment: 

Vide the said Judgement, the Division Bench of the High Court of Delhi has not only reiterated that in terms of Section 12 (5) of the Act read with the Seventh Schedule of the Act, not only would an employee be ineligible to act as an arbitrator, but such ineligibility would also extend to extend to a person appointed by such officials, who are otherwise ineligible to as arbitrators. The Division Bench has also categorically, as respite to parties participating in arbitration proceedings, held that the participation of a party in the arbitration proceedings, would not preclude such a party from raising an objection under Section 12 (5) of the Act.

Please find attached a copy of the order.

This update has been contributed by Namitha Mathews (Partner) and Poorva Pant (Senior Associate).

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