SH. HARI KRISHAN AGGARWAL vs TECHNOLOGY DEVELOPMENT BOARD

$~28
* IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of decision: 04.03.2024

+ O.M.P. (COMM) 301/2022 & I.A. 3731/2024

SH. HARI KRISHAN AGGARWAL ….. Petitioner

Through: Mr. Darpan Wadhwa, Sr. Adv., Mr.
Karan Gupta and Mr. Joney, Advs.
Mr. Karan Gupta, Adv.

versus

TECHNOLOGY DEVELOPMENT BOARD ….. Respondent

Through: Ms. Shubhangda Singh, Adv. for R1

CORAM:
HON’BLE MR. JUSTICE JASMEET SINGH

: JASMEET SINGH, J (ORAL)

1. This is a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (“A&C 1996”) seeking to set aside the award dated 06.10.2021 passed by the Sole Arbitrator in the matter of Arbitration between Technology Development Board vs. M/s Intermo Systems Limited.
2. The facts are that the respondent is a regulatory board duly constituted under norms of Government of India and is responsible for allotting loans to private companies in order to develop new technologies or foreign technologies in order to amplify the technological sector in India. Ms Intermo Systems Limited (“Intermo”) is a company incorporated under Companies Act 1956.
3. A loan agreement dated 28.03.2014 was executed between the respondent and Intermo for “commercializing of electrical energy management and saving equipment matching with power reforms and clean development mechanism for energy efficient economy” in shape of a loan assistance of Rs. 5 Crores. The petitioner as a guarantor, mortgaged a piece of land admeasuring 102 sq. yds. by depositing title deeds in favour of the respondent.
4. The first disbursal of Rs. 2 Crores was made by the respondent on 17.09.2014 through a no lien account held at Bank of Baroda.
5. As the Intermo and petitioner failed to repay the loan as per the terms of the loan agreement, on 22.05.2017, the respondent issued notice to Intermo including one notice addressed to the petitioner, informing about the termination of the loan agreement and recalling of the loan amount disbursed together with interest and all other charges.
6. The arbitration Clause is contained in Clause 11.1 of the agreement dated 28.03.2014 which reads as under:-
“ARTICLE – XI
ARBITRATION AND JURISDICTION
11.1 if any dispute or difference arises between the Parties hereto as to the rights or liabilities or any claim or demand of any Party against other or to the construction, interpretation, effect and implication of any provision of this Agreement or in regard to any matter under these presents but excluding any matters, decisions or determination of which is expressly provided for in this Agreement, such disputes or differences shall be referred to the sole arbitration of the Chairperson, Technology Development Board or that of his nominee and the decision of such arbitrator shall be conclusive and binding on the Parties hereto. This Clause is applicable to the Director(s) of the company also and therefore the Director(s) would be also be party/parties to such Arbitration. A reference to the arbitration under this Clause shall be deemed to be submission within the meaning of the Arbitration And Conciliation Act, 1996 and the rules framed thereunder and any statutory modifications thereof for the time being in force, which shall be deemed to apply to the arbitration proceedings under this Clause.”

