NLA Arbitration Newsletter
Key rulings from the Delhi High Court on unilateral arbitrator appointments, the seat of arbitration, submission to court jurisdiction, mandatory pre-litigation mediation, and the pre-deposit requirement under the MSMED Act.
Delhi High Court — Unilateral appointment of arbitrator under GCC Clause 25 is void; new arbitrator appointed
The Delhi High Court Single Bench (Justice Dinesh Kumar Sharma) held that the Respondent’s argument that the arbitrator’s unilateral appointment could not be challenged because it was made in accordance with the contract was not acceptable. The Court found that Clause 25 of the General Conditions of Contract (GCC), which permitted one party to unilaterally appoint an arbitrator, was clearly and obviously illegal.
Relying on the Supreme Court’s ruling in Perkins Eastman Architect DPC and Anr. v. HSCC (India) Ltd., the High Court reaffirmed the well-established principle that an arbitration clause allowing only one party to choose the arbitrator is legally flawed and violates the intent of the Arbitration and Conciliation Act, 1996. The fact that the petition was filed under Section 11 of the Act rather than under Sections 14 and 15 was not a ground to permit the illegality to continue.
The High Court accordingly terminated the mandate of the unilaterally appointed arbitrator and appointed a new, independent arbitrator to resolve the dispute between the parties.
Key Takeaway
An arbitration clause that permits one party to unilaterally appoint an arbitrator—without offering any meaningful choice to the counterparty—is void, regardless of whether it is embedded in a standard GCC or other contractual document. This position, firmly established by the Supreme Court in Perkins Eastman, cannot be circumvented by arguing that the appointment was contractually authorised. Courts will terminate such mandates and appoint independent arbitrators under Section 11.
Delhi High Court — Venue specified in arbitration clause is treated as seat in absence of contrary indications; Court declines jurisdiction under Section 11
The Delhi High Court held that arbitration proceedings should take place at the venue stated in the arbitration clause unless there are unambiguous indications to the contrary. Applying the principle of party autonomy, the Court emphasised the importance of examining the contract in its entirety to determine the parties’ intentions.
Referring to the Supreme Court’s decision in BGS SGS Soma JV v. NHPC Limited, (2020), the High Court affirmed that in the absence of a manifestly contradictory signal, the location specified in an arbitration clause shall be deemed the seat of the arbitral proceedings. Based on the territorial jurisdiction provision in the contract, the Court determined that the seat of arbitration was Mathura, Uttar Pradesh, even though the arbitral proceedings could take place in New Delhi or any other location with mutual consent.
As a consequence, the Delhi High Court concluded that it lacked territorial jurisdiction to consider the petition under Section 11 of the Arbitration Act and declined to exercise jurisdiction accordingly.
Key Takeaway
The venue designation in an arbitration clause will be treated as the seat of arbitration absent clear, contrary indications in the contract. Parties must therefore exercise care when drafting arbitration clauses: if the intended seat differs from the proposed venue for hearings, that distinction must be made explicit. A mismatch between the seat (and hence the competent court) and the place where proceedings are expected to occur can lead to jurisdictional challenges at the Section 11 stage.
Delhi High Court — Defendant who submits to court’s jurisdiction and abandons its Section 8 application cannot subsequently seek referral to arbitration
The Delhi High Court held that a defendant who has submitted to the jurisdiction of the Court and withdrawn its application under Section 11 of the Arbitration and Conciliation Act, 1996, cannot subsequently request that the dispute be referred to arbitration under Section 8 of the Act.
The Plaintiff and Defendant No. 1 had entered into an agreement on 4 November 2004, which included an arbitration clause. Following an earlier Section 9 application by Defendant No. 1, orders had been passed by consent. In March 2006, the Plaintiff filed a civil suit. The Defendant submitted an application under Section 8 on 11 March 2006, but subsequently abandoned it without follow-up. The Defendant also sought repeated extensions to file a Written Statement, which it ultimately failed to file within the stipulated timeframe. The High Court found that these actions amounted to submission to the Court’s jurisdiction.
