Delhi District Court
Mukesh Babulal Chauradiya And Anr vs Ambit Finvest Pvt Ltd on 6 December, 2023
IN THE COURT OF Dr. KAMINI LAU: DISTRICT JUDGE
(COMMERCIAL COURT)02, CENTRAL DISTRICT,
TIS HAZARI COURTS, DELHI
OMP (COMM) No. 44/2021
CNR No. DLCT010079032021
1. Mukesh Babulal Chauradiya
R/o B203, Samay Apts, Opposite Prestige Tower,
Judges Bunglow Road, Bokadev,
Ahmedabad380054
2. Anju Mukesh Chordiya
W/o Mukesh Babulal Chauradiya
R/o B203, Samay Apts, Opposite Prestige Tower,
Judges Bunglow Road, Bokadev,
Ahmedabad380054
...... Petitioners
Versus
Ambit Finvest Private Limited
Office at: 223, Sunnit Business Bay, Prakaswadi,
Near Magic Brick Railway Station, Andheri Kurla Road,
Andheri East, Mumbai400069
......Respondent
Date of filing of Objections: 23.06.2021
Judgment Reserved on: 28.11.2023
Date of Judgment: 06.12.2023
TABLE OF CONTENTS
Sr. No. Title Page No.
1 Brief facts/ Case of the petitioner 26
2 Case of the respondent 79
3 List of Authorities & Legal Position 933
4 Findings & Observations 3337
5 Conclusion 37
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd.
OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 1 of 37
Present: Sh. Mukul Katyal Advocate for the petitioners.
None for the respondent.
JUDGMENT:
(1) These objections under Section 34 of the Arbitration and Conciliation Act, 1996 have been filed by the petitioners for setting aside the Exparte Arbitral Award dated 18.02.2021 passed by the Ld. Sole Arbitrator Sh. Vinod Dhawan.
BRIEF FACTS:
(2) The Brief Facts as borne out from the petition/ objections are as under:
➢ That the petitioners received a legal notice from the respondent company via Speed Post for recall of the Loan Agreement No. AHM0000000004796 on 12.10.2019 and according to the said notice a sum of Rs.19,12,267/ including interest had to be paid by the petitioners in respect of the loan taken by M/s. Lksh Polytex Pvt. Ltd. from the respondent company. ➢ That the petitioners sent a reply to the said notice on 14.11.2019 explaining that the petitioners were never the coborrower to the loan agreement nor they had signed the same.
➢ That the petitioners informed the respondent company that they were only the shareholders of M/s. Laksh Polytex Pvt. Ltd. and the photocopies of their identity Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 2 of 37 proofs were available with one Krishnakant Bhimsen Goyal who had colluded with the officials of the respondent company and forged their signatures in the loan application documents.
➢ That on discussing this issue with Krishnakant, he admitted that he had taken the loan and that he would replay the outstanding loan to the respondent company but soon thereafter he stopped responding to the calls of the petitioners and had absconded as a result of which the petitioners lodged an FIR bearing No. 74/2019 dated 17.08.2019 which had been registered with Anand Nagar Police Station, Ahmedabad, Gujarat.
➢ That during the month of January 2020, the petitioners changed their residential address and accordingly informed the concerned Post Office to redirect any posts, mails or letters to the new address.
➢ That the petitioners received a letter via Speed Post dated 14.01.2020 from the respondent company informing that arbitration proceedings were to be initiated against the petitioners but the said letter never informed the date on which proceedings were to be held.
➢ That as per the said letter Sh. Vinod Dhawan had been appointed as an Arbitrator to conduct the arbitration proceedings between the parties.
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 3 of 37 ➢ That on 10.02.2020 the petitioners sent a letter to the respondent company informing them about the change of address of the petitioners.
➢ That the petitioners received an order dated 04.03.2020 which stated that the notice had been issued by the Ld. Arbitrator with respect to the arbitration proceedings and the petitioners being directed to file their Statement of Defence within the stipulated time period and the proceedings were adjourned to 23.03.2020. ➢ That thereafter the petitioners booked their flight on 07.03.2020 but the same was cancelled due to Covid 19 pandemic.
➢ That for almost 10 months thereafter the petitioners did not receive any order or notice pertaining to the arbitration proceedings until 20.01.2021 wherein the petitioners received an order dated 01.12.2020 which stated that notice had been issued to the applicants on 09.11.2020 to appear before the Ld. Arbitrator on 01.12.2020.
➢ That the said order also gave a final opportunity to the petitioners to be present and file their written statements on the next date of hearing i.e. 21.12.2020. ➢ That since this notice had been received by the petitioners only on 20.01.2021 the petitioners could not appear on 21.12.2020 and no notice dated 09.11.2020 or any statement of claim was ever received by the petitioners in connection with the above arbitration Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 4 of 37 proceedings at their new address.
