Case Note & Summary
The applicant, M/s. Kay Vee Enterprises, a construction company, entered into a contract with the respondent, Shri Guru Gobind Singhji Institute of Engineering & Technology, for construction work. Disputes arose, and the applicant invoked the arbitration clause (clause 56) which provided for disputes to be referred to the Architect for decision, and if dissatisfied, to arbitration by a Fellow of the Indian Institute of Architects appointed by the parties or by two arbitrators. The Architect, who was an employee of the respondent, rendered a decision. The applicant then filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator by the court, arguing that the clause was invalid as it allowed unilateral appointment by the respondent's employee. The respondent contended that the applicant had waived its right to object by participating in the Architect's proceedings. The court analyzed Section 12(5) read with Schedule 7, which disqualifies persons who are employees or in a relationship with a party from being appointed as arbitrator. The court held that the Architect, being an employee of the respondent, was ineligible, and the clause providing for his appointment was invalid. The court also rejected the waiver argument, stating that mere participation in the Architect's decision did not constitute waiver of the right to challenge the clause. The court appointed a retired judge as the sole arbitrator to adjudicate the disputes.
Headnote
A) Arbitration Law - Appointment of Arbitrator - Unilateral Appointment Clause - Section 11(6), Section 12(5), Schedule 7, Arbitration and Conciliation Act, 1996 - The arbitration clause in the agreement provided for appointment of an arbitrator by the Architect, who was an employee of the respondent. The court held that such a clause is invalid as it violates Section 12(5) read with Schedule 7, which disqualifies a person who is an employee or in a relationship with a party from being appointed as arbitrator. The court further held that the applicant's invocation of arbitration and failure to object to the Architect's decision did not constitute waiver of the right to challenge the appointment procedure. The court appointed a retired judge as arbitrator under Section 11(6) of the Act. (Paras 1-10) B) Arbitration Law - Waiver of Right to Object - Section 4, Arbitration and Conciliation Act, 1996 - The respondent argued that the applicant waived its right to object by participating in the proceedings before the Architect. The court rejected this argument, holding that mere participation in the decision-making process of the Architect does not amount to waiver of the right to challenge the validity of the arbitration clause, especially when the clause itself is invalid. (Paras 8-10)
Issue of Consideration
Whether the arbitration clause providing for appointment of an arbitrator by the Architect is valid in light of Section 12(5) read with Schedule 7 of the Arbitration and Conciliation Act, 1996, and whether the applicant is entitled to appointment of an arbitrator under Section 11(6) of the Act.
Final Decision
The court allowed the application and appointed a retired judge of this court as the sole arbitrator to adjudicate the disputes between the parties. The arbitrator shall be appointed by the court and the arbitration shall be conducted under the aegis of the Bombay High Court.
Law Points
- Unilateral appointment of arbitrator invalid
- Section 12(5) Arbitration and Conciliation Act
- 1996
- Schedule 7
- Section 11(6) application maintainable
- waiver of right to object
- appointment by court
