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Bharat Broadband Network Limited v. United Telecoms Limited

Civil Appeal · 2019 INSC 537Decided 16 Apr 2019
Civil Appeal No. 3972 of 2019
Justice Rohinton Fali Nariman · Justice Vineet Saran

Background

Bharat Broadband Network Limited (BBNL) awarded a tender for a telecom infrastructure project to United Telecoms Limited, under a contract whose arbitration clause named BBNL's own Chairman-cum-Managing Director (CMD) as the sole arbitrator. A dispute arose and was referred to a person appointed under that clause, but Parliament's 2015 amendment to the Arbitration Act added Section 12(5), disqualifying certain persons with a connection to a party from acting as arbitrators unless both sides expressly waived the objection in writing after the dispute arose. BBNL applied to terminate the arbitrator's mandate on this ground, but the High Court held BBNL had effectively waived the objection by participating in the arbitration, including through an appointment letter.

Decision Breakdown

The Supreme Court held that Section 12(5)'s bar is mandatory and can only be waived by an "express agreement in writing" made after the dispute has arisen: mere conduct, such as issuing an appointment letter or the other party filing a statement of claim, cannot amount to such a waiver. Since no such express written waiver existed here, the arbitrator (who fell within the categories of persons ineligible under the Seventh Schedule to the Act) became "de jure unable to perform his function," and his mandate stood automatically terminated by operation of law. The Court allowed the appeal, set aside the High Court's judgment, and directed that a substitute arbitrator be appointed with the consent of both parties; since arbitral proceedings had continued in the interim and resulted in two awards, those awards were also set aside as a consequence, rendering related Section 34 challenge proceedings infructuous.

Lesson Learnt

When a contract's arbitration clause nominates an arbitrator connected to one of the parties, that appointment is void unless both sides give an actual written waiver after the dispute arises: simply continuing to participate in arbitration proceedings is not enough to cure this defect, and any awards rendered by an ineligible arbitrator can be set aside even after the fact.

Official source (sci.gov.in)View Judgment (PDF)

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