Unilateral appointment of a sole arbitrator is impermissible and illegal, leading to the automatic termination of the arbitrator's mandate under Section 14(1)(a) of the Arbitration and Conciliation Act, 1996.

JUDGMENT

Shekhar B. Saraf, J. - The petitioners seek an order for termination of the mandate of the Learned Arbitrator under Section 14(1)(a) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act'). Section 14(1)(a) of the Act states that the mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay.

2. The facts of the matter are as follows :-

a) The petitioner no. 1 is a Hindu Undivided Family ('HUF') and is being represented by its Karta, Mr. Yashovardhan Sinha being the petitioner No. 2 to the present petition (hereinafter collectively referred to as the 'petitioner').

b) The Respondent is a Non-Banking Financial Company (hereinafter referred to as 'NBFC') incorporated under the provisions of the Companies Act, 1956 and is in the business of providing financial facilities, personal loans, commercial loans, etc.

c) The disputes between the parties arise out of a loan agreement dated August 29, 2016, wherein the respondent company disbursed a sum of INR 5,50,00,000/- to the petitioners.

d) On September 27, 2021, the respondent issued a legal notice to the petitioners for seeking repayment of the principal amount along with the interest accrued. The petitioners issued their reply dated October 19, 2021 to the aforementioned legal notice.

e) Be that as it may, on December 08, 2021, the respondent company issue a notice under Section 21 of the Act invoking arbitration contained in clause 19 of the said agreement and appointed Justice Aloke Chakraborty (Retd.), a former Judge of this Court as the Sole Arbitrator to adjudicate upon the disputes and differences that have arisen between the parties.

f) On February 25, 2022, the learned arbitrator accepted his appointment which was subsequently objected to by the petitioners. On learning about the present application before this Court, the learned arbitrator on March 22, 2022, stayed the arbitral proceedings sine die.

g) Among other prayers, the present application seeks termination of the mandate of the Ld. Sole Arbitrator under Section 14(1)(a) of the Act.

3. Mr. Utpal Bose, Senior Advocate, appearing on behalf of the petitioners has made the following arguments:

a) The counsel submits that as the sole arbitrator has been unilaterally appointed by the respondent, the mandate of such a tribunal must be terminated on account of being de jure unable to perform his functions under Section 14(1)(a) of the Act. Reliance has been placed on TRF Limited -v- Energo Engineering Projects Ltd. reported in (2017) 8 SCC 377 and Perkins Eastman Architects DPC & Anr. -v- HSCC (India) Ltd. reported in (2019) SCC Online SC 1517, wherein the Apex Court held that the unilateral appointment of a sole arbitrator is vitiated under the provisions of Section 12(5) read with Schedule VII of the Act as any such unilateral power of appointment will be impermissible in law and one party cannot be given the sole right to appoint an arbitrator as its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Further reliance has been placed on Bharat Broadband Network Ltd. -v- United Telecoms Ltd. reported in (2019) 5 SCC 755 to contend that the mandate of such an arbitrator stands automatically terminated under Section 14(1)(a) of the Act.

b) Reliance has been placed on HRD Corporation (Marcus Oil and Chemical Division) -v- GAIL (India) Limited reported in (2018) 12 SCC 471 by the counsel to argue that the learned arbitrator does not have the power to decide on the objection regarding his ineligibility under section 14(2) of the Act due to lack of inherent jurisdiction to proceed any further and the same has to be dealt with only by this Court.

c) The counsel submits that the since the Apex Court has declared unilateral appointment of the sole arbitrator as impermissible and those portions of