Point of law : Appointment Arbitrator - Arbitrator making necessary disclosures under Section 12(1) of the Act and not being ineligible under Section 12(5) of the Act.

JUDGMENT :

SANJEEV NARULA, J.

1. The present petition under Section 11(5) of the Arbitration and Conciliation Act, 1996 [hereinafter referred to as the ‘Act’] seeks appointment of a Sole Arbitrator to adjudicate the disputes that are stated to have arisen under a Settlement Agreement dated 27th December, 2015, containing an arbitration agreement in Clause 11, which is reproduced below:

“11. That the Indian Arbitration and Conciliation Act of 1996 shall apply to the arbitration or to the arbitration proceedings or to the arbitration award. The Arbitrator shall be appointed mutually by the FIRST PARTIES and the SECOND PARTIES. The seat of the Arbitration shall be at New Delhi and the Arbitration Proceedings shall be conducted in English. For all purposes, the Jurisdiction of court shall be at New Delhi.”

BRIEF FACTS

2. The relevant facts of the case are as follows:

The Parties:

2.1. Petitioners No. 2 and 3 are directors of Petitioner No. 1 company. Respondent No. 5 is wife of Petitioner No. 2 and Respondent No. 6 is brother of Petitioner No. 3. The Petitioners No. 2-3 and Respondents No. 5-6 [hereinafter collectively referred to as the ‘Sellers’] hold the complete shareholding in Petitioner No. 1 company. No relief is sought by the Petitioners against Respondents 5 and 6.

2.2. The remaining respondents are Respondents No. 1-4 [hereinafter collectively referred to as the ‘Contesting Respondents’]. Respondent No. 3 is a present/serving director of Respondent No. 1 company. Respondents No. 2 and 4 are erstwhile directors of Respondent No. 1 company. [Respondents No. 1, 2 and 4 are hereinafter collectively referred to as the ‘Buyers’].

The Transaction:

2.3. The Petitioner No. 1 was allotted and leased a plot of land from the Greater Noida Industrial Development Authority admeasuring about 1,01,114.27 sq. meters bearing Plot No. 19, Sector K.P.-V, Greater Noida (West), Gautam Budh Nagar, Uttar Pradesh [hereinafter referred to as the ‘Project Land’] for development of IT and IT-enabled services.

2.4. The Buyers and Sellers entered into a Memorandum of Understanding dated 31st July, 2014 for transferring Sellers’ shareholding in Petitioner No. 1 company to the Buyers, for a consideration of Rs. 84.43 crores [hereinafter referred to as ‘MoU’].

2.5. Under the terms of the MoU, initial payments were made by the Buyers in favour of the Sellers. Thereafter, the Buyers defaulted, and cheques issued by them were dishonoured. Sellers issued legal notices to the Buyers for breaches of the terms of the MoU and sought specific performance thereof. In some cases, the Sellers even proceeded under Section 138 of the Negotiable Instrument Act, 1881.

2.6. On 27th December, 2015, a Settlement Agreement was entered into between all the Petitioners and Respondents (except Respondent No. 3) wherein it was agreed that the MoU stood terminated and cancelled and the parties would be restored to pre-MoU status [hereinafter referred to as the ‘Settlement’]. In terms thereof, the Buyers claimed a refund of Rs. 21 crores from the Sellers, and in return offered re-possession of the project land.

2.7. However, when the books of Petitioner No. 1 were audited in October-December 2016, it was noticed that the Sellers (through Petitioner No. 1 company, its sister concern, and the personal accounts of the Sellers) had only received a sum total of Rs. 16.90 crores from the Buyers with respect to the MoU. The Petitioners also contend that sums of Rs. 7.6 crores and blank post-dated cheques were taken by the Buyers from the Sellers under false pretences and extortion threats.

2.8. Subsequently, the Petitioners vide notice invoking arbitration dated 18th October, 2019, called upon the contesting Respondents to pay compensation to the tune of Rs. 25 crores, or in alternative, settle disputes in terms of the Clause 11 of the Settlement i.e., through arbitration mechanism. They provided a panel of arbitrators comprising of four retired district judges for the contesting Respondents to selec