In a recent decision, the Delhi High Court set aside an arbitral award dated May 18, 2023, in the case of M/s S.K. Builders v. M/s CLS Construction Pvt Ltd, citing the unilateral appointment of an arbitrator as a nullity. The case stemmed from disputes arising out of a Memorandum of Understanding (MoU) dated December 20, 2019, where M/s S.K. Builders was subcontracted by M/s CLS Construction Pvt Ltd for the construction of a railway platform and other structures.
The MoU included a clause that stipulated any disputes arising would be resolved through arbitration by a mutually appointed arbitrator. However, the respondent, M/s CLS Construction Pvt Ltd, unilaterally appointed an arbitrator, leading to the dispute being brought before the High Court.
Legal Issues Involved:
The primary legal issue revolved around the unilateral appointment of the arbitrator by the respondent without the consent of the petitioner, M/s S.K. Builders. The petitioner argued that this appointment was a violation of the arbitration agreement, which required mutual consent for the appointment of an arbitrator.
The petitioner, represented by Senior Advocate Mr. Rajshekhar Rao along with Advocates Mr. Mayank Sharma, Mr. Anshul Kulshrestha, and Mr. Zahid L. Ahmed, challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. They contended that the award was void ab initio as the arbitrator had been unilaterally appointed, thus violating the agreed-upon terms of the MoU.
On the other hand, the respondent, represented by Senior Advocate Mr. Kirti Uppal along with Advocates Mr. Sidharth Chopra, Ms. Harshita Gulati, Ms. Diksha Mathur, Mr. Aditya Raj, and Mr. Navneet Thakran, argued that the petitioner’s failure to object to the arbitrator’s appointment constituted implied consent.
Court’s Decision:
Justice C. Hari Shankar of the Delhi High Court delivered the judgment on August 8, 2024, emphasizing that arbitration is inherently a consensual process. The court noted that the appointment of an arbitrator must be done with the mutual consent of both parties involved, as per the terms of the MoU.
Justice Shankar observed that the petitioner’s lack of response to the notice of arbitration did not equate to consent. He cited precedents including Perkins Eastman Architects DPC v. HSCC (India) Ltd and TRF Ltd v. Energo Engineering Projects Ltd, which unequivocally held that unilateral appointments of arbitrators are not permissible.
The court further highlighted that the arbitrator’s mandate is strictly derived from the mutual consent of the parties, and any deviation from this principle renders the proceedings void. The judgment stated:
“Consent is the cornerstone of arbitration. Unilateral arbitration is an oxymoron, and without mutual agreement, the appointment of an arbitrator is ex facie illegal.”
The court also addressed the petitioner’s specific objections raised during the arbitral proceedings, which were dismissed by the arbitrator. Justice Shankar ruled that the arbitrator’s dismissal of these objections was legally unsustainable, as it failed to address the fundamental issue of jurisdiction.
In conclusion, the Delhi High Court set aside the arbitral award, declaring the entire arbitral proceedings void due to the unilateral appointment of the arbitrator. The court reaffirmed that arbitration must strictly adhere to the consensual foundation on which it is built, ensuring fairness and justice in the process.
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Case Details:
– Case Number: O.M.P. (COMM) 297/2023
– Parties Involved: M/s S.K. Builders (Petitioner) vs. M/s CLS Construction Pvt Ltd (Respondent)
– Bench: Justice C. Hari Shankar
– Lawyers:
– For Petitioner: Mr. Rajshekhar Rao, Sr. Adv., with Mr. Mayank Sharma, Mr. Anshul Kulshrestha, and Mr. Zahid L. Ahmed, Advs.
– For Respondent: Mr. Kirti Uppal, Sr. Adv., with Mr. Sidharth Chopra, Ms. Harshita Gulati, Ms. Diksha Mathur, Mr. Aditya Raj, and Mr. Navneet Thakran, Advs.
