Unilateral appointment of an arbitrator contravenes the arbitration agreement and violates principles of party autonomy, rendering the award void ab initio.

JUDGMENT:

(Per, Somasekhar Sundaresan J.)

The Controversy:

The validity of an award passed by an arbitrator appointed unilaterally by the party invoking arbitration under an arbitration agreement that does not envisage unilateral appointment, is under challenge in this Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”). For the reasons recorded below, I hold that such Award deserves to be set aside, being a product of a process that is a patent contravention of the Act, and its finely nuanced scheme.

Factual Matrix:

2. The factual matrix for adjudication of this petition may be summarized as follows:

a) Sometime in 2013, a listed company called Pratibha Industries Limited (“PIL”) was awarded two work orders by the Public Health Engineering Department, Government of Rajasthan. It is a matter of record that PIL is currently under liquidation under the Insolvency and Bankruptcy Code, 2016;

b) PIL awarded the Petitioner some part of the work orders awarded by the Government of Rajasthan. The Respondent claims to have “facilitated” the sub-contract work from PIL, for which it claims “facilitation consideration” (the Petitioner characterises this as a “commission / bribe”);

c) According to the Respondent, a Memorandum of Understanding dated January 15, 2019 (“MOU”) had been executed between the Petitioner and Respondent, under which the facilitation consideration was payable, as a percentage of the value of work awarded by PIL to the Petitioner;

d) According to the Petitioner, no such MOU was executed, and the Petitioner had appointed the Respondent to execute “certain petty works” in connection with the Petitioner’s work on PIL’s projects. A first information report has been filed with the Jaipur Police alleging that the MOU claimed by the Respondent is a product of forgery and fabrication;

e) It is common ground that the Petitioner paid the Respondent a sum of Rs.25,75,500/- (Rs.25.75 Lakhs) by end of January 2020. The Petitioner asserts this was for the “petty works” assigned to the Respondent while the Respondent asserts that this was part payment of the facilitation consideration payable under the MOU;

f) Between May 15, 2021 and June 21, 2021, the Respondent raised multiple demands on the Petitioner to make payments towards “consideration for facilitation of projects”. The Respondent contended that the Petitioner ought to have kept the Respondent informed about the status and progress of the projects as well as money receipts from PIL to the Petitioner. The Respondent called upon the Petitioner to provide bank statements to show the receipts from PIL. PIL having gone insolvent and bankrupt, the Respondent did not have access to such proof from PIL;

g) On July 2, 2021 the Respondent invoked arbitration, recommending one Mr. A. Jagannathan, based in Bangalore, as a sole Arbitrator to resolve the disputes and differences between the parties pursuant to the arbitration clause (Clause 7) in the MOU;

h) On August 10, 2021, the Petitioner addressed a letter to Mr. Jagannathan purporting to appoint him as the Sole Arbitrator and on September 3, 2021, Mr. Jagannathan appears to have informed the parties that the first hearing would be held on September 13, 2021;

i) On September 7, 2021 the Petitioner is said to have addressed a letter to the Respondent stating that the Petitioner was rejecting the appointment of the sole Arbitrator. According to the Respondent this letter was not received by him;

j) On September 13, 2021, Mr. Jagannathan conducted a hearing, which was not attended by the Petitioner. The Respondent contends that Mr. Jagannathan called the Petitioner on the phone, but the Petitioner failed to appear;

k) On September 27, 2021, the Petitioner wrote to the Respondent and copied Mr. Jagannathan, stating that the Petitioner had already denied any dispute between the parties and expressly stated that the Petitioner “is not accepting Mr. A. Jagannathan as a(n) Arbitrator”. The receipt of this letter, which also