An arbitration award is invalid under Section 12(5) of the Arbitration and Conciliation Act if arbitrators are appointed without express written consent regarding conflict of interest, making the award unenforceable.

ORDER :

(PER : HONOURABLE MR.JUSTICE D.N.RAY)

1. Heard Mr. Zubin Bharda, learned advocate for the Appellant.

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

2.1 The Appellant, engaged in the business of cloth processing under the name Gurera Synthetics Pvt. Ltd., Maharashtra, entered into a commercial arrangement with the respondent, a manufacturer of grey cloth operating as M/s. Shree Ram Mills, Surat. The Appellant processed and delivered textile goods against orders placed by the respondent and raised invoices amounting to Rs. 28,22,454/-. Of this, the respondent is said to have paid Rs. 19,53,485/-, leaving a balance of Rs. 8,68,969/- unpaid, despite repeated requests. Upon non-payment, the Appellant issued a legal notice demanding the outstanding amount along with interest @24% per annum, failing which the dispute was to be referred to arbitration under the aegis of Bharat Merchants Chamber, Mumbai. The respondent denied liability and instead claimed to have overpaid the Appellant by Rs. 2,08,132/-.

2.2 Relying on Clause 2 of the invoice terms, the Appellant invoked arbitration and claimed the outstanding principal along with accrued interest and arbitration costs (Rs.8,68,969/- along with interest @24% per annum till 30.09.2018 which came to Rs.1,28,751/- and further interest till realization along with cost of Arbitration).

2.3 The Bharat Merchants Chamber registered the matter as Arbitration Case No. A/76/2018/2019. Upon the respondent’s failure to nominate an Arbitrator, the Chamber appointed Shri Krishnadeo Agarwal to represent the respondent. Subsequently, both nominated Arbitrators appointed Shri Vijaykumar Lohiya as the presiding Arbitrator. It is Appellant’s case that the Chamber issued several notices to the respondent. By communication dated 22.12.2018, the respondent appointed an Advocate to represent her and her proprietary concern. The respondent contested the Chamber’s jurisdiction and filed a written statement denying the Appellant’s claim and challenging the authenticity of the Appellant’s account statements. Eventually, the Tribunal proceeded ex-parte and concluded the proceedings.

2.4 The Arbitral Tribunal, having accepted the Appellant’s documentary evidence and finding the claims substantiated, held that, Bharat Merchants Chamber had jurisdiction. It found that the Appellant had established delivery of goods worth Rs. 28,22,454/-, with part-payment of Rs. 19,53,485/-, and thus the respondent remained liable to pay the balance of Rs. 8,68,969/-. The Arbitrators awarded interest @18% per annum (as opposed to the claimed 24%), amounting to Rs. 3,01,011/-, bringing the total award to Rs. 11,69,980/-, with Rs. 12,000/- as arbitration cost. It was further directed that in case of default within 5 days of receipt, post-award interest @18% p.a. would accrue on the awarded sum.

2.5 The respondent did not challenge the award, after which, the Appellant initiated execution proceedings before the Commercial Court, Surat, registered as Commercial Execution No. 416 of 2022. Though the respondent did not file any challenge under Section 34 of the Arbitration and Conciliation Act, but contended in execution that the appointment of the Tribunal was without respondent’s consent and thus invalid, rendering the award a nullity.

2.6 The Commercial Court framed two issues for determination:

i. Whether the award passed by the learned Arbitrator in violation of Section 12 (5) of the Arbitration and Conciliation Act and hence a nullity and the second issue that was framed; and ii. Whether the Commercial Court in Arbitration proceedings under Section 36 of the Arbitration and C