By: Deborshi Sarkar
In the first part of the article, subsequent to an introduction the author has portrayed the issue pertaining to unilateral appointment of arbitrator post the 2015 amendment. Further, the author also analysed the fallacy in the persona designate approach adapted by the Hon’ble Calcutta High Court. In this part the author aims at arguing as to why participation in proceedings including filing of pleadings by parties does not constitute a valid waiver to Section 12(5).
Filing of Pleadings as an Express Agreement in Writing
The proviso to Section 12(5) postulates a possible waiver to the applicability of the Seventh schedule subsequent to the dispute between parties. In other words through an expressly written agreement the ineligibility of an arbitrator under Section 12(5) read with the Seventh schedule can be done away with. In McLeod Russel, as the appointment of the arbitrator was violative of Section 12(5), his mandate was liable to be terminated under Section 14 of the Act. However, the Court construed McLeod Russel’s active participation in the arbitration proceedings including the filing of pleadings at various stages as an express agreement in writing. As a result, the unilateral appointment of the sole arbitrator by Aditya Birla was upheld. The moot question to be addressed here is what constitutes as an express agreement in such circumstances. The Apex Court in Bharat Broadband Network Limited v. United Telecoms Limited (Bharat Broadband), drawing inference from Section 9 of the Indian Contract Act, 1872 held that the parties must in express writing and in no uncertain terms agree to the appointment of an arbitrator. Such agreement must acknowledge the ineligibility of an arbitrator and the same cannot be inferred from conduct of parties. The requirement for such an agreement has also been upheld by the Apex Court in Jaipur Zila. Thereby, in McLeod Russel an agreement between the parties acknowledging the appointment of the arbitrator by Aditya Birla despite the ineligibility of the arbitrator under Section 12(5) would have constituted a valid waiver. However, the facts of the same are devoid of any such waiver by the parties.
The Court in the present case construed the various pleadings filed by McLeod Russel including the affidavit/Statement of Defense as an express agreement in writing. A similar set of facts was faced by the Hon’ble Delhi High Court[1] in Delhi Integrated Multi Modal Transit Systems Ltd. v. Delhi Jal Board. In this case the party claiming termination of the arbitrator’s mandate had already participated in the proceedings as respective pleadings were filed. The Hon’ble Delhi High Court held that mere filing of Statement of Claim, applications before the tribunal for extension of time to file an affidavit of evidence would not construe an express agreement. The Court held that mere participation in proceedings would not amount to an express waiver under the proviso to Section 12(5) when the appointment itself is void ab initio. A similar position was taken in Bharat Broadband where the Apex Court held that a Statement of Claim filed before the arbitrator, would not mean that there is an express agreement. Against such settled jurisprudence and in the absence of an express agreement the Hon’ble High Court has erred in drawing a corollary with Section 7 of the Act. Section 7(2)(c) of the Act postulates a legal fiction for the purpose of Section 7 itself.[2] Extending the application of the same to Section 12(5) would transgress the purpose of the legislature behind enacting such a provision. Thereby, the filing of pleadings by the parties in McLeod Russel would not constitute an express agreement as required under the proviso to Section 12(5).
It is also imperative to note that the Court in McLeod Russel adopted a constrained approach to the ineligibility under Section 12(5). The Court observed that the provision must not be treated as an escape route for a disgruntled party once the party has participated in the arbitration proceedings for a considerable length of time and is not satisfied with the award. This approach is indicative of a time barred application of Section 12(5) to the merits of the case. In this regards various High Courts have on numerous occasions in a post-award stage upheld the parties’ right to challenge arbitration proceedings as being violative of Section 12(5). In Naresh Kanayalal Rajwani and Ors. v. Kotak Mahindra Bank Limited & Anr, the Hon’ble Bombay High Court while adjudicating a Section 34 application held that an ineligibility under Section 12(5) goes to the very roots of the proceedings. Therefore ineligibility under Section 12(5) would vitiate the proceedings notwithstanding the participation of parties and declaration of award. Similarly, the Hon’ble Madras High Court in Hina Suneet Sharma v. Nissan Renault Financial Services India private limited upheld the parties’ right to challenge a violation of Section 12(5) under a Section 34 application. The Court ratiocinated that an arbitration proceeding violative of any provision of the Act contravenes the public policy of India, rendering the setting aside of such proceedings. Thus, the Court in McLeod Russel has erred in construing Section 12(5) in a time-barred manner as the same goes to the very root of the arbitration proceedings. In a scenario where the proceedings are vitiated participation of parties or declaration of an award cannot possibly cure such a defect.
CONCLUSION
The Court in Mcleod Russel has adapted a hyper-technical approach in deciding that all unilateral appointments are not invalid. Applying the persona desginata approach, the Court held that unilateral appointment is invalid only when the person making such appointment is ineligible under Section 12(5) read with the seventh schedule. Such an inference may arguably be in consonance with the decision of the Apex Court in TRF and Bharat Broadband. However, in Perkins the Apex Court held that an appointment made by any person having an interest in the outcome of the dispute would be invalid. Thereby the Apex Court in Perkins sealed the fate for all kinds of unilateral appointment. Drawing an inference from the above-mentioned decisions headlining the jurisprudence surrounding unilateral appointment of arbitrators, it is evidently safe to assert that the same remains invalid under the act. Furthermore, the Apex Court in Bharat Broadband has laid down the requirements for a valid waiver under the proviso to Section 12(5). Mere participation of parties cannot be construed to be an express agreement in writing. Thereby, following a decision like in McLeod Russel could lay down an unfavourable precedent for parties in order to validate their arbitration agreement and may prove to be antithetical to the neutrality of arbitrators.
Author’s Bio:
Deborshi Sarkar is a 5th year law student at Symbiosis Law School, Noida
RMLNLU Arbitration Law Blog 