Bharat Broadband Network Limited vs United Telecoms Limited

3. The appellant, Bharat Broadband Network Ltd. [“BBNL”], had floated a tender dated 05.08.2013 inviting bids for a turnkey project for supply, installation, commissioning, and maintenance of GPON equipment and solar power equipment. The respondent was the 1 successful L1 bidder. The appellant issued an Advance Purchase Order [“APO”] dated 30.09.2014. Clause III.20.1 of the General (Commercial) Conditions of Contract [“GCC”] provides for arbitration. The said clause reads as under:

4. Since disputes and differences arose between the parties, the respondent, by its letter dated 03.01.2017, invoked the aforesaid arbitration clause and called upon the appellant’s Chairman and Managing Director to appoint an independent and impartial arbitrator for adjudication of disputes which arose out of the aforesaid APO dated 30.09.2014. By a letter dated 17.01.2017, the Chairman and Managing Director of the appellant, in terms of the arbitration clause contained in the GCC, nominated one Shri K.H. Khan as sole arbitrator to adjudicate and determine disputes that had arisen between the parties. He also made it clear that the parties would be at liberty to file claims and counter-claims before the aforesaid sole arbitrator.

6. Given the aforesaid judgment, the appellant itself having appointed the aforesaid sole arbitrator, referred to the aforesaid judgment, and stated that being a declaration of law, appointments of 3 arbitrators made prior to the judgment are not saved. Thus, the prayer before the sole arbitrator was that since he is de jure unable to perform his function as arbitrator, he should withdraw from the proceedings to allow the parties to approach the High Court for appointment of a substitute arbitrator in his place. By an order dated 21.10.2017, Shri Khan rejected the appellant’s application after hearing both sides, without giving any reasons therefor. This led to a petition being filed by the appellant before the High Court of Delhi dated 28.10.2017 under Sections 14 and 15 of the Act to state that the arbitrator has become de jure incapable of acting as such and that a substitute arbitrator be appointed in his place. By the impugned judgment dated 22.11.2017, this petition was rejected, stating that the very person who appointed the arbitrator is estopped from raising a plea that such arbitrator cannot be appointed after participating in the proceedings. In any event, under the proviso to Section 12(5) of the Act, inasmuch as the appellant itself has appointed Shri Khan, and the respondent has filed a statement of claim without any reservation, also in writing, the same would amount to an express agreement in writing, which would, therefore, amount to a waiver of the applicability of Section 12(5) of the Act.

8. Shri Sharad Yadav, learned Senior Advocate appearing on behalf of the respondent, has supported the reasoning of the impugned judgment and has added that Section 12(4) makes it clear that a party may challenge the appointment of an arbitrator appointed by it only for reasons of which it became aware after the appointment has been made. In the facts of the present case, since Section 12(5) and the Seventh Schedule were on the statute book since 23.10.2015, the appellant was fully aware that the Managing Director of the appellant would be hit by Item 5 of the Seventh Schedule, and consequently, any appointment made by him would be null and void. This being so, Section 12(4) acts as a bar to the petition filed under Sections 14 and 15 by the appellant. Further, Section 13(2) makes it clear that a party who intends to challenge the appointment of the arbitrator, shall, within 5 15 days after becoming aware of circumstances referred to in Section 12(3), send a written statement of reasons for the challenge to the arbitrator. Admittedly, this has not been done within the time frame stipulated by the said Section, as a result of which, the aforesaid petition filed by the appellant should be dismissed. Coming to the proviso to Section 12(5), Shri Yadav argued that “express agreement in writing” in the proviso to Section 12(5) is clearly met in the facts of the present case. This need not be in the form of a formal agreement between the parties, but can be culled out, as was rightly held by the High Court, from the appointment letter issued by appellant as well as the statement of claim filed by the respondent before the arbitrator leading, therefore, to a waiver of the applicability of Section 12(5).

22. We thus allow the appeals and set aside the impugned judgment. The mandate of Shri Khan having terminated, as he has become de jure unable to perform his function as an arbitrator, the High Court may appoint a substitute arbitrator with the consent of both the parties.

23. Vide order dated 25.01.2018, we had issued notice in the Special Leave Petition as well as notice on the interim relief prayed for by the appellant. Since there was no order of stay, the arbitral proceedings continued even after the date of the impugned judgment, i.e., 22.11.2017, and culminated in two awards dated 11.07.2018 and 12.07.2018. We have been informed that the aforesaid awards have been challenged by the appellant by applications under Section 34 of the Act, in which certain interim orders have been passed by the Single Judge of the High Court of Delhi. These awards, being subject to the 26 result of this petition, are set aside. Consequently, the appellant’s Section 34 proceedings have been rendered infructuous. It will be open to the appellant to approach the High Court of Delhi to reclaim the deposit amounts that have been made in pursuance of the interim orders passed in the Section 34 petition filed in the High Court of Delhi.

(VINEET SARAN) New Delhi;

April 16, 2019.