Unilateral Appointment Undoes A Defence Procurement Award: Delhi High Court Raises The Objection On Its Own Motion

Unilateral Appointment Undoes a Defence Procurement Award: Delhi High Court Raises the Objection on Its Own Motion

In Union of India v. M/s Goodrich Foodtech Ltd, O.M.P. (COMM) 375/2022, decided on 6 August 2026, a Single Judge of the Delhi High Court (Subramonium Prasad, J.) set aside an arbitral award of April 2022 in favour of the award-holder, on a ground that neither party had pleaded and that the Court itself introduced at the stage of final hearing: the sole arbitrator had been unilaterally appointed by an authority within the Ministry of Defence, and was therefore ineligible under Section 12(5) of the Arbitration and Conciliation Act, 1996 read with the Seventh Schedule. The award was held to be a nullity, without any examination of its merits.

The judgment is of practical consequence to every contracting party still holding, or still defending, an award rendered under a legacy appointment clause of the kind found in standard government and defence procurement documentation.

Background

The Union of India floated a Request for Proposal dated 17 April 2017 for the supply of malted milk food with cocoa conforming to Defence Food Specification No. 51A. Goodrich Foodtech Ltd emerged as the successful bidder for 1390 MT for the consumption year 2017-18, and five identically worded acceptance of tender letters were issued on 19 May 2017 covering staggered delivery periods between June 2017 and March 2018. Five performance bank guarantees aggregating Rs. 2,49,87,020 were furnished.

Part of the supply was made and paid for. Disputes arose after a defect notice dated 19 January 2018 alleging that the supplied product contained soya protein and non-milk fat (palm oil) contrary to specification, followed by a show-cause notice dated 24 March 2018 invoking the warranty provisions in Clause 7.2 of the RFP. On 21 August 2018 the Union terminated four of the five contracts, forfeited the bank guarantees and encashed them. A debarment letter followed on 20 November 2018.

Goodrich first filed a writ petition, W.P. (C) No. 10986/2018, which it withdrew on 12 October 2018 with liberty to pursue alternative remedies. It then invoked arbitration on 25 October 2018 under Clause 21 of Part I and Clause 3 of Part III of the RFP read with Form DPM-7 of the Defence Procurement Manual, a clause providing in terms that the arbitrator would be appointed by the Competent Financial Authority. A sole arbitrator was appointed with the approval of the competent authority in the Ministry of Defence (Army) and entered on reference on 14 January 2021.

The arbitrator framed four issues, decided all of them against the Union, and by an award dated 27 April 2022 (modified on 6 May 2022) allowed Claims 1, 2 and 7, aggregating over Rs. 8.7 crore inclusive of the refund of the encashed bank guarantees, with interest at 8% per annum. He also quashed the termination letter, the stock-freezing communications and the debarment letter, and rejected Claims 3 to 6. The Union challenged the award under Section 34 on grounds directed at the merits, including alleged inconsistency with the Indian Contract Act, 1872.

The holding

The Court did not reach any of the pleaded grounds. It recorded that the Competent Financial Authority forms part of the Ministry of Defence and is therefore an official of the Union of India, a party to the dispute, and consequently was not qualified to appoint the arbitrator. In the absence of compliance with the proviso to Section 12(5), the appointment was held void ab initio and the award a nullity. The petition was allowed and the award set aside.

Reasoning

The Court proceeded on two authorities. The first was the Supreme Court decision in Bhadra International (India) (P) Ltd. v. Airports Authority of India, 2026 SCC OnLine SC 7, on the form a waiver under the proviso to Section 12(5) must take. Although the statute prescribes no format for the agreement, the deliberate use of the words "express" and "in writing" signals that waiver cannot be inferred from implication or conduct, and the bar can be lifted only by a clear, unequivocal written agreement executed after the dispute has arisen. Tacit acceptance and procedural participation were expressly excluded. The Court there also reiterated the position in Bharat Broadband and in CORE II that the waiver must be a conscious abandonment of an existing right, made with knowledge of the ineligibility.

