Delhi High Court: Award By Improperly Appointed Arbitrator Is Non-Est And Invalid

Delhi High Court: Award by Improperly Appointed Arbitrator is Non-Est and Invalid

Justice Jasmeet Singh, of the Delhi High Court, reaffirmed that an arbitrator is bound by the terms of the contract and must be appointed strictly in accordance with the contractual mechanism. If the specified procedure for appointment is not followed in its true letter, spirit, and intent, the arbitrator lacks jurisdiction, rendering the appointment non-est and invalid.

The petitioner was awarded a contract for civil works related to the raising of an ash dyke by the respondent through a Letter of Acceptance dated December 6, 2005. The project was scheduled for completion within 12 months. However, the respondent terminated the contract on August 23, 2008, prompting the petitioner to invoke arbitration under Clause 56 of the General Conditions of Contract (GCC).

Under Clause 56, the General Manager/Business Unit Head was designated as the sole arbitrator. Since this individual was the supervising authority, had reviewed project progress, and had made the termination decision, the petitioner sought the appointment of an independent arbitrator. However, on December 20, 2010, the respondent maintained that only the General Manager/Business Unit Head could act as the arbitrator per the contract terms. Following the transfer of the original General Manager/Business Unit Head, his successor assumed the role of arbitrator and passed the impugned award.

The petitioner argued that, although the pre-2015 legal framework permitted an employee of one party to act as an arbitrator, there were justifiable apprehensions about the independence and impartiality of the General Manager/Business Unit Head. Further, the successor assumed jurisdiction without reference to the Chairman and Managing Director of NTPC, which violated the arbitration clause.

The respondent contended that since there was no stay on arbitration proceedings by the Orissa High Court, the petitioner was obligated to participate. It was further asserted tha unilateral appointments were permissible before the 2015 amendment, and the petitioner had failed to substantiate any legitimate doubts regarding bias.

The court observed that the arbitration clause empowered the General Manager/Unit Head to act as arbitrator and, in their absence, authorized the Managing Director or Chairman to appoint another arbitrator. Prior to the 2015 amendment, the Supreme Court, in Aravali Power Co. (P) Ltd. v. Era Infra Engg. Ltd. (2017) held that appointing an employee as an arbitrator was not inherently biased, although justifiable concerns could arise if the arbitrator was a controlling authority in the dispute.

Referring to Ellora Paper Mills Ltd. v. State of M.P. (2022), the court reiterated that post- 2015, an arbitrator falling under the Seventh Schedule of the Arbitration Act is ineligible, regardless of prior agreements. Given that the arbitrator in this case was directly involved in contract supervision and termination, concerns regarding bias were deemed justified.

The court further noted that the arbitration clause stipulated that, upon the transfer or vacancy of the original arbitrator, a replacement should be appointed by the Managing Director or Chairman. However, in this case, the successor General Manager/Business Unit

Head automatically assumed the role, which was not in line with the contractual provisions. Citing its own ruling in M/s. M.V. Omni Projects (India) Ltd. v. Union of India (2024), the court held that arbitration proceedings conducted before an improperly constituted tribunal are legally non-existent. Since the arbitrator in this case was not appointed per the

contractual mechanism, the award was set aside.