Case Note & Summary
The dispute arose from an agreement dated 30 October 2013 between the appellant, a contractor, and the respondent, a private limited company engaged in water distribution and infrastructure, for water supply works at two locations in Maharashtra. The appellant executed the work, but a dispute emerged regarding extra work ordered by the respondent, which the appellant claimed was outside the contractual scope and required payment. The contract contained an arbitration clause (Clause 17b) providing that disputes would be referred to the 'Member Secretary STEM' as sole arbitrator. After the respondent disputed the claim, the appellant initially filed a Section 11 application before the Bombay High Court but withdrew it for failure to issue a Section 21 notice. The appellant then issued a notice dated 5 July 2019 invoking arbitration, and the respondent replied on 22 July 2019 consenting to appoint Col. Vivekanand Choudhary (retd.), the Managing Director of the respondent, as sole arbitrator. Prior to this consent, the respondent had filed an affidavit of its Company Secretary dated 26 June 2019 insisting on the same appointment, stating that the post of Member Secretary had been replaced by Managing Director and the same individual held both posts, making him the rightful arbitrator under the clause. The appellant did not object to this appointment and participated in the arbitral proceedings, which commenced with the arbitrator's disclosure under the Fifth Schedule on 4 October 2019. The respondent filed its statement of defence, indicated a counterclaim, and participated in hearings between November 2019 and March 2020. The appellant obtained an extension of the arbitral tribunal's mandate from the High Court on 10 August 2020 in Arbitration Petition No. Ld/VC/ARBPL/17/2020, extending time by six months from 22 July 2020. The arbitrator passed an award on 29 September 2020 in favour of the appellant. The respondent filed a Section 34 application on 1 January 2021 before the Commercial Court at Thane, and after additional documents were permitted on 6 April 2023, the Commercial Court by order dated 16 May 2023 set aside the award on the sole ground that the arbitrator was the Managing Director of the respondent and thus ineligible under Section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, 1996, also invoking Sections 14, 15, and 34(2A). The appellant challenged this order in the High Court under Section 37, framing the issue as a pure question of law: whether an award could be set aside on the ground of the arbitrator's ineligibility when the arbitrator was appointed by consent of the parties and was the Managing Director of one party. The excerpt of the judgment provided does not include the High Court's final analysis or operative order, but records the background, the parties' respective stands, and the Commercial Court's reasoning that the statutory ineligibility rendered the award patently illegal. The appeal was reserved on 15 January 2025 and pronounced on 21 April 2025, but the concluding part of the judgment is not available in the text supplied.
Headnote
A) Arbitration Law - Arbitrator Ineligibility - Section 12(5) read with Seventh Schedule, Arbitration and Conciliation Act, 1996 - Statutory ineligibility attaches to an arbitrator who is the Managing Director of one of the parties, and an award passed by such ineligible arbitrator is liable to be set aside as patently illegal under Section 34(2A) - The Commercial Court set aside the award on this ground, observing that the arbitrator was the respondent's Managing Director despite being appointed by consent; the High Court was called upon to determine whether such consent or participation could cure the ineligibility (Paras 1-10).
B) Arbitration Law - Waiver and Consent - Section 12(5) read with Seventh Schedule, Arbitration and Conciliation Act, 1996 - Statutory ineligibility cannot be waived by consent or participation in arbitration - The appellant did not object to the respondent's insistence on its Managing Director as arbitrator and took part in the proceedings; the appeal required determination whether such conduct estopped the appellant from challenging the award's validity (Paras 1-10).
Issue of Consideration
Whether an arbitral award can be set aside on the ground of ineligibility of an arbitrator under Section 12(5) read with Seventh Schedule of the Arbitration and Conciliation Act, 1996 when the arbitrator, who was the Managing Director of one of the parties, was appointed by consent of the parties.
Law Points
- Section 12(5) read with Seventh Schedule imposes statutory ineligibility on arbitrator having specified relationship with party
- Managing Director of a party is ineligible
- consent cannot cure ineligibility
- award by ineligible arbitrator is patently illegal under Section 34(2A)
- Sections 14 and 15 termination of mandate
- Section 37 appellate scope
- Section 29A extension of mandate
- Section 21 notice requirement
Case Details
2025 LawText (BOM) (04) 59
Commercial Arbitration Appeal No. 8 of 2023
G.S. Kulkarni, Advait M. Sethna
Gauraj Shah, Mangesh Humane, Ashish S. Gaikwad, Anirud R. Rote
Mr. R.B. Krishnani, Proprietor of M/s. R. K. Krishnani through its authorised signatory Mr. Subhash Gundukupi
M/s. STEM Water Distribution and Infrastructure Com. Pvt. Ltd.