The second was the Division Bench decision in Mahavir Prasad Gupta & Sons v. State (NCT of Delhi), 2025 SCC OnLine Del 4241, which settled two propositions material here. First, a party that itself made the unilateral appointment is not, by that act, deemed to have agreed in writing to waive the arbitrator’s ineligibility, and retains the right to object. The Division Bench acknowledged that the position appears disingenuous, but held that it follows from the jurisdictional character of the defect. Second, an award rendered by an ineligible arbitrator is a nullity because the ineligibility goes to the root of jurisdiction, with the consequence that the Court may act under Section 34(2)(b) on its own where it finds such an award, even absent objection by either party.

Applying these principles, the Court held that mere participation in the reference, including the filing of a statement of claim, cannot amount to waiver, consistent with TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377.

The waiver arguments, and why they failed

The award-holder advanced three answers to the Court’s prima facie observation: that its own invocation letter of 25 October 2018 had called upon the Competent Financial Authority to appoint the arbitrator, so it could not be heard to say it had opposed the appointment; that Bhadra International established there is no fixed format for a waiver, so the invocation letter combined with unobjecting participation should be read as one; and that the Union had not raised the ground in its Section 34 petition at all.

Each was rejected. On the first two, the Court held that the absence of a prescribed format is beside the point, since Bhadra International itself requires an express written agreement made after the dispute has arisen and rules out inference from conduct. An invocation letter that operates the appointment machinery in the contract is a request under the clause, not a knowing relinquishment of the statutory protection. On the third, the Court held that a failure to plead the ground does not bar the point being taken, because the appointment was contrary to law declared by the Supreme Court, which under Article 141 binds all courts.

Practical implications

The most immediate consequence is for parties holding awards obtained under Defence Procurement Manual clauses, and under the many analogous public sector clauses vesting the appointment power in a departmental authority. Such awards remain vulnerable at the setting-aside stage and, on the reasoning in Mahavir Prasad, at the enforcement stage under Section 36, irrespective of how the proceedings were conducted or which party set the tribunal in motion. Time within the reference cures nothing: here, invocation was in 2018, the award in 2022 and the setting aside in 2026.

For claimants against government entities, the practical lesson is that invoking an appointment clause on its own terms preserves nothing. Where a clause confers the appointment power on one side, the safer course is to seek the appointment of an independent arbitrator by consent and, failing agreement, to move under Section 11. Proceeding under the contractual mechanism to save time carries the risk that the entire reference is later treated as a nullity, with the merits never adjudicated.

For those who wish to retain a nominated arbitrator, the only route left open is an express written agreement recording, after the dispute has arisen and with knowledge of the ineligibility, that the parties nevertheless repose confidence in the individual. A recital in procedural directions or the absence of protest will not serve. Parties who make such an agreement should ensure it is separately executed and unambiguous on both elements, namely knowledge and consent.

Because the objection is jurisdictional, a party that has participated without protest is not precluded from raising it later. Deferring it to the Section 34 stage, however, means underwriting the cost of an entire arbitration for an outcome that may be discarded. The commercially rational step remains to raise the defect at the threshold and seek substitution under Sections 14 and 15.

Finally, an award set aside on this ground leaves the underlying claims undetermined. Parties should account for the limitation consequences of a fresh reference, including the exclusion of time available under Section 43(4) of the Act in respect of the period consumed by the setting-aside proceedings.

Concluding observations

The decision does not break new doctrinal ground so much as it demonstrates how firmly the post-CORE II position now operates in practice. Two features deserve attention. The first is that the Court raised the issue itself, treating the ineligibility as a defect that a court is obliged to notice rather than one that depends on a party’s pleading. The second is that the authority relied upon by the award-holder became the basis for setting the award aside, a reminder that the absence of a prescribed form of waiver does not dilute the requirement that it be express, written and post-dispute.

The result is that a party which secured relief on the merits, including the quashing of a termination and a debarment, is left where it started, on account of the appointment mechanism it had itself invoked. For contracting parties on both sides of government procurement, the constitution of the tribunal is no longer a procedural formality to be managed at the outset and forgotten. It is the single point at which an entire arbitration can be lost.

Source: Union of India v. M/s Goodrich Foodtech Ltd, O.M.P. (COMM) 375/2022, Neutral Citation 2026:DHC:6441, judgment dated 6 August 2026 (High Court of Delhi).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.