➢ That the petitioners had also sent a letter to the Reserve Bank of India against the respondent company for not following all the rules and norms fixed for disbursement of loan and the Reserve Bank of India issued a Circular dated 06.04.2021 stating the frauds had been committed by a Coborrower of M/s. Laksh Polytex Pvt. Ltd. misusing KYC documents of other coborrowers and forging their signatures to get loans from various financial institution.
➢ That due to rise of Covid Cases in Delhi, it took some time for the petitioners to appoint a lawyer in Delhi top represent them but by that time the petitioners received the Arbitral Award dated 18.02.2021 which mentioned that the award had been passed against the petitioners exparte.
(3) The petitioners have challenged the impugned award dated 18.02.2021 on the following grounds:
➢ Because the petitioners never received any notice issued by the Ld. Arbitrator on 09.11.2020 as per order dated 01.12.2020.
➢ Because the petitioners received the order dated 01.12.2020 which directed them to file a Statement of Defence and be present on the next date of hearing i.e. 21.12.2020 only after the said date i.e. 20.01.2021.
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 5 of 37 ➢ Because even after informing the respondent company about the change of address by the petitioners via letter dated 10.02.2020, it is apparent that the respondent company did not apprise the Ld. Arbitrator of the new address due to which the petitioner did not receive the notices or orders of the arbitration proceedings on time. ➢ Because the petitioners never received any Statement of Claim at their new address to enable them to file their Statement of Defence within the stipulated time period.
➢ Because the Arbitral Award dated 18.02.2021 is liable to be set aside as per Section 34(2)(a)(iii) of the Arbitration and Conciliation Act, 1996 as the petitioners were never given any opportunity to present their case before the Ld. Arbitrator.
➢ Because the applicants had already written to the Reserve Bank of India informing them about the malpractices performed by the respondent company for disbursement of the loan agreement including the FIR against Kreishnakant bearing No. 74/2019 dated 17.08.2019 which had been registered with Anand Nagar Police Station, Ahmedabad, Gujarat. ➢ Because the officials of the respondent company colluded with Sh. Krishnakant for disbursing the loan agreement without the respondent company verifying the credentials of all persons who had signed the loan agreement.
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 6 of 37 Case of the respondent:
(4) The respondent M/s. Ambit Finvest Pvt. Ltd. has filed a detailed reply to the petition under Section 34 of the Arbitration & Conciliation Act 1996. The case of the respondent is as under:
➢ That the petitioners have not approached this Court with clean hands and have suppressed material facts. ➢ That as per the arbitration clause in the loan agreement, the respondent company had to intimate arbitration proceedings with respect to the said loan and an ex parte arbitration award was passed by the ld. Arbitrator on 18.02.2021.
➢ That the petitioner no.1 is one of the coborrower in the loan whereas the Laksh Polytex Pvt. Ltd. was the borrower but he did not bother or made an effort to appear before the Ld. Arbitral Tribunal to put his case. ➢ That even after passing of the arbitration award, the petitioner did not clear the outstanding amount with respect to the loan of Rs.19,12,267/. ➢ That multiple opportunities were given to the petitioners by the Ld. Arbitrator to appear in the arbitration proceedings but the petitioners failed to do so.
➢ That even if it is presumed that the address of the petitioners was changed, the petitioners have themselves admitted having received all the notices Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 7 of 37 sent by the Ld. Arbitrator and the respondent company and hence, the petitioners have full knowledge of the arbitration proceedings despite which they never participated in the same.
➢ That the letter dated 14.01.2020 was the reference notice dispatched to the petitioners on behalf of the respondent informing them about the initiation of arbitration proceedings and regarding appointment of Sh. Vinod Dhawan (Advocate) as the Sole Arbitrator and the petitioners were subsequently informed about the date and time of the hearing of the arbitration proceedings vide order dated 04.03.2020.
➢ That the arbitration proceedings could not take place on 23.03.2020 due to complete lockdown and the matter was further takenup only on 09.11.2020 when a notice was again issued to the petitioners for appearance before the arbitral tribunal on 01.12.2020 but again there was no representation on behalf of the petitioners on 01.12.2020.
➢ That another opportunity was given to the petitioners to appear before the arbitral tribunal on 21.12.2020 but again there was no representation on behalf of the petitioners.
(5) On merits, the respondent has denied all the grounds raised by the petitioners and it is pleaded that the petitioner have Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 8 of 37 full knowledge of the arbitration proceedings since its inception despite which they chose not to participate in the same.
List of Authorities/ Final Arguments:
(6) Written memorandum of arguments have been filed on behalf of the petitioners which I have duly perused. In so far as the respondent is concerned, no written memorandum of arguments have been filed on its behalf. In fact, when the case was at the stage of final arguments, the counsel for the respondent had stopped appearing and has abandoned the present proceedings.
(7) Further, notice was issued to the Ld. Arbitrator for placing on record the original arbitration record but despite service of the notice, the original arbitration record was not sent by the Ld. Arbitrator.
