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The present case arose out of a dispute between Bharat Broadband Network Ltd(BBNL) and United Telecoms Ltd (UTL). The disputes arising out of the agreement between them had to be referred to arbitration by the Chairman and Managing Director of BBNL or to any person appointed by him.The Supreme Court has held that the appointment of arbitrator by a person who himself is ineligible to be an arbitrator as per Section 12(5) of the Arbitration and Conciliation Act 1996 is void ab initio. The bench of Justices R F Nariman and Vineet Saran followed the 2017 decision in TRF Ltd. v Energy Engineering Projects Ltd (2017) 8 SCC 377 (TRF Ltd)., which had held that an ineligible person cannot appoint arbitrator.
After that, on July 3, 2017, the SC decision in TRF Ltd. case that an ineligible arbitrator cannot appoint another arbitrator came. Citing this decision, BBNL sought withdrawal of Khan from the proceedings. Interestingly, UTL did not object to the continuation of Khan, who was appointed by BBNL's CMD. Khan rejected the request for withdrawal. This was challenged under Section 14 & 15 of the Act by BBNL before Delhi High Court. The High Court too rejected the challenge, holding that BBNL was estopped from questioning the mandate of the arbitrator appointed by it. The Court also construed from the conduct of parties - i.e BBNL appointing the arbitrator and UTL filing claim statement in proceedings before him - waiver of objections as per proviso to Section 12(5). Challenging the High Court's judgment, BBNL appraoched the Supreme Court.
Ineligibility under Section 12(5) de jure. Allowing the appeal of BBNL, the judgment authored by Justice Nariman stated that ineligibility under Section 12(5) of the Act was de jure in nature, leading to automatic termination of his mandate.
Appointment of arbitrator by ineligible person void Coming to the facts of the case, the bench noticed that CMD of BBNL was himself an ineligible person as per Item 5 of Seventh Schedule, which barred manager, director etc. of a party to the dispute from being an arbitrator. Applying the decision in TRF Ltd, the bench said that CMD could not have appointed arbitrator.Rejecting this, the Court said that the ineligibility of Khan came to light only after the SC rendered the TRF decision on July 3, 2017. The appointment was made before that, on January 1, 2017.
Waiver of objection under Section 12(5) should be express and in writing The SC found fault with the HC's judgment for construing waiver of objections. It said that as per proviso to Section 12(5) the waiver should be express and in writing.
Resultantly, the SC set aside the HC's judgment, and terminated the mandate of the arbitrator. While the appeal was pending in SC, the arbitrator had passed award in the matter, and Section 34 appeal challenging it was also filed. Since the arbitrator's mandate was terminated, the SC quashed the award as well.
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