7. As per the above clause, the Chairperson of the respondent was to appoint the Sole Arbitrator for adjudication of the disputes between the parties arising from the loan agreement. The appointing authority i.e. Chairman of the respondent on 21.11.2019 appointed Prof. (Dr.) Subhash C. Gupta as the Sole Arbitrator to adjudicate the disputes between the parties.
8. The respondent filed its statement of claims coupled with interest and cost of arbitration on 10.01.2020 and Intermo filed their written statement on 30.01.2020.
9. After recording evidences of the parties, the final argument took place on 08.03.2021 and vide award dated 06.10.2021, the Ld Sole Arbitrator directed to pay:-
a) Rs 2,00,00,000 as a principal amount.
b) Interest of 5 % which extends upto Rs 19,54,315/- per annum on aforesaid amount from the date of disbursement to the date of payment of installments.
c) Additional Interest of 5% per annum from the date of disbursement to the date of invocation of the arbitration i.e 25.11.2019, which extends upto Rs 32,40,205/-.
d) Interest @ 6% per annum from 25.11.2019 till 06.10.2021 which extends to Rs 28,20,405/-.
e) Rs 5,50,000 as cost of arbitration.
10. Feelings dissatisfied with the award, the present petition has been preferred at the instance of the petitioner challenging the award dated 06.10.2021.
11. Mr. Wadhwa, learned Senior Counsel appearing for the petitioner submits that without going into the merits of the award passed by the learned Sole Arbitrator, the award should be set aside only on the ground that the Sole Arbitrator has no jurisdiction to adjudicate the disputes between the parties as the appointment of the Sole Arbitrator is unilateral appointment and is contrary to the judgment passed by the Hon’ble Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760 and TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377. He very fairly states that this ground is not raised in the petition but since it is a jurisdictional issue, it can be raised at any time.
12. Per Contra, Ms. Singh, learned counsel for the respondent agrees to the judgment of Perkins (supra) and TRF Limited (supra) but she relied on paragraph 6 of the award dated 06.10.2021 which reads as under:-
“6. In the second sitting of the Tribunal held on 30.01.2020, attention of the parties was drawn to the provisions of Section 12(5) of the Arbitration and Conciliation Act, 1996, as amended. The Authorized Representative of the Claimant and the Learned Counsel of the Respondent confirmed that although they have on their records a written declaration and undertaking from the Sole Arbitrator to the effect that his appointment is in compliance with Section 12 of the Principal Act and the Schedules incorporated in the Amendment Act of 2015, with particular reference to the 5, 6th and 7 schedule, they specifically waive the applicability of Sec 12(5), in respect of these arbitration proceedings and accept the appointment of the Sole Arbitrator by the Chairperson, TDB.
13. She submits that the Intermo and the petitioner duly participated in the arbitration proceedings and hence, the conduct of the petitioner amounts to waiver of the objections regarding the appointment of the Sole Arbitrator.
14. I have heard learned counsels for the parties.
15. It is settled law that the appointment of Arbitrator unilaterally by either of the party to a contract/agreement is impermissible. Reliance is placed on Perkins (supra) and the relevant portion reads as under:-
“21. But, in our view that has to be the logical deduction from TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] Para 50 of the decision shows that this Court was concerned with the issue, “whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator” The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter-balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72]”
16. With regard to the waiver of objection, this Court in Smaaash Leisure Ltd. v. Ambience Commercial Developers (P) Ltd., 2023 SCC OnLine Del 8322 has observed in para Nos. 35 and 37 as under:-
“35. In view of these judgments, the argument of the Respondents that Petitioner has waived its right by conduct, owning to participation in the arbitral proceedings, under proviso to Section 12(5) cannot be countenanced in law. Coming to the next limb of the argument of waiver, heavy reliance was placed by the Respondents on the statement made by the counsel for the Petitioner before the Arbitrator that Petitioner was giving up the objection to the appointment. This very issue came up for consideration before a Bench of this Court in Larsen and Toubro Limited (supra), wherein Petitioner had filed an application under Section 14 of the 1996 Act seeking termination of the mandate of the Arbitrator on the ground that Respondent had unilaterally appointed the sole Arbitrator and the grievance was predicated on Section 12(5) and the judgments of the Supreme Court in Perkins (supra), Bharat Broadband Network Limited (supra) and Haryana Space Application Centre v. Pan India Consultants Pvt. Ltd., (2021) 3 SCC 103 : AIR 2021 SC 653. Petition was resisted by the Respondent inter alia on the consent given by the Petitioner before the Arbitrator, which was recorded in one of the procedural orders. The contention was that having given consent to the Arbitrator that both parties had no objection to the Arbitral Tribunal, it was not open to take a plea of unilateral appointment. Holding that the learned Arbitrator is de jure rendered incapable of continuing with the arbitral proceedings, being a unilateral appointment, the Court observed that this statement made before the Arbitrator in one of the procedural hearings will not operate as an express waiver in writing for the applicability of proviso to Section 12(5) of the 1996 Act. The Court relied on the judgment of the Supreme Court in Bharat Broadband Network Limited (supra) to come to this conclusion, wherein the Supreme Court held that there must be an ‘express agreement in writing’, waiving the applicability of Section 12(5). Relevant paragraphs of the judgment in Larsen and Toubro Limited (supra) are as follows:—
“7. Mr. Singh, essentially predicates his opposition, to the petition, on two facts. Firstly, he draws my attention to the procedural order dated 5th August, 2019, passed by the learned arbitral tribunal, Para 5 of which records thus:
“5. The Sole Arbitrator declared under Section 12 of the Arbitration & conciliation Act 1996 that there are no circumstances likely to give rise to any Justifiable doubts as to their independence and impartiality. Both the parties confirmed that they have no objection to the Arbitral Tribunal.”
8. Secondly, Mr. Singh, relies on a communication, dated 3rd December, 2020, from the petitioner to the learned arbitrator, whereby the petitioner provides its consent for extension of six months for completion of the arbitral proceedings.
9. Neither of these considerations can operate as an express waiver in writing, of the applicability of Section 12(5) of the 1996 Act. In fact, similar contentions, including the contention regarding the request for extension of time operate as a waiver to Section 12(5) were advanced before this Court and narrated in JMC Projects (India) Ltd. v. Indure Pvt. Ltd., as is apparent from the paragraphs extracted hereinabove.
10. Clearly, therefore, the learned arbitrator is de jure rendered incapable of continuing with the arbitral proceedings.”
37. Therefore, the import of all the aforesaid judgments is unequivocally and unambiguously that an express agreement in writing, waiving the applicability of Section 12(5) is the statutory sine qua non to exit from the rigours of Section 12(5) and nothing less would suffice. As held in the aforesaid judgments, no conduct, howsoever extensive or suggestive or even a statement before the Arbitrator can substitute an ‘express written agreement’ and sans a written agreement envisaged under Section 12(5), operation of law will invalidate a unilateral appointment. Therefore, this Court cannot subscribe to the argument of the Respondent that the statement made by the counsel for the Petitioner giving up its objection to the Arbitrator’s appointment would constitute a waiver. This would also require to be seen in light of the fact that as soon as the Petitioner received the communication suggesting a panel of three names, it had responded in writing, stating unequivocally that the proposed panel was not acceptable and this was followed by a similar communication to the Arbitrator.”
17. Relying on the aforesaid observation, I am of the view that the waiver in terms of proviso to Section 12(5) of the A&C Act 1996 has to be in writing. In the present case at hand, there is no express waiver in writing and in the absence of the same, merely by conduct or giving no objection orally will not suffice to give jurisdiction to an Arbitrator who is otherwise ineligible in terms of Section 12(5) read with Seventh Schedule of the A&C Act 1996.
18. For the said reasons, the present petition is allowed and the award dated 06.10.2021 passed by the learned Sole Arbitrator is set aside.

JASMEET SINGH, J
MARCH 4, 2024 / (MS)

O.M.P. (COMM) 301/2022 Page 1 of 9