Newton Engineering And Chemicals Limited vs. Indian Oil Corporation LTD.

Facts

The Appellant, Newton Engineering and Chemicals Limited, challenged an arbitral award passed in favour of the Respondent, Indian Oil Corporation Ltd. The award allowed a claim of Rs.6,30,054/- plus Rs.1,13,409/- towards GST. The Appellant's primary contention before the High Court was not on the merits of the award but on the constitution of the Arbitral Tribunal. The Respondent had provided a panel of three arbitrators, and the Appellant selected one from this panel. The Appellant argued that this process, without an express written agreement waiving Section 12(5) of the Arbitration and Conciliation Act, 1996, rendered the tribunal's constitution invalid. The Respondent contended that the Appellant's selection and subsequent participation in proceedings constituted consent. The District Judge had dismissed the Appellant's Section 34 petition, upholding the award.

Held

The Court held that the constitution of the Arbitral Tribunal was not consensual and was contrary to the mandatory requirements of Section 12(5) of the Arbitration and Conciliation Act, 1996. The Court found that the Appellant selecting one arbitrator from a panel provided solely by the Respondent did not constitute an express agreement in writing, subsequent to the disputes arising, waiving the applicability of Section 12(5). The Court reasoned that Section 12(5) overrides prior agreements and that the statutory prohibition requires independent and express waiver. Participation in proceedings cannot substitute for a valid waiver. The mechanism of one party determining the entire panel and the other party selecting from it does not provide equal participation. Therefore, the arbitral award rendered by a tribunal not validly constituted could not be sustained. The Court set aside the District Judge's judgment and the arbitral award, allowing the parties to commence fresh arbitral proceedings in accordance with law. The merits of the disputes were expressly left undecided.

Key Issues

1. Whether the constitution of the Arbitral Tribunal was consensual, specifically whether the Respondent furnishing a panel of three arbitrators and requiring the Appellant to select one from that panel, in the absence of an express written agreement waiving Section 12(5) of the Arbitration and Conciliation Act, 1996, subsequent to the disputes arising, constitutes a valid appointment mechanism. Appellant's arguments: The Appellant argued that the appointment mechanism was not consensual as they had no reciprocal right to nominate or participate in panel preparation. They contended that the communication selecting the arbitrator from the provided panel did not amount to an express written waiver of Section 12(5) and merely conveyed the selection. Reliance was placed on Supreme Court judgments like Bhadra International (India) Pvt. Ltd. & Ors. v. Airports Authority of India, asserting that equal treatment extends to tribunal constitution and that participation cannot replace a valid waiver. Respondent's arguments: The Respondent argued that the Appellant selected the arbitrator and that a communication dated 27.01.2020 constituted consent to the appointment. They also pointed to the Appellant's participation in the arbitral proceedings and submission of its Statement of Claim as evidence of consent.