Unilateral appointment of an arbitrator by a party with vested interests breaches principles of fairness and impartiality, rendering such appointment invalid under arbitration laws.

JUDGMENT

Mini Pushkarna, J.

1. The present petition has been filed under Section 14 and 15 of Arbitration and Conciliation Act, 1996 (herein after called "the Act" ) seeking termination of the mandate of the sole arbitrator, unilaterally appointed by the respondent, with further prayer for substitution of the sole arbitrator appointed by the respondent, by an impartial and independent arbitrator.

2. Petitioner no. 1 is engaged in the business of dealership of Maruti Suzuki India Ltd. at Patiala and Saharanpur, and petitioner nos. 2 to 5 are the directors of petitioner no. 1. Respondent is a non- banking financial company.

3. A loan agreement was executed between the parties on 14.03.2016, as per which respondent agreed to sanction a loan of Rs. 11.50 crores in favour of the petitioners against mortgage of immovable property situated at Village Megh, Chhapar, Saharanpur, UP. The said loan was repayable in 120 monthly instalments ending on 10.06.2026. Apart from the said loan, another separate loan of Rs. 2.50 crores was also sanctioned in favour of petitioner no. 1 by the respondent.

4. It is the case of the petitioner that petitioner no. 1 regularly paid the instalments towards re-payment of loan. However, due to heavy floods in February, 2018, petitioner no. 1 suffered huge losses on account of its stock worth crores of rupees getting damaged in the floods. Respondent subsequently sent a loan recall notice to the petitioners on 14.10.2019 and also invoked the arbitration clause by way of the said notice.

5. Thereafter, respondent unilaterally appointed an arbitrator, without informing the petitioners or obtaining their consent. The sole arbitrator as unilaterally appointed by the respondent, sent a notice dated 22.02.2021 to the petitioners directing them to appear before him on 17.03.2021 in relation to the claim statement filed by the respondent.

6. It is the case of the petitioners that they came to know about the appointment of the sole arbitrator for the first time only on receipt of the said notice. Thus, petitioners immediately sent a letter to the arbitrator stating that his appointment had been made unilaterally by the respondent without prior notice to the petitioners, without obtaining their consent and was ex-facie illegal and contrary to the law laid down by Apex Court. The learned arbitrator was requested not to proceed further with the arbitration proceedings till the issue regarding his appointment was finalised.

7. However, despite the aforesaid letter, the learned arbitrator proceeded and fixed dates for hearing and sent letter to the petitioners asking them to appear before him. Thus, the present petition has been filed for termination of the mandate of the sole arbitrator.

8. It is the contention on behalf of petitioners that on the one hand the respondent is vigorously pressing the arbitration proceedings, while on the other hand, till date, it continues to receive monthly instalments to the tune of around Rs. 17,00,000/- every month from petitioner no. 1 towards repayment.

9. On behalf of respondent, it is submitted that the appointment of the learned arbitrator in the present case by respondent is proper and as per the loan agreement which was duly executed between the parties. It is submitted by learned counsel for respondent that the appointment is as per law and as per the procedure laid down under Sections 12, 13, 14 and as per 5th, 6th and 7th Schedule of the A