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IN THE HIGH COURT OF DELHI AT NEW DELHI
Jasmeet Singh, J.
Mr. Sunil Sethi - Appellant
Versus
M/s Hero Fincorp Ltd. - Respondent
O.M.P. (COMM) 398 of 2022
Decided On : 23-02-2024
Arbitration - Unilateral Appointment of Arbitrator - Arbitration and Conciliation Act, 1996 - Section 34
Fact of the Case:
The petitioner sought to set aside an ex parte award passed by the Sole Arbitrator in favor of the respondent. The petitioner argued that the appointment of the Arbitrator was faulty.
Finding of the Court:
The court found that the unilateral appointment of the Arbitrator by the respondent was in conflict with the provisions of the Arbitration and Conciliation Act, 1996, and therefore, set aside the award.
Issues: The primary issue was the validity of the appointment of the Arbitrator and the subsequent arbitration proceedings.
Ratio Decidendi: The court relied on the judgments of the Hon'ble Supreme Court in 'Perkins Eastman Architects DPC vs. HSCC (India) Ltd.' and 'TRF Limited & Anr. vs. Damodar Valley Corporation & Anr.' to conclude that the unilateral appointment of the Arbitrator was non-est in law, being in conflict with Section 12(5) read with Seventh Schedule of the Act.
Final Decision: The petition was allowed, and the Award dated 17.05.2022 was set aside.
JUDGMENT
Jasmeet Singh, J. (Oral) - This is a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 seeking setting aside of the ex parte award dated 17.05.2022 passed by the Sole Arbitrator awarding a sum of Rs.6,05,46,413.80/- in favour of the respondent and against the petitioner.
2. It is stated by Mr. Singh, learned counsel appearing for the petitioner that in the present case, the appointment of the Arbitrator is itself faulty.
3. The brief facts are as under:
a. The petitioner is one of the Directors in a company namely M/s Upper India Trading Co. Pvt. Ltd., which sought working capital limit from the respondent.
b. Pursuant to sanction of the Facility Agreement vide letter dated 26.04.2018, a formal agreement dated 11.05.2018 was executed between the parties.
c. The agreement dated 11.05.2018 contained the arbitration agreement which reads as under:
"DISPUTE RESOLUTION
All claims, disputes, differences or question of any nature arising between the parties, whether during or after the termination of this Agreement, in relation to the construction, meaning or interpretation of any term used or clause of this Agreement or as to the rights, duties, liabilities of the parties arising out of this Agreement or in relation to this Agreement, shall be referred to the sole arbitrator appointed by the HFCL.
The arbitration proceedings shall be conducted in accordance with the Arbitration and Conciliation Act, 1996 and the proceedings shall be held at New Delhi. Pending the giving of the award including interim award, the Borrower shall be liable to perform its obligation under this Agreement in keeping with the provisions of this Agreement. The arbitral award shall be final and binding on the parties."
d. Since M/s Upper India Trading Co. Pvt. Ltd. defaulted in payments of its obligations, the respondent vide notice dated 15.06.2021 recalled the loan advanced to M/s Upper India Trading Co. Pvt. Ltd. and sought recovery of Rs.6,05,46,413.80/-.
e. On 29.06.2021, the respondent vide legal notice dated 29.06.2021 invoked proceedings under Section 21 of the Arbitration and Conciliation Act, 1996.
f. On 24.12.2021, the respondent vide a letter dated 24.12.2021 unilaterally appointed Ms. Divya Raj, Advocate as an Arbitrator for adjudication of the disputes regarding the loan account of M/s Upper India Trading Co. Pvt. Ltd. The letter is reproduced as under:
4. It is stated by the learned counsel for the respondent that thereafter the learned Sole Arbitrator so appointed by the respondent issued notices to the petitioner, but the petitioner did not appear.
5. At this stage, Mr. Singh, learned counsel for the petitioner has drawn my attention to a letter dated 12.04.2022, wherein the petitioner visited the office of the Sole Arbitrator, but the same was locked and thereafter, no further notice for proceedings was given to the petitioner.
6. Mr. Singh, learned counsel has primarily rested his submissions on the fact that the unilateral appointment of the Arbitrator by the respondent is hit by the judgments of the Hon'ble Supreme Court in "Perkins Eastman Architects DPC vs. HSCC (India) Ltd.", [(2020) 20 SCC 760] and "TRF Limited & Anr. vs. Damodar Valley Corporation & Anr., [AIR 2017 SC 3889] and judgment passed by this court in ARB.P. 133/2019 "Geeta Poddar vs. Satya Developers Private Limited".
7. Per contra, Mr. Prasad, learned counsel for the respondent states that the petitioner has not participated in the arbitration proceedings despite repeated notices. The objection raised by the petitioner today could have very well been raised at an early stage and the objection to the jurisdiction of the Arbitrator at this belated stage cannot be entertained.
8. In this regard, he relies upon the judgment passed by the Hon'ble Division Bench of this court in FAO (COMM) 31/2021 dated 23.01.2024 titled "Arjun Mall Retail Holdings Pvt. Ltd. & Ors. vs. Gunocen Inc.". The operative portion reads as under:
"35. The aforesaid dictum in Airport Me
Unilateral appointment of an arbitrator in conflict with the provisions of the Arbitration and Conciliation Act, 1996 is non-est in law.
Unilateral appointment of an arbitrator without proper notice and in violation of statutory provisions renders the resulting award unsustainable and against the public policy of India.
The main legal point established in the judgment is that the appointment of the sole arbitrator unilaterally by one of the parties was improper and impermissible, violating the provisions of Section ....
The court emphasized the necessity for impartiality in arbitration, ruling that automatic appointments of arbitrators undermined the arbitration clause, rendering the award invalid.
Unilateral appointment of an arbitrator in violation of Section 12(5) of the Arbitration and Conciliation Act, 1996 renders the award unsustainable under law and against the public policy of India.
Unilateral appointment of an arbitrator by a party with vested interests breaches principles of fairness and impartiality, rendering such appointment invalid under arbitration laws.
An award rendered by an ineligible arbitrator is void ab-initio, and the appointment of an arbitrator by an ineligible person goes to the root of the arbitrator's jurisdiction.
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