Unilateral appointment of an arbitrator without concurrence violates Section 12(5) of the Arbitration and Conciliation Act, rendering the award void ab initio.

JUDGMENT

Vibhu Bakhru, J. (Oral)--The petitioners have filed the present petition impugning an Arbitral Award dated 23.12.2019 (hereafter `the impugned award') rendered by an Arbitral Tribunal constituted of a Sole Arbitrator. The petitioners contend that the impugned award is void ab initio as the learned Arbitrator was ineligible to act as an Arbitrator. The learned Sole Arbitrator was appointed unilaterally by the respondent without concurrence or prior information to the petitioners.

2. The respondent company is a Non-Banking Financial Company engaged in the business of providing loans and financial facilities. During the course of its business, the respondent had advanced certain loans to Upper India Trading Company Private Limited [the petitioner in OMP(COMM) 336/2021]. The parties had thereafter, entered into a Facility Agreement dated 29.02.2016, which was also signed by Ms Simmi Sethi, Mr Sunil Sethi and Mr Raghav Sethi as co-borrowers. In terms of the said Facility Agreement, the respondent had agreed to provide finance not exceeding Rs.10,88,00,000/- (Rupees ten crores eighty eight lacs only) at a floating interest rate of 6.55% less than benchmark prime lending rate, which at the material time was mentioned as 17.80%.

3. The respondent claims that the petitioners had defaulted in performing their repayment obligations.

4. The Facility Agreement includes an Arbitration Clause that reads as under:

"20 ARBITRATION

20.1 Any and all disputes, differences and/or claims arising out of these presents or as to the construction, meaning or effect hereof, or as to the rights and liabilities of the parties hereunder shall be settled in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory amendments thereof, and the same shall be referred to arbitration of a sole arbitrator to be appointed by the Lender. In the event of death, refusal, neglect, inability or incapability of the persons so appointed to act as an arbitrator, the Lender may appoint a new arbitrator. The award including the interim award/s of the arbitrator shall be final and binding on all parties concerned. The arbitrator may lay down from time to time the procedure to be followed by him in conducting arbitration proceedings and shall conduct arbitration proceedings in such manner as he considers appropriate. The Borrower irrevocably agrees that for enforcing their under section 20 (Arbitration), the competent courts in the place as set out in Schedule II shall have non-exclusive jurisdiction and both the parties hereto submit to the same.

20.2 The parties agree with respect to such arbitration that:

(a) The arbitration proceedings shall be conducted in English.

(b) The placed of arbitration shall be as specified in Schedule II.

(c) The arbitration award shall be final and binding on the parties, and enforceable in accordance with its terms. The arbitrators shall state reasons for their findings in writing. The Parties agree to be bound thereby and to act accordingly.

(d) When any dispute occurs which is submitted to arbitration, except for the matter under dispute, the Parties shall continue to exercise their remaining respective rights and fulfill their remaining obligations under this Agreement."

5. The respondent claims that it had issued a letter dated 06.08.2019 invoking the Arbitration Clause and appointing the learned Sole Arbitrator. By the same letter, the respondent also called upon the petitioners to pay an amount of Rs.10,40,32,450.77/- within a period of seven days of the receipt of the said letter and further, clarified that if th