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2025 Supreme(Bom) 463
IN THE HIGH COURT OF JUDICATURE AT BOMBAYIN THE HIGH COURT OF JUDICATURE AT BOMBAY
Sharmila U. Deshmukh, J
Chhabriya Cloth Stores, Manmad - Appellant
Versus
Kamal Synthetics, Bombay - Respondent
FIRST APPEAL NO. 438 OF 1997
Decided On : 21-02-2025
Advocate Appeared:
Ms. Rukmini Khairnar i/b Mr. P. N. Joshi for Appellant.
None for Respondent.
An arbitration award is invalid if the appointment of the arbitrator was unilateral and not consensual, violating the Arbitration Act.
Headnote:
(A) Arbitration Act, 1940 - Sections 20, 30, and 39(1)(iv) - Challenge to Arbitration Award - The First Appeal contests the dismissal of objections to an Arbitration Award, asserting that the unilateral appointment of an arbitrator was illegal due to non-compliance with Section 20 - The court found that the absence of a consensual reference rendered the award void ab initio. (Paras 1, 8, 16)
(B) Arbitration Agreement - The court held that an arbitration clause must be consensual and that unilateral actions by one party without the other's agreement are invalid. (Paras 10, 15)
(C) Legal Principles - The essence of arbitration is based on mutual consent, and any deviation from this principle undermines the validity of the arbitration process. (Paras 12, 14)
Facts of the case:
The dispute arose from a claim for payment for goods supplied, leading to an arbitration award in favor of the Respondent. The Appellant contested the award, claiming no valid arbitration agreement existed due to their refusal to appoint an arbitrator.
Findings of Court:
The court ruled that the unilateral appointment of an arbitrator was illegal, and the award could not be enforced.
Issues: The main issue was whether the unilateral appointment of an arbitrator rendered the award invalid.
Ratio Decidendi: The court concluded that the arbitration process must adhere to the agreed-upon terms, and unilateral actions violate the Arbitration Act, leading to the award's nullity.
Result: First Appeal allowed; the impugned judgment is quashed and set aside.
JUDGMENT :
1. The First Appeal filed under Section 39(1) (iv) of the Arbitration Act, 1940 [for short, “the Arbitration Act”] challenges the impugned judgment dated 25th August, 1995 passed by the Bombay City Civil Court in Arbitration Petition No. 81 of 1995, dismissing the objection to the Award and making the Arbitration Award rule of the Court under Section 17 of Arbitration Act.
2. Award No. 168 of 1994 was passed in favor of Respondent for sum of Rs. 35,770.10/-, which was filed in the Court under Section 14 of Arbitration Act. The Appellant challenged the Award by filing Arbitration Petition No. 81 of 1995 under Section 30 and Section 33 of Arbitration Act, which was dismissed and Award was made rule of the Court, which is impugned in the present Appeal.
3. The dispute arose between the parties out of alleged claim for payment of the goods supplied by Respondent to Appellant. The Respondent invoked the arbitration clause in the invoice which provided for the dispute to be subject to the Arbitration Rules of Bharat Merchants’ Chamber. The Respondent approached Bharat Merchants’ Chamber and appointed one Mr. Anil Agrawal from the panel of arbitrators of Bharat Merchants’ Chamber vide letter dated 28th March, 1994. On 29th March, 1994, Bharat Merchants’ Chamber called upon the Appellant to appoint its arbitrator from the panel of arbitrators. In response, Appellant vide communication dated 7th April, 1994 declined to appoint Arbitrator and refused to participate in arbitration proceedings. Bharat Merchants’ Chamber appointed an Arbitrator for the Appellant and proceeded with arbitration. The Appellant did not participate in the arbitration proceedings and Award came to be passed in favor of Respondent.
4. Upon the Award being filed in the Court, Respondent filed its objection to the Award being made decree of the Court by filing Arbitration Petition No. 81 of 1995. It was pleaded that there was no Arbitration Agreement between the parties and Appellant had declined to appoint an Arbitrator. It was pleaded that Award was invalid, and not binding.
5. The Petition was resisted by Respondent by filing its reply contending that invoice was signed and terms are binding. The Trial Court held that terms which are printed on the bills were binding upon the parties and there was an Arbitration clause, which has been properly considered by the Arbitrator and that the award passed is proper. The Trial Court passed a composite order dismissing the Arbitration Petition and passing Decree in terms of Award No. 168 of 1994.
6. Ms. Khairnar, learned counsel appearing for Appellant would submit that Arbitration clause was printed overleaf of the bill for supply of goods and provided for dispute to be subject of the Arbitration Rules of Bharat Merchants’ Chamber, Bombay. She has fairly stated that the same would constitute an Arbitration agreement. Her objection, however, is that despite declining to appoint an Arbitrator, without recourse to Section 20 of Arbitration Act, the unilateral appointment and unilateral reference is illegal. In support, she relies upon the decision of Apex Court in the case of Dharma Prathishthanam vs. Madhok Construction (P) Ltd., (2005) 9 SCC 686.
7. Though the matter was adjourned from time to time, none appears for Respondent.
8. The following point arises for determination:
(i) Whether in facts of present case, there has been an unilateral appointment and unilateral reference rendering the Award passed by Arbitrator an illegal award by reason of non-compliance of Section 20 of the Arbitration Act, 1940?
As to Point No. (i) :
9. The present Appeal has been filed under Section 39(1)(iv) of Arbitration Act. Though Section 17 of Arbitration Act restricts the nature of appeal against the decree only to the question whether the decree is in excess or not in accordance with the award, Section 39(1) (iv) of Arbitration Act provides for appeal against the order refusing to set aside the Award. In the present case, the order is a
