A unilateral appointment of an arbitrator by one party contravenes Section 12(5) of the Arbitration and Conciliation Act, rendering the arbitral award void ab initio and against public policy.

JUDGMENT :

SANDEEP V. MARNE, J.

1) By this Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), Petitioners challenge Award dated 18 March 2024 passed by the learned sole Arbitrator. By the impugned Award, the learned Arbitrator has allowed the claim of the Respondent in the sum of Rs.1,26,46,303/- under Loan Agreement dated 1 November 2014 alongwith interest @ 12% per annum from the date of filing of Statement of Claim i.e. 21 April 2017 till the date of actual payment. The Arbitral Tribunal has also awarded costs of arbitration in the sum of Rs.30,000/- in favour of the Respondent.

2) The Respondent- M/s. Madhuban Motors Pvt. Ltd. is an incorporated entity engaged inter alia in the business of sales and services of Toyota branded motor vehicles. In or about 2014, the dealership run by the Respondent set up a new division viz. Madhuban Travels. Petitioner No.1 Manmohan Goyal is the former vice president of the travel division of the Respondent. Petitioner No.2 is the wife of Petitioner No.1. Petitioner No.1 approached the Respondent for taking over his travel business run in the name and style as ‘M/s. Geetee Travels Pvt.Ltd.’. The Respondent agreed to take over Petitioners’ fleet of vehicles. Petitioner No.1 was appointed as vice president of Madhuban Travels. Petitioner No.1 was in need of loan facility. The Respondent advanced loan of Rs.2,50,00,000/- to Petitioner No.1, who executed Loan Agreement dated 1 November 2014 in favour of the Respondent. The loan was secured by personal guarantee of Petitioner No.2. For generation of funds, Petitioner No.1 entered into Agreement for Sale with the Respondent in respect of office Nos.503- 504 and 505-506 in the building named as ‘Aditya Heritage’ at Andheri (East), Mumbai.

3) Disputes arose between the parties and the Respondent called upon Petitioner No.1 to repay the outstanding loan amount with interest. In July 2015, the Respondent sought to press into service the two Agreements for Sale and accordingly the Respondent and Petitioner No.1 entered into deeds of transfer in respect of two sets of office premises for the purpose of adjusting the same towards repayment of loan. After giving credit for the value of the said office premises, the loan amount due and payable was reduced to Rs.95,27,080/-. Petitioner No.1 apparently did not repay the outstanding amount, which rose to Rs.1,26,46,303/- by 7 January 2017. On 6 February 2017 the Respondent invoked arbitration clause of the Loan Agreement and appointed the learned sole Arbitrator. There is dispute between the parties as to whether Petitioners consented for nomination of the learned sole Arbitrator, which is the main subject matter of controversy between the parties. The Respondent filed Statement of Claim. In addition to opposing the claim of the Respondent, Petitioners filed counterclaim claiming various amounts from the Respondent. The Respondent filed application under Section 16 of the Arbitration Act, which was allowed by the Arbitral Tribunal and t