On December 22, The Delhi High Court has ruled that a unilateral request made by one of the parties for setting the appointment procedure in motion, as provided in the arbitration agreement, would not constitute an agreement falling under the proviso to Section 12(5) of the Arbitration and Conciliation Act, 1996 (A&C Act) to waive off the disqualification contemplated under Section 12(5).

The bench of Justice Yashwant Varma observed that the arbitration agreement conferred the power to appoint a Sole Arbitrator upon the CMD of the respondent Company, who was de jure disqualified from being appointed as an arbitrator by virtue of Section 12(5) and thus, incapable in law of appointing an arbitrator. The Court held that the arbitration notice issued by the claimant, calling upon the respondent Company to appoint an arbitrator in accordance with the arbitration agreement, cannot be construed as an express agreement between the parties to waive off the disqualification contemplated under Section 12(5).

After certain disputes arose between the petitioner- M/s. Osho G.S. & Company, and the respondent M/s Wapcos Ltd. under an agreement, the petitioner invoked the arbitration clause. The petitioner filed a petition before the Delhi High Court, seeking termination of the mandate of the sole arbitrator appointed by the respondent.

The petitioner submitted before the High Court that since the CMD of the respondent Company was de jure disqualified, in terms of Section 12(5) of the A&C Act, from being appointed as an arbitrator, any unilateral appointment made by him would suffer a similar disqualification.

The Court noted that the CMD of the respondent Company was conferred the power to appoint a Sole Arbitrator under the Arbitration Agreement. It added that the CMD was clearly disqualified from being appointed as an arbitrator by virtue of Section 12(5) of the A&C Act. Referring to the decision of the Supreme Court in Perkins Eastman Architects DPC versus HSCC (India) Ltd. (2019), the Court concluded that since the CMD was de jure disqualified from being appointed as an arbitrator, he was incapable in law of appointing an arbitrator as well.

The respondent- M/s Wapcos, argued that since the petitioner had invoked the arbitration clause and issued a letter to the respondent, requesting it to appoint an arbitrator, the petitioner must be deemed to have waived off the applicability Section 12(5).

Section 12 (5) of the A&C Act provides that a person shall be ineligible to be appointed as an arbitrator if his relationship with the parties, the counsel or the subject-matter of the dispute falls under any of the categories specified in the Seventh Schedule of the A&C Act.

The proviso to Section 12 (5) provides that the parties may, by an express agreement in writing, waive the applicability of Section 12(5), subsequent to the disputes having arisen between them.

The Court observed that the petitioner, in its letter invoking the arbitration clause, had conveyed its intention to refer the disputes between the parties to arbitration, calling upon the respondent to appoint an independent sole arbitrator. Further, the Court noted that the request for appointment of arbitrator was made without prejudice to the rights and contentions of the petitioner. The bench concluded that the said communication was issued to seek further steps for appointment of an arbitrator and it cannot be construed as an express agreement between the parties seeking to waive the disqualification of a nominated arbitrator under Section 12(5).

The Court held that a unilateral request made by one of the parties for setting the appointment procedure in motion, as contemplated in the arbitration agreement, would not constitute an agreement as contemplated under the proviso to Section 12(5).

"It would be important to recall that Section 12(5) and more particularly the Proviso thereto contemplates parties waiving the applicability of the said provision "by an express agreement in writing". A unilateral request made by one of the parties for setting the appointment procedure in motion would clearly not answer the description of an express agreement in writing executed by the parties agreeing to the waiver of a disqualification of a nominated arbitrator under Section 12(5). The Court further notes that the aforesaid communication was in any case without prejudice to the rights and contentions which were available to the petitioner to urge and advocate", the Court said.

Holding that the unilateral appointment of the sole arbitrator by the CMD of the respondent Company cannot be sustained, the Court terminated the mandate of the arbitrator and appointed a substitute arbitrator.

Case Title: M/s. Osho G.S. & Company versus M/s. Wapcos Limited
Citation: O.M.P. (T) (COMM.) 57/2022 & I.A. 8611/2022 
Link: http://164.100.69.66/jupload/dhc/YVA/judgement/23-12-2022/YVA22122022OMPTCOMM572022_190628.pdf