Arbitration Proceedings Before An Ineligible Arbitrator Are Void: Telecommunication Consultants India Ltd V Shivaa Trading*

The Delhi High Court set aside an award passed by an arbitrator who was ineligible for appointment. Such an arbitrator inherently lacks jurisdiction and the arbitration proceedings conducted by him are void.

Background

A memorandum of understanding (MoU) was entered between Telecommunications Consultants India (TCI) and Shivaa Trading (ST) for the construction of rural roads in Madhya Pradesh. The MoU contained an arbitration clause, which empowered the Chairman and Managing Director of TCI to unilaterally appoint a sole arbitrator.

Disputes arose between the parties and arbitration was invoked by TCI. TCI appointed the sole arbitrator and claimed damages from ST, which filed a counterclaim against TCI. The arbitrator dismissed both TCI's claim and ST's counterclaim.

TCI challenged the award on the grounds that the appointment of the arbitrator was void and any resultant award ought to be set aside. TCI's case was that the arbitrator had a relationship with a party, and this falls within the Seventh Schedule to the Arbitration and Conciliation Act 1996. The Seventh Schedule specifies the circumstances under which a person is ineligible to be appointed as an arbitrator and because the arbitrator was within one of those circumstances, the arbitrator was ineligible under §12(5) of the Act.

Decision

The Court held that:

1. §12(5) of the Act stipulates that if the arbitrator has a relationship with a party which falls within any of the categories listed in Seventh Schedule, then the arbitrator is ineligible for appointment.
2. The consequence is that the arbitrator becomes ineligible to perform his function by operation of law. It does not matter if the party challenging the appointment is the same party that has unilaterally appointed the arbitrator.
3. Since the arbitrator inherently lacks jurisdiction, the appointment and the proceedings conducted are void.
4. §12(5) of the Act states that this stipulation can be waived, but the waiver must be express, in writing and must be given after the dispute between the parties has arisen.
5. The Court relied on the judgment of the Supreme Court in Bharat Broadband Network Ltd v United Telecom Ltd.¹

Conclusion

The Court upheld the statutory mandate under §12(5) of the Act and emphasised that since ineligibility goes to the root of the appointment, an ineligible arbitrator inherently lacks jurisdiction and the resultant award ought to be set aside.

Footnotes

* 2024 SCC OnLine Del 2937

1. (2019) 5 SCC 755

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