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Nature of Litigation
Commercial arbitration appeal under Section 37 of Arbitration and Conciliation Act, 1996 challenging the Commercial Court's order setting aside an arbitral award.
Remedy Sought
Appellant sought to set aside the Commercial Court's order dated 16 May 2023 and restore the arbitral award dated 29 September 2020.
Filing Reason
Respondent successfully challenged the arbitral award under Section 34 on the ground that the arbitrator was the Managing Director of the respondent and hence ineligible under Section 12(5) read with Seventh Schedule of the Arbitration and Conciliation Act, 1996.
Previous Decisions
Commercial Court at Thane by order dated 16 May 2023 allowed the respondent's Section 34 application and set aside the arbitral award dated 29 September 2020 on the ground of arbitrator's ineligibility, invoking Sections 12(5), 14, 15, and 34(2A) of the Arbitration and Conciliation Act, 1996; High Court had earlier extended the arbitrator's mandate by order dated 10 August 2020 in Arbitration Petition No. Ld/VC/ARBPL/17/2020.
Issues
Whether an arbitral award can be set aside on the ground of ineligibility of an arbitrator under Section 12(5) read with Seventh Schedule of the Arbitration and Conciliation Act, 1996 when the arbitrator, being the Managing Director of one of the parties, was appointed by consent of the parties.
Whether consent to the appointment of an ineligible arbitrator and subsequent participation in arbitral proceedings amounts to waiver of the right to challenge the award on the ground of ineligibility.
Whether the Commercial Court correctly applied Section 34(2A) to set aside the award as patently illegal due to arbitrator's ineligibility.
Submissions/Arguments
Respondent contended before the Commercial Court that the arbitrator was its Managing Director and therefore statutorily ineligible under Section 12(5) read with Seventh Schedule, rendering the award patently illegal.
Appellant's appeal framed the issue as a pure question of law, suggesting that consent of the parties to the appointment of the Managing Director as arbitrator precluded setting aside the award on the ground of ineligibility.
Respondent had earlier insisted through an affidavit of its Company Secretary dated 26 June 2019 that the Managing Director was the rightful arbitrator under Clause 17(b) of the contract, and the appellant did not object to that appointment.
Ratio Decidendi
The Commercial Court applied Section 12(5) read with Seventh Schedule to hold that an arbitrator who is the Managing Director of one of the parties is ineligible, and an award rendered by such an arbitrator is patently illegal under Section 34(2A); the High Court was considering whether consent to such appointment or subsequent participation could cure the statutory ineligibility. The final ratio of the High Court is not provided in the text supplied.
Judgment Excerpts
The only ground on which the arbitral award is set aside by the Commercial Court is to the effect that the learned arbitrator was the Managing Director of the respondent, hence, in view of the provisions of Section 12(5) of the ACA, he was ineligible to act as an arbitrator.
the issue as urged in the present appeal is a pure question of law, namely: 'when the learned sole arbitrator was appointed by consent of the parties, and who happened to be the Managing Director of the respondent having conducted the arbitral proceedings culminating into an award, whether the arbitral award could be set aside on the ground of ineligibility of the arbitrator in terms of Section 12(5) of the ACA and other relevant provisions'.
Procedural History
Agreement dated 30 October 2013 executed between appellant and respondent for water supply works, containing arbitration clause 17(b). Dispute arose over extra work, leading to appellant's notice dated 1 February 2019. Appellant filed Section 11 application (Arbitration Petition No. 72 of 2019) but withdrew it due to lack of Section 21 notice. Appellant issued notice dated 5 July 2019 invoking arbitration. Respondent replied on 22 July 2019 consenting to appointment of Col. Vivekanand Choudhary (retd.), Managing Director of respondent, as sole arbitrator. Arbitrator made disclosure under Fifth Schedule on 4 October 2019. Arbitral hearings conducted between 7 November 2019 and 18 March 2020; respondent filed statement of defence and indicated counterclaim. High Court extended arbitrator's mandate on 10 August 2020 by six months from 22 July 2020 in Arbitration Petition No. Ld/VC/ARBPL/17/2020. Arbitrator passed award on 29 September 2020. Respondent filed Section 34 application on 1 January 2021 before Commercial Court at Thane. Commercial Court permitted additional documents on 6 April 2023. Commercial Court passed impugned order on 16 May 2023 setting aside award. Appellant filed present appeal under Section 37 before High Court; appeal reserved on 15 January 2025 and pronounced on 21 April 2025.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 11, Section 12(5), Section 14, Section 15, Section 21, Section 29A, Section 34, Section 34(2A), Section 37, Fifth Schedule, Seventh Schedule
- Companies Act, 1956:
