Engineering Projects India Limited vs Allied Construction - Arbitration Act Case

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Engineering Projects India Limited vs Allied Construction on 25 March, 2026

$~39
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 25.03.2026
+ O.M.P. (COMM) 515/2018, I.A. 12102/2019, I.A. 19729/2023
ENGINEERING PROJECTS INDIA LIMITED .....Petitioner
Through: Mr. Ratik Sharma, Mr.
Yashvardhan Singh Gohil, Mr.
Parth Sindhwani & Mr. Sonal
Kumar Singh, Advs.
versus
ALLIED CONSTRUCTION .....Respondent
Through: Ms. Pooja Dhar & Ms. Maryam
Junaid, Advs.
CORAM:
HON'BLE MR. JUSTICE AVNEESH JHINGAN
AVNEESH JHINGAN, J. (ORAL) 1. This petition under Section 34 of the Arbitration and
Conciliation Act, 1996 (for short „the Act‟) is filed against the arbitral
award dated 06.07.2018.

1. The brief facts are that the petitioner/Engineering Projects India Limited (for short „EPIL‟) on 15.11.2007 entered into a Memorandum of Understanding (for brevity „MOU‟) with the Department of Agriculture, Government of Tripura (hereinafter „DOA‟) to construct a college of agriculture building at Agartala. The Notice Inviting Tender (for short „NIT‟) was issued by EPIL and the respondent was awarded the work vide Letter of Intent (LOI) dated 10.03.2008. Subsequently, an agreement dated 23.04.2008 was entered into between the parties to the lis.

2.1 Clause 76 of the General Conditions of Contract (for short
„GCC‟) provides for dispute resolution by arbitration. As per the said
clause, disputes shall be referred to the sole arbitration of the
Chairman and Managing Director of EPIL (for short „CMD‟) or any
person discharging the functions of the CMD and in case the CMD or
such person is unable to act as the sole arbitrator then to a person
appointed by the CMD. It is further stipulated that no objection will
lie if the appointed arbitrator is an employee of EPIL.

2.2 The arbitration was invoked at the instance of the respondent by
issuing a notice under section 21 of the Act on 14.03.2016. The CMD
unilaterally appointed the arbitrator vide letter dated 10.01.2017. The
proceedings culminated in the impugned award whereby the claims of
the respondent were allowed. Hence, the present petition.

1. Learned counsel for EPIL submits that the unilateral
             appointment of the arbitrator by the CMD is in violation of the
             amended [Section 12(5)](https://indiankanoon.org/doc/16912364/) read with [Seventh Schedule of the Act](https://indiankanoon.org/doc/1306164/).
             Reliance is placed upon the decision of the Supreme Court in [Bhadra
             International (India) Pvt. Ltd. & Ors. v. Airports Authority of
             India](https://indiankanoon.org/doc/123741432/), 2026 INSC 6 and of the Division Bench of this Court in [Mahavir Prasad Gupta and Sons v. Govt. of NCT of Delhi](https://indiankanoon.org/doc/54709541/), 2025
             SCC OnLine Del 4241.
   

2. Learned counsel for the respondent contends that EPIL having
             appointed the arbitrator, participated in the arbitral proceedings,
             awaited for the outcome and having failed therein cannot challenge
             the appointment. It is submitted that this objection was never pressed
   
              before the arbitrator and the award was passed prior to the decision of
             the Supreme Court in [Bhadra International (India) Pvt. Ltd.](https://indiankanoon.org/doc/123741432/) (supra).
   

3.  Before proceeding further, it would be apposite to refer to the
             following decisions:
   

5.1 The Supreme Court in Bhadra International (India) Pvt. Ltd.
(supra) dealt with the following three issues:

"29......i. Whether the sole arbitrator could be said to have
become "ineligible to be appointed as an
arbitrator" by virtue of sub-section (5) of Section
12 of the Act, 1996?

ii. Whether the parties could be said to have waived
the applicability of sub-section (5) of Section 12 of the Act, 1996, by way of their conduct, either
expressed or implied?

iii. Whether the appellants could have raised an
objection to the appointment of the sole
arbitrator for the first time in an application
under Section 34 of the Act, 1996?"
Held:

"123... i. The principle of equal treatment of parties
provided in Section 18 of the Act, 1996, applies
not only to the arbitral proceedings but also to
the procedure for appointment of arbitrators.
Equal treatment of the parties entails that the
parties must have an equal say in the
constitution of the arbitral tribunal.
ii. Sub-section (5) of Section 12 provides that any
person whose relationship with the parties or
counsel, or the dispute, whether direct or
indirect, falls within any of the categories

specified in the Seventh Schedule would be
ineligible to be appointed as an arbitrator.
Since, the ineligibility stems from the operation
of law, not only is a person having an interest
in the dispute or its outcome ineligible to act as
an arbitrator, but appointment by such a person
would be ex facie invalid.

iii. The words "an express agreement in writing" in
the proviso to Section 12(5) means that the
right to object to the appointment of an
ineligible arbitrator cannot be taken away by
mere implication. The agreement referred to in
the proviso must be a clear, unequivocal written
agreement.

iv. When an arbitrator is found to be ineligible by
virtue of Section 12(5) read with the Seventh
Schedule, his mandate is automatically
terminated. In such circumstance, an aggrieved
party may approach the court under Section 14
read with Section 15 for appointment of a
substitute arbitrator. Whereas, when an award
has been passed by such an arbitrator, an
aggrieved party may approach the court under
Section 34 for setting aside the award.
v. In arbitration, the parties vest jurisdiction in the
tribunal by exercising their consent in
furtherance of a valid arbitration agreement. An
arbitrator who lacks jurisdiction cannot make
an award on the merits. Hence, an objection to
the inherent lack of jurisdiction can be taken at
any stage of the proceedings."
5.2 The Division Bench of this court in Mahavir Prasad Gupta
and Sons (supra) dealt with the following issues:

"74......a) When a party itself has unilaterally appointed
the arbitrator, whether that party can object to

the unilateral appointment of the arbitrator at
any stage during or after the arbitration
proceedings?

b) If a party has unilaterally appointed an arbitrator,
can that party be deemed to have given express
waiver in writing under Section 12(5) of the Act
while making the appointment itself?"
The court concluded:

"84.....a) Mandatory Requirement: Any arbitration
agreement providing unilateral appointment of the
sole or presiding arbitrator is invalid. A unilateral
appointment by any party in the arbitrations seated
in India is strictly prohibited and considered as null
and void since its very inception. Resultantly, any
proceedings conducted before such unilaterally
appointed Arbitral Tribunal are also nullity and
cannot result into an enforceable award being
against Public Policy of India and can be set aside
under Section 34 of the Act and/or refused to be
enforced under Section 36 of the Act.

b) Deemed Waiver: The proviso to Section 12(5) of
the Act requires an express agreement in writing.
The conduct of the parties, no matter how
acquiescent or conducive, is inconsequential and
cannot constitute a valid waiver under the proviso to Section 12(5) of the Act. The ineligibility of a
unilaterally appointed arbitrator can be waived only
by an express agreement in writing between the
parties after the dispute has arisen between them. Section 12(5) of the Act is an exception to Section 4 of the Act as there is no deemed waiver under Section 4 of the Act for unilateral appointment by
conduct of participation in the proceedings. The

                             proviso to [Section 12(5)](https://indiankanoon.org/doc/104566/) of the Act requires an
                            „express agreement in writing‟ and deemed waiver
                            under [Section 4](https://indiankanoon.org/doc/1233565/) of the Act will not be applicable to
                            the proviso to [Section 12(5)](https://indiankanoon.org/doc/104566/) of the Act.

c) Award by an Ineligible Arbitrator is a
Nullity: An award passed by a unilaterally
appointed arbitrator is a nullity as the ineligibility
goes to the root of the jurisdiction. Hence, the award
can be set aside under Section 34(2)(b) of the Act by
the Court on its own if it „finds that‟ an award is
passed by unilaterally appointed arbitrator without
even raising such objection by either party.

d) Stage of Challenge: An objection to the lack of
inherent jurisdiction of an arbitrator can be taken at
any stage during or after the arbitration proceedings
including by a party who has appointed the sole or
presiding arbitrator unilaterally as the act of
appointment is not an express waiver of the
ineligibility under proviso to Section 12(5) of the
Act. Such objection can be taken even at stage of
challenge to the award under Section 34 of the Act
or during the enforcement proceedings under Section 36 of the Act."

1. The legal position is that under Section 12(5) read with [Seventh
             Schedule of the Act](https://indiankanoon.org/doc/104566/) an employee of the party in dispute is ineligible to
             be appointed as an arbitrator and cannot nominate or appoint any other
             person as an arbitrator. The unilateral appointment in absence of
             express agreement in writing between the parties to waive the
             applicability of [Section 12(5)](https://indiankanoon.org/doc/104566/) of the Act is void ab initio. The
             participation in the arbitration proceedings cannot be construed to be
   
              waiver under the proviso to [Section 12(5)](https://indiankanoon.org/doc/104566/) of the Act. The unilateral
             appointment of the arbitrator can be objected to for the first time under [Section 34](https://indiankanoon.org/doc/104566/) of the Act.
   

2. The Supreme Court in [Bhadra International (India) Pvt. Ltd](https://indiankanoon.org/doc/123741432/) (supra) held that waiver involves a conscious decision to abandon the
             existing legal right and can be made only by a person fully aware of
             such right. A legal right cannot be taken away by implications. The
             waiver has to be an unequivocal expression and it cannot be lost sight
             of that by such waiver the restriction imposed by [Section 12(5)](https://indiankanoon.org/doc/104566/) of the
             Act is sought to be overcome.
   

3. There being no prescribed format for express agreement in
             writing shall not mean that the waiver can be inferred by implication
             or through conduct. It would be relevant to quote following paragraph
             from [Bhadra International (India) Pvt. Ltd.](https://indiankanoon.org/doc/123741432/) (supra).
   

"84. Undoubtedly, the statute does not prescribe a format
for the agreement. However, the absence of a prescribed
format cannot be construed to mean that the waiver may
be inferred impliedly or through conduct. We say so
because the legislature has consciously prefaced the term
"agreement" with the word "express" and followed it
with the phrase "in writing". This semantics denote the
intention of the legislature that the waiver under the
proviso to Section 12(5) must be made only through an
express and written manifestation of intention."
9. The contention of learned counsel for the respondent that the
award was passed prior to the decision of the Supreme Court in Bhadra International (India) Pvt. Ltd. (supra) is ill-founded. The
law laid down by the Supreme Court is always the law and shall not

               operate prospectively.

1. The challenge is to the arbitration clause being violative of Section 12(5) of the Act and to the unilateral appointment made
   contrary to the provisions of the Act and law laid down by the
   Supreme Court in Bhadra International (India) Pvt. Ltd. (supra).
   The waiver under proviso to Section 12(5) of the Act has to be express
   and in writing. There is no express waiver in writing by the parties to
   waive the applicability of Section 12(5) of the Act. In absence of an
   express agreement in writing between the parties, the CMD cannot
   make a unilateral appointment of the sole arbitrator. Moreover, the
   waiver has to be by both the parties. The conduct of EPIL in
   appointing an arbitrator is not sufficient to wriggle out of the rigours
   of Section 12(5) of the Act.

2. The unilateral appointment made by the CMD without
   compliance with the proviso to Section 12(5) of the Act is in violation
   of Section 12(5) read with Seventh Schedule of the Act. The
   appointment is void ab initio consequently rendering the impugned
   award a nullity.

3. The impugned award is set aside. The petition is allowed.
   Pending applications stand disposed of.

AVNEESH JHINGAN, J
MARCH 25, 2026/'ha'

                                         Reportable:- Yes