The court ruled that unilateral appointment of an arbitrator is invalid under the Arbitration Act, as it circumvents the procedure agreed upon in the arbitration agreement.

JUDGMENT (Oral)

(Video-Conferencing)

1. By this petition under Section 14 (1)(a) read with section 14(2) of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act"), the petitioners question the legitimacy of the appointment of the arbitrator (who happens to be a learned retired Judge of this Court), by the respondent, to arbitrate on the disputes between the petitioners and the respondent. Consequently, the petition prays for a declaration that the mandate of the learned arbitrator stands terminated under section 14(1)(a) of the 1996 Act, as the learned arbitrator has been rendered de jure incapable of acting in the said capacity.

2. The issue in controversy being limited, detailed allusion of the facts may conveniently be eschewed, and a brief recital thereof would suffice.

3. The dispute arises out of a Memorandum of Understanding (hereinafter referred to as "MoU") dated 16th August, 2018, executed between the petitioners and the respondent. Under the said MoU, the petitioners invested Rs.8,38,91,000/- in the respondent company. As security against the said investment, the respondent allotted nine apartments to the petitioners in its Florence Estate project. Additionally, two apartments were allotted to the petitioners by M/s Venta Realtech Private Limited, as the confirming party to the agreement.

4. The petition alleges that there was default, on the part of the respondent, in fulfilling the obligations under the MoU, whereupon the petitioners sought to invoke the aforesaid security. At this stage, it is alleged that the petitioners came to learn that the security interest created by the respondent, on the aforesaid nine apartments was illegal and void, as the respondent was bound to allot the said apartments only to Central Government employees.

5. Aggrieved thereby, the petitioners terminated the MoU on 1st November, 2019 and claimed, from the respondent, refund of the invested amount.

6. The respondent, vide reply dated 6th November, 2019, denied the allegation levelled by the petitioners and sought reference of the dispute, that had thus arisen between the petitioners and the respondent, to arbitration, suggesting, for the said purpose, the names of two learned arbitrators. It may be noted, in this context, that clause XVI of the MoU, which provides for reference of intersay disputes to arbitration, reads thus;

"In the event of any dispute arising out of or in connection with this MoU, the same shall in the first instance be resolved by mutual discussions and negotiations. If such differences cannot be resolved within ten days of the notice of such difference, then the disputes shall be referred to arbitration. The seat and venue of arbitration shall be New Delhi."

7. It appears that, on 19th November, 2020, the respondent having failed to receive any response from the petitioners to the aforesaid communication dated 6th November, 2019, went ahead and proceeded to appoint a learned retired Judge of this Court as the sole arbitrator to arbitrate on the disputes.

8. The learned arbitrator, vide communication dated 20th November, 2020, consented to her appointment and, thereafter, on 23rd November, 2020, wrote to the petitioner, fixing hearing in the matter on 3rd December, 2020.

9. On receiving the said communication, the petitioner wrote, to the learned arbitrator on 25th November, 2020, objecting to her appointment and relying, inter alia, for the said purpose, on the judgment of t