The Delhi High Court has clarified that the mere participation of a party in arbitral proceedings does not mean they have accepted a unilaterally appointed arbitrator. The court held that unless a party expressly waives their objection in writing, such an appointment remains invalid under Section 12(5) of the Arbitration and Conciliation Act, 1996.

Background of the Case

The case arose from a dispute between Shakti Pump India Ltd (Petitioner) and Apex Buildsys Ltd (Respondent). The two companies had entered into a Works Contract for a Pre-Engineered Building (PEB) Project through a Letter of Intent dated August 24, 2011. Following this, the petitioner issued two purchase orders to the respondent.

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Years later, on June 7, 2017, the respondent invoked arbitration and unilaterally appointed Mr. Achin Goel, Advocate, as the sole arbitrator. Subsequently, through a corrigendum notice dated July 10, 2017, the respondent withdrew this appointment and instead appointed Mr. J S Jangra, Additional District Judge (Retd.), as the arbitrator. This appointment was also made without the petitioner’s consent, prompting them to challenge its validity.

The petitioner argued that:

1. The arbitrator was appointed unilaterally by the Director and Group Chairman of the respondent, violating Section 12(5) of the Arbitration Act.
2. The Director and Group Chairman, who made the appointment, had a vested interest in the dispute's outcome, making the appointment biased and legally untenable.
3. The respondent company was under liquidation under the Insolvency and Bankruptcy Code (IBC), 2016, and hence, could not have filed the application under Section 29(A) of the Arbitration Act.
4. The appointment of an arbitrator by an ineligible person is invalid under the Supreme Court’s ruling in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Limited (2020)

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The respondent countered that:

1. The petitioner’s active participation in the arbitration proceedings amounted to an implicit acceptance of the arbitrator’s appointment.
2. Previous legal precedents allowed for implied acceptance through participation.

The Delhi High Court rejected the respondent’s defense and reaffirmed the legal principles surrounding arbitrator appointments.

Key observations made by the court include:

• “A person’s ineligibility to act as an arbitrator affects the very root of their appointment. If the arbitrator was ineligible, everything resulting from such an appointment is legally void.”
• The court emphasized the necessity of an explicit waiver in writing for an arbitrator’s appointment to be considered valid under Section 12(5). “For the proviso to apply, there must be an explicit written agreement obtained after the dispute has arisen. No such waiver existed in this case.”
• The Supreme Court in Ellora Paper Mills Ltd. v. State of M.P. (2022) held that mere participation in arbitration proceedings does not constitute a waiver of objections under Section 12.
• Additionally, in Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd. (2017), the Supreme Court underscored that “independence and impartiality of the arbitrator are fundamental to arbitration proceedings.” The rule against bias is a cornerstone of natural justice.
• The Supreme Court in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) (2024) stated, “Equal participation in the appointment process is necessary to ensure an impartial arbitral process.”

Given these principles, the High Court concluded that an arbitrator appointed unilaterally, without a clear written waiver, is void from the beginning (void ab initio) and must be terminated.

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The court allowed the petition, terminating the arbitrator’s mandate. It reinforced that the unilateral appointment of an arbitrator is not legally sustainable unless expressly waived in writing after the dispute has arisen.

Case Title: SHAKTI PUMP INDIA LTD versus APEX BUILDSYS LTD and Anr.

Case Number: O.M.P. (T) (COMM.) 107/2024 & I.A. 42034/2024

Judgment Date: 19/03/2025

For Petitioners: Mr. Vasanth Rajasekaran and Mr. Harshvardhan Korada, Advocates And Mr. Mritunjay Kumar Singh, Mr. Rajiv Vijay Mishra, Mr. Rajeev Kumar Gupta, Mr. Prakash Kashyap & Mr. Shaikat Khatua, Advocates.

For Respondent: Mr. Sohel Sehgal, Mr. Rakesh Kumar, Mr. Ramesh Babu and Mr. Jainendra Maldhir, Advocates. And Mr. Sohel Sehgal, Mr. Rakesh Kumar, Mr. Ramesh Babu and Mr. Jainendra Maldhir, Advocates.