Choosing Arbitrator From Opponent's Unilateral Panel Does Not Waive Ineligibility: Delhi High Court
The Delhi High Court on 6 October held that selecting an arbitrator from a panel unilaterally constituted by the opposite party does not amount to waiver of the statutory ineligibility under Section 12(5) of the Arbitration and Conciliation Act, 1996, even if the party subsequently participates in the arbitration.
A Division Bench comprising Justices Anil Kshetarpal and Bharat Parashar allowed Newton Engineering and Chemicals Limited's appeal, holding that a mechanism where one party alone determines the panel from which the other must choose does not provide equal participation in constituting the arbitral tribunal. It observed:
“A mechanism under which one party determines the entire panel and the other party is confined to selecting one name from that panel does not provide the latter with an equal say in the constitution of the Tribunal. The subsequent act of selection cannot retrospectively transform an unequal appointment process into an equal one.”
The dispute arose from Newton Engineering's offer dated 3 January 2017 to supply heat exchangers for Indian Oil Corporation Limited's (IOCL) VDU-II Revamp Project at its Haldia Refinery.
IOCL accepted the offer on 21 September 2017 and issued a purchase order on 1 March 2018. The estimated delivery date was 20 July 2018. Disputes arose over delay, following which IOCL terminated the contract on 31 January 2019 at Newton Engineering's risk and cost.
After Newton Engineering issued a legal notice on 26 March 2019, IOCL proposed three names: M.B. Lal, A.K. Srivastava and M.C. Panda, for appointment as sole arbitrator on 3 May 2019.
Newton Engineering selected A.K. Srivastava on 27 January 2020, and sought IOCL's approval. An arbitrator-appointment petition filed before the High Court on 19 October 2019 was withdrawn by mutual consent on 28 January 2020. Thereafter, the arbitrator entered upon the reference, with both sides filing pleadings, leading evidence and advancing arguments.
On 17 August 2023, he awarded IOCL Rs. 6,30,054, along with Rs. 1,13,409 towards Goods and Services Tax and 9% annual interest from the date of the award until realisation.
Newton Engineering challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. On 5 April 2025, the District Judge dismissed the challenge and upheld the award, holding that the objections largely sought re-appreciation of evidence and reconsideration of factual and contractual issues.
Then, Newton Engineering approached the Delhi High Court under Section 37 of the Arbitration and Conciliation Act, read with Section 13(1A) of the Commercial Courts Act, challenging the District Judge's order and the constitution of the arbitral tribunal.
It argued that it had no role in preparing the panel and had merely selected one of the three persons chosen by IOCL. It submitted that its 27 January 2020 letter only communicated that selection and did not constitute an express waiver.
IOCL contended that Newton Engineering had itself selected the arbitrator and thereafter participated fully in the proceedings without objection.
The Court rejected the contention, noting that Newton Engineering could choose only among the three names fixed by IOCL and had no right to nominate another person, add names to the panel or require IOCL to choose from a panel prepared by it. It said:
“The fact that the Appellant was given a choice between three persons does not, by itself, establish equality in the appointment process. The choice was necessarily circumscribed by the panel unilaterally curated by the Respondent”
Further, the Bench noted that Newton Engineering's 27 January 2020 letter did not mention Section 12(5), waiver, ineligibility, independence or impartiality and could not be treated as a conscious relinquishment of the statutory protection. It also held that participation in arbitration could not substitute the express written agreement required by law.
Accordingly, the High Court held that the defect went to the root of the tribunal's jurisdiction and allowed Newton Engineering's appeal, setting aside the District Judge's 5 April 2025 judgment and the 17 August 2023 arbitral award.
It permitted both sides to commence fresh arbitration in accordance with law, while clarifying that it had not examined the merits of their underlying dispute.
Appearances for petitioner (Newton Engineering and Chemicals Limited): Advocates Akash Nagar, Samarpit Chauhan, Tarun Yadav, Shishir Mehra, Prateek Tiwari.
Appearances for respondent (Indian Oil Corporation Limited): Advocates Shikhar Srivastava, Prerna Singh.