Delhi High Court Clarifies Waiver Under Section 12(5) of the Arbitration and Conciliation Act: Necessity of Post-Constitution Express Agreement

In a significant ruling dated May 17, 2025, the Delhi High Court, through Justice Jasmeet Singh, addressed the critical issue of waiver under Section 12(5) of the Arbitration and Conciliation Act, 1996 (ACA). The court emphasized that any waiver of the ineligibility of an arbitrator must be executed through an express agreement in writing, and crucially, such waiver must occur after the constitution of the arbitral tribunal. This decision reinforces the sanctity of impartial arbitration proceedings and delineates the boundaries of party autonomy within the arbitration framework.

Background of the Case

The matter arose from three petitions filed under Section 14 of the ACA, seeking the termination of the mandate of the existing arbitral tribunal and the appointment of a sole arbitrator to adjudicate disputes stemming from a Contract Agreement dated June 17, 2016. The disputes led to the termination of the contract by the respondent on different dates in 2018. Subsequently, the petitioner invoked the dispute resolution mechanism as per Clause 64 of the General Conditions of Contract (GCC), leading to the appointment of three serving railway employees as arbitrators by the respondent.

The petitioner participated in seven hearings before the arbitral tribunal. However, they later challenged the tribunal's mandate, arguing that the unilateral appointment of serving railway employees as arbitrators contravened the principles of impartiality and independence enshrined in the ACA.

Contentions of the Parties

The petitioner contended that the appointment of the arbitral tribunal was unilaterally made by the respondent, violating the established legal principles that ensure the independence and impartiality of arbitrators. They argued that such appointments, especially of serving employees of one party, inherently compromise the fairness of the arbitration process.

Conversely, the respondent asserted that the petitioner had waived the applicability of Section 12(5) of the ACA through a written communication dated February 23, 2024. They maintained that the petitioner was fully aware of the arbitration clause, which permitted the respondent to appoint three railway employees as arbitrators, and had voluntarily waived any objections to this arrangement.

Court's Observations and Analysis

The Delhi High Court meticulously examined the provisions of Section 12(5) of the ACA, which stipulates that any person whose relationship with the parties falls under the Seventh Schedule is ineligible to be appointed as an arbitrator. However, the proviso to this section allows parties to waive the applicability of this subsection through an express agreement in writing, entered into after the disputes have arisen.

Justice Singh highlighted that the waiver must be an explicit agreement made after the constitution of the arbitral tribunal, with full knowledge of the arbitrators' identities and potential conflicts of interest. The court underscored that any waiver executed prior to the tribunal's constitution does not meet the legal requirements and is, therefore, invalid.

In this case, the court found that the petitioner's alleged waiver occurred before the arbitral tribunal's constitution. Consequently, the waiver did not satisfy the conditions outlined in the proviso to Section 12(5), rendering the arbitrators' appointments void ab initio due to their inherent ineligibility.

Implications of the Judgment

This ruling has profound implications for arbitration proceedings in India. It reaffirms the necessity for strict adherence to the procedural safeguards designed to uphold the integrity and impartiality of arbitration. The judgment clarifies that mere participation in arbitration proceedings does not equate to a waiver of rights under Section 12(5). Parties must execute a clear, written agreement to waive such rights, and this must occur after the arbitral tribunal's constitution.

The decision also serves as a cautionary tale for parties engaging in arbitration. It emphasizes the importance of understanding the legal ramifications of waiving rights and the necessity of ensuring that any such waiver complies with statutory requirements. Failure to do so can lead to the nullification of arbitration proceedings and awards, resulting in wasted time and resources.

Conclusion

The Delhi High Court's judgment delineates the contours of waiver under Section 12(5) of the Arbitration and Conciliation Act, 1996. By mandating that waivers must be express, in writing, and executed after the constitution of the arbitral tribunal, the court reinforces the principles of fairness and impartiality in arbitration. This decision not only clarifies the legal position but also serves as a guiding precedent for future arbitration proceedings, ensuring that the rights of parties are protected, and the sanctity of the arbitration process is maintained.