The Court further observed that the deadline for giving notice of arbitration invocation had passed. Relying on the Coordinate Bench’s ruling in SPML Infra Ltd. v. Trisquare Switchgears (P) Ltd., the High Court held that an application under Section 8(1) must be pursued within a specific timeframe; failure to do so forecloses the option. Accordingly, the Defendant’s belated application under Section 8 was dismissed.
Key Takeaway
A party wishing to invoke an arbitration agreement under Section 8 must do so promptly and must actively prosecute its application. Filing and then abandoning a Section 8 application, seeking time to file pleadings in the court proceeding, and otherwise participating in litigation will be construed as submission to the Court’s jurisdiction—permanently foreclosing the right to seek referral to arbitration for that dispute.
Delhi High Court — Pre-litigation mediation under Section 12-A of the Commercial Courts Act is mandatory
The Delhi High Court (Justice Prateek Jalan) held that the requirement of pre-litigation mediation under Section 12-A of the Commercial Courts Act, 2015, is mandatory in nature.
Section 12-A requires parties to undergo pre-institution mediation before filing a commercial suit, provided urgent interim relief is not sought. The Central Government is authorised to designate Legal Services Authorities to conduct this mediation, with a timeframe of three months, extendable by a further two months with the parties’ consent. Settlements reached through this process have the same legal status as arbitral awards under the Arbitration Act.
The High Court distinguished the facts from the precedent in Amit Walia v. Shweta Sharma, where mediation conducted under the Delhi High Court Mediation and Conciliation Centre had been treated as sufficient compliance with Section 12-A even though it did not occur before the District Legal Services Authority as stipulated by the Commercial Courts Act. The Court held that the circumstances in the present case did not permit a similar departure, and that the mandatory pre-litigation mediation requirement under Section 12-A had not been satisfied.
Key Takeaway
Pre-litigation mediation under Section 12-A of the Commercial Courts Act is a mandatory prerequisite to the institution of a commercial suit where urgent interim relief is not sought. Parties must ensure they comply with this requirement before filing, or the suit risks non-maintainability. Compliance requires mediation conducted by or through a recognised Legal Services Authority, and ad hoc mediation through other channels may not suffice unless specifically sanctioned by the court.
Delhi High Court — Section 34 petition may be filed without pre-deposit under MSMED Act, but will not be entertained until 75% deposit is made
The Delhi High Court held that a petition under Section 34 of the Arbitration and Conciliation Act, 1996, may be filed without requiring a pre-deposit of 75% of the awarded amount under Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). However, the petition will not be “entertained”—i.e., proceeded upon—until the required deposit has been made.
The High Court drew a distinction between the acts of “filing” and “entertaining” a petition. Section 19 of the MSMED Act stipulates that no application challenging an award under Section 34 of the Arbitration Act shall be entertained unless the applicant deposits 75% of the award amount. The Court held that while the filing of the petition (i.e., its registration) is permissible without the pre-deposit, the Court will not take up or proceed with the petition until the deposit condition is satisfied.
The Respondent had referred the Court to the Supreme Court’s decision in Snehadeep Structure Private Limited, which arose in the context of an appeal under the Interest on Delayed Payments to Small Scale and Ancillary Undertakings Act, 1993, and contained ancillary observations about Section 34 of the Arbitration Act. The High Court noted that case’s limited scope. On the facts, the Respondent’s application was denied, and the Petitioner was directed to deposit ₹8 crores within four weeks, with 25% of the remaining amount to be deposited with the Registrar General within six weeks, subject to execution proceedings.
Key Takeaway
In disputes governed by the MSMED Act, a party challenging an arbitral award under Section 34 of the Arbitration Act must deposit 75% of the awarded amount before the court will entertain its petition. While the petition can be filed—preserving the limitation period—without the upfront deposit, the court will not hear or proceed with the challenge until this pre-deposit condition under Section 19 of the MSMED Act is fulfilled. Parties must factor this financial obligation into their challenge strategy and timelines.
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