Source: Delhi High Court

Why in News?

Recently, the Delhi High Court in the matter of Smaaash Leisure Ltd V. Ambience Commercial Developers Pvt Ltd., has held that a party cannot be compelled to appoint an arbitrator from a narrow panel consisting merely of three persons.

What was the Background of Smaaash Leisure Ltd V. Ambience Commercial Developers Pvt Ltd. Case?

• In this case, the petitioner is involved in the business of gaming and entertainment centers and the respondent is a Real Estate Group.
• A lease deed was executed between the petitioner and the respondent dated 1st August 2017 for the leasing of premises within Ambience Mall, Vasant Kunj, Phase-II, New Delhi (Leased Premises) for operating and managing an entertainment center.
• The lease period was 20 years.
• Due to financial hardships compounded by the unprecedented challenges posed by the COVID-19 pandemic, the petitioner terminated the lease in 2020.
• The respondent invoked the dispute resolution contained in the lease deed and proposed the names of three former Judges of Delhi High Court, requesting the petitioner to nominate one of them as the sole Arbitrator.
• The petitioner communicated its unequivocal non-acceptance of the three names.
• Despite the petitioner's objections, the respondent proceeded to unilaterally appoint an Arbitrator.
• Despite petitioner's non-participation, the arbitrator proceeded to pass the impugned awards.
• Aggrieved thereby, the petitioner challenged it under the Arbitration & Conciliation Act, 1996 (A&C Act).
• The court set aside the award on grounds of ineligibility of the arbitrator.

What were the Court’s Observations?

• Justice Jyoti Singh observed that a panel of arbitrators consisting of merely three persons is not broad-based, therefore, a party cannot be compelled to appoint the arbitrator from such a narrow panel.
• The Court further restated that mere participation in the arbitral proceedings cannot be constituted as a waiver to application of Section 12(5) of the A&C Act, therefore, a party cannot be precluded from challenging the jurisdiction of the tribunal merely on ground of participation in the arbitral proceedings, if the objection goes to the root of the matter and renders the arbitrator ineligible.

What is Section 12(5) of the A&C Act?

• About:
  • This section states that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator.
• Case Laws:
  • In Perkins Eastman Architects DPC & Anr v. HSCC Limited, (2020), the Supreme Court crystallized the position in law that unilateral appointment of the Arbitrator will be vitiated under Section 12(5) of the A&C Act as it hits the principle of autonomy.
  • In Saroj Pandey v. Aaryavrat Products India Pvt. Ltd., (2023), the Supreme Court held that once the Arbitrator becomes disabled and ineligible to act under Section 12(5) of the A&C Act, it is not even necessary to examine the question whether the party in disagreement with the appointment had raised an objection to the appointment and even if it is assumed that the said party had participated in the arbitral proceedings, without raising any objection to the appointment, it is not open to hold that it had waived its right under Section 12(5).