Waiver To Section 12(5) Of Arbitration Act Has To Be Given After Constitution Of The Tribunal: Delhi High Court

Facts

The present three petitions have been filed under Section 14, ACA seeking termination of the mandate of the present arbitral tribunal and appointment of a sole arbitrator to adjudicate the disputes arising of the Contract Agreement dated 17.06.2016.

On account of various disputes, the Respondent terminated the Contract on 26.12.2018 in O.M.P (T)(COMM.) 5/2025 and O.M.P (T)(COMM.) 7/2025 on 19.05.2018 in O.M.P (T)(COMM.) 6/2025. Thereafter, the Petitioner made representation to the Respondent in terms of Clause No. 64 of the GCC which is the applicable provision for the dispute resolution.

Pursuant to the aforesaid representation, the Respondent appointed three serving railway employees as Arbitrators to adjudicate the disputes between the parties. The Petitioner appeared before the Arbitral Tribunal constituted by the Respondent on 7 hearings and thereafter, filed the present petition.

Contentions

The sole contention of the Counsel for the Petitioner is that the Arbitral Tribunal was appointed unilaterally by the Respondent which is against the settled principles of law and hence, the mandate of the Arbitral Tribunal should be terminated and a new Arbitral Tribunal should be constituted.

On the other hand, the Counsel for the Respondent argued that the Petitioner had already waived the applicability of Section 12(5), ACA on 23.02.2024. In this regard he relied upon a letter of the Petitioner.

It was further submitted that the Petitioner was very well cognizant with the arbitration clause and the right of the Respondent to nominate three Arbitrators who were to be the employees of the Railways. Being fully conscious of the clause, the Petitioner on its own accord waived in writing the applicability of Section 12(5), ACA and hence the petition is not maintainable. In this regard, reliance was placed on Truly Pest Solution (P) Ltd. v. Railway 2024 SCC OnLine Bom 3528.

Observations

The Court observed that the question which needs consideration is whether the waiver relied upon by the Respondent is a waiver as contemplated under Section 12(5), ACA.

The Court noted that Section 12(5), ACA aims to bring an element of neutrality and impartiality in the arbitral process. Any arbitrator who falls within the Seventh Schedule of ACA becomes ineligible for appointment as an arbitrator. It is only where a party categorically waives off the applicability of Section 12(5), ACA in writing that despite the person on account of being in one of the categories in the Seventh Schedule, becomes eligible to proceed with the arbitration proceedings.

The Court held that the main question for consideration was what was the stage when this waiver as contemplated under proviso of Section 12(5), ACA was to be given as to be considered as a waiver?

The Court observed that the waiver contemplated in the proviso of Section 12(5), ACA applies not to the manner or the mechanism under which the Arbitral Tribunal is to be constituted but to the constitution/individual members of the Arbitral Tribunal. The Court referred to the judgment of the Hon'ble Supreme Court in Bharat Broadband v. United Telecom (2019) 5 SCC 755, whereby it was clarified that “express agreement in writing” to waive refers to a “person” who is interdicted by the Seventh Schedule. If an individual falls within any of the categories as mentioned in the Seventh Schedule, then the said person/s are ineligible to be appointed as arbitrator and only to remove the ineligibility, the party may waive by an express agreement the said ineligibility in writing qua the person/s who are ineligible to be appointed.

The Court noted that it is possible that the parties to an arbitration agreement may agree to a mechanism for appointment of an arbitrator/ arbitral tribunal under which one of the parties to the arbitration agreement may appoint an arbitrator/arbitral tribunal. The opposing party may not have an objection to the mechanism of appointment of an arbitrator/arbitral tribunal and may waive off its applicability of Section 12(5), ACA to the appointment process. However, once the Arbitrator is appointed, the party which had given a no-objection under the proviso may have an objection to the Arbitrator or to the members of the Arbitral Tribunal so appointed on the ground that the Arbitrator or the members of the Arbitral Tribunal fall within the Seventh Schedule.

The Court held that in that scenario, “no objection” given to the applicability of Section 12(5), ACA to the mechanism of appointment/formation of Arbitral Tribunal cannot be held to be binding upon the party qua the members if the Arbitral Tribunal. The waiver in writing has to be against the Arbitrator/members of the Arbitral Tribunal.

The Court opined that even assuming for the sake of argument, that the Petitioner had waived off the applicability of Section 12(5), ACA, in order to achieve the purpose of impartiality, neutrality and independence, the no-objection to the applicability of Section 12(5), ACA has to be given after the constitution of the Arbitral Tribunal. It is only after the appointment of the Arbitrator/Arbitral Tribunal, the party would know whether the Arbitrator/members of the Arbitral Tribunal fall within the Seventh Schedule and despite being ineligible under the Seventh Schedule, the party wishes to waive off the ineligibility.

Thus, the Court clarified, that if a party agrees to waive off the applicability of Section 12(5), ACA, the same has to be done once the Arbitrators are appointed with the names and details. Any waiver under the proviso of Section 12(5) before the details of the Arbitrators/Arbitral Tribunal is known to the party waiving the applicability of Section 12(5), ACA is no waiver in the eyes of law.

In the instant case, the Petitioner had waived off the applicability of Section 12(5) before the constitution of the Arbitral Tribunal and not to the members of the Arbitral Tribunal. The Arbitral Tribunal was constituted on 21.03.2024 and the Petitioner had waived off the applicability of Section 12(5) on 23.02.2024 i.e. before the constitution if the Arbitral Tribunal. Therefore, the Court allowed the present petitions as the letter dated 23.02.2024 did not amount to a waiver in the eyes of law.

Case Title – M.V. Omni Projects (India) Ltd. v. Union of India through Chief Engineer Northern Railways & Anr.

Citation: 2025 LiveLaw (Del) 573

Case No. – O.M.P. (T) (COMM.) 5/2025, O.M.P. (T) (COMM.) 6/2025, O.M.P. (T) (COMM.) 7/2025

Appearance-

For Petitioner - Mr. Subodh Kr. Pathak, Mr. Amit Sinha, Mr. Pawan Kumar Sharma, Mr. Niraj Kumar, Advs.

For Respondent - Mr. Ruchir Mishra, Sr. Panel Counsel with Mr. Rajkumar Maurya, GP with Mr. Sanjiv Kr. Saxena, Mr. Mukesh Shukla, Ms. Poonam Shukla, Ms. Reba Jena Mishra, Ms. Harshita Sharma, Advs

Date – 15.05.2025

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