Analysis of Supreme Court Judgement in Bharat Broadband Network Ltd. vs. United Telecoms Ltd.

An appointment of Arbitrator made by an ineligible person is itself void ab initio.

The present appeals raise an interesting question as to the interpretation of Section 12(5) of the Arbitration and Conciliation Act, 1996 [“Act”]. In the present case, the Managing Director of the appellant was not aware that Shri Khan could not be appointed by him as Section 12(5) read with the Seventh Schedule only went to the invalidity of the appointment of the Managing Director himself as an Arbitrator. Shri Khan’s invalid appointment only became clear after the declaration of the law by the Supreme Court in TRF Ltd. (supra) which, as we have seen hereinabove, was only on 03.07.2017. After this date, far from there being an express agreement between the parties as to the validity of Shri Khan’s appointment, the appellant filed an application on 07.10.2017 before the sole arbitrator, bringing the arbitrator’s attention to the judgment in TRF Ltd. (supra) and asking him to declare that he has become de jure incapable of acting as an arbitrator. Equally, the fact that a statement of claim may have been filed before the arbitrator, would not mean that there is an express agreement in words which would make it clear that both parties wish Shri Khan to continue as arbitrator despite being ineligible to act as such. This being the case, the impugned judgment is not correct when it applies Section 4, Section 7, Section 12(4), Section 13(2), and Section 16(2) of the Act to the facts of the present case, and goes on to state that the appellant cannot be allowed to raise the issue of eligibility of an arbitrator, having itself appointed the arbitrator. The judgment under appeal is also incorrect in stating that there is an express waiver in writing from the fact that an appointment letter has been issued by the appellant, and a statement of claim has been filed by the respondent before the arbitrator. The moment the appellant came to know that Shri Khan’s appointment itself would be invalid, it filed an application before the sole arbitrator for termination of his mandate. Thus the Court 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.

Judgement link : https://www.supremecourtofindia.nic.in/supremecourt/2018/1070/1070_2018_Judgement_16-Apr-2019.pdf