Pre-Dispute Clause Cannot Replace Post-Dispute Written Waiver Of Arbitrator Ineligibility: Calcutta High Court

A Division Bench of Justice Debangsu Basak and Justice Ajay Kumar Gupta dismissed an appeal filed by contractor Amal Krishna Dey against the Commercial Court's decision to set aside an award of over ₹16 lakh in his favour.

The Court held that Section 12(5) overrides prior agreements permitting an interested party's managing director to appoint the sole arbitrator. The ineligibility could be waived only through an express written agreement executed after the dispute arose.

The Bench observed:

“The proviso to Section 12(5) permits only one route out: an express agreement in writing entered into after the disputes have arisen. A pre-dispute clause of general application, drafted into the standard conditions of contract, does not meet that description, however, clearly worded.”

CWC invited tenders in 2011 for constructing a 2,400 MT godown with allied works at Santragachi. Dey was awarded the contract for ₹80.34 lakh. Although the work was to be completed within six months, it was completed in August 2013.

Disputes arose after CWC deducted penalties and withheld payments from the final bill. Following invocation of the arbitration clause, CWC's Managing Director appointed Madhuresh Kumar, a retired CWC employee, as sole arbitrator.

The arbitrator awarded Dey ₹16.15 lakh with 10% annual interest and rejected CWC's counterclaim. On CWC's Section 34 application, the Commercial Court at Asansol set aside the award, holding that the unilateral appointment was void ab initio.

Advocate Amitava Ghosh, appearing for Dey, argued that the appointment was made under Clause 25 of the contract after the contractor requested arbitration. CWC had participated without objecting to the appointment, and the arbitrator's status as a retired employee did not establish bias.

Advocate Samrat Chowdhury submitted that the Managing Director was statutorily ineligible to appoint an arbitrator unilaterally. CWC's participation did not amount to waiver because Section 12(5) required an express post-dispute agreement in writing.

The Court held that Clause 25 was precisely the kind of prior agreement overridden by Section 12(5). Participation in arbitration, including filing pleadings and contesting claims, could not constitute the statutorily prescribed waiver.

Relying on TRF Ltd. v. Energo Engineering Projects Ltd. and Perkins Eastman Architects DPC v. HSCC (India) Ltd., the Bench held that an interested managing director who was himself ineligible to act as arbitrator was equally incompetent to nominate another person.

The Court clarified that the appointment was invalid because of its source, which is the interested Managing Director's unilateral power, and not merely because the arbitrator was a retired CWC employee.

Finding the appointment void ab initio and the arbitrator incapable of exercising jurisdiction, the Court dismissed the appeal without costs.

For Appellants: Advocates Amitava Ghosh, Malay Kumar Das, Tapas Kumar Dey and Sourav Chatterjee

For Respondent: Advocate Samrat Chowdhury