(8) I may also note that apart from the various grounds raised in their petition, the petitioners have also raised the ground of unilateral appointment of the Sole Arbitrator and placed their reliance upon the authorities in the case of Perkins Eastman Architects DPC Vs. HSCC India Ltd. reported in 2020 (20) SCC 760 and in the case of TRF Limited Vs. Energo Engineering Projects Ltd. reported in 2017 (8) SCC 377.
Legal Position:
(9) Before coming to the merits of the grounds raised before me, I may observe that the provisions of Section 12(1) of the Arbitration and Conciliation Act, 1996 provides the Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd.
OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 9 of 37 Grounds for Challenge as under:
12. Grounds for challenge: (1) When a person is approached in connection with his possible appointment as an Arbitrator, he shall disclose in writing any circumstances,
(a) such as the existence either direct or indirect, of any past or present, relationship with or interest in any of the parties or in relation to the subject−matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and
(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.
Explanation 1.− The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an Arbitrator.
Explanation 2.− The disclosure shall be made by such person in the form specified in the Sixth Schedule.
(2) An Arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub−section (1) unless they have already been informed of them by him.
(3) An Arbitrator may be challenged only if −
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties.
(4) A party may challenge an Arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject−matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator:
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 10 of 37 Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub− section by an express agreement in writing...."
(10) Further, Section 21 of the Arbitration and Conciliation Act, 1996 provides as under:
".... 21. Commencement of arbitral proceedings: Unless otherwise agreed by the parties, the arbitral proceedings, in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent....."
(11) I also note that Section 34 (1) of the Arbitration and Conciliation Act, 1996 provide that the arbitral award may be set aside by the court on an application for setting aside the same being made on any grounds specified in the subsection (2) and within the time prescribed. The provisions of Section 34 (2) (a) are reproduced as under:
"....... 2 (a) the party making the application furnishes proof that
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon,under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 11 of 37 aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or failing such agreement, was not in accordance with this Part.'
(b) the Court finds that −
(i) the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
[Explanation 1. − For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if, −
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.] [Explanation 2 For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute] [(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.] (12) The issue before me is relating to maintainability of the ExParte Award passed by a unilaterally appointed Arbitrator, which according to the petitioner defeats the very objective relating to inclusion of Section 12 (5) and Schedule 7 in the Arbitration and Conciliation Act, 1996 by way of Arbitration and Conciliation (Amendment) Act, 2015 w.e.f. 23.10.2015 in Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd.
OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 12 of 37 the light of law laid down by the Hon'ble Apex Court debarring Unilateral Appointment of Sole Arbitrators which is Anti thesis to "Nemo Judex in causa sua" No one can be a Judge in his own cause.
(13) Firstly, coming to the objective behind inclusion of Section 12 (5) and Schedule 7 in the Arbitration and Conciliation Act, 1996 by way of Arbitration and Conciliation (Amendment) Act, 2015 w.e.f. 23.10.2015. I may observe that Section 12(5) was introduced in this 1996 Act by way of Arbitration and Conciliation (Amendment) Act, 2015 notified with effect from 23.10.2015 whereby additional ground for challenging the appointment of Arbitrator was introduced with simultaneous inclusion of Schedule 7. For ready reference Section 12(5) of the Act and the 7th Schedule are reproduced hereunder:
Arbitration and Conciliation Act, 1996 Sections 12(5): Grounds of Challenge Notwithstanding any prior agreements to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in Schedule 7 shall be ineligible to be appointed as an arbitrator. "Provided that parties may, subsequent to disputes having arisen between them waive the applicability of this suit by an expressed agreement in writing."
The Seventh Schedule i. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
ii. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties. iii. The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 13 of 37 iv. The arbitrator is a lawyer in the same law firm which is representing one of the parties.
v. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.
vi. The arbitrator's law firm had a previous but terminated involvement in the case without the arbitrator being invoked himself or herself. vii. The arbitrator's law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.
viii. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income therefrom. ix. The arbitrator has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling the company.
x. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate in one of the parties.
xi. The arbitrator is a legal representative of an entity that is a party in the arbitration.
xii. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.
xiii. The arbitrator has a significant financial interest in one of the parties or the outcome of the case. xiv. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom.
Relationship of the Arbitrator to the dispute xv. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.
xvi. The arbitrator has previous involvement in the case.
Arbitrator's direct or indirect interest in the dispute xvii. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 14 of 37 xviii. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.
xix. The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute.
Explanation 1The term "close family member" refers to a spouse, sibling, child, parent or life partner. Explanation 2 The term "affiliate" encompasses all companies in one group of companies including the parent company.
Explanation 3 For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialized pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above.
(14) Secondly, the Hon'ble Supreme Court in numerous authoritative pronouncements, detailed as under, has debarred the unilateral appointment of Sole Arbitrators:
➢ TRF Limited Vs. Energo Engineering Projects Ltd.
reported in 2017 (8) SCC 377.
➢ Voestalpine Schienen GMVH Vs. DMRC Ltd.
reported in 2017 (4) SCC 665.
➢ Perkins Eastman Architects DPC Vs. HSCC India Ltd. reported in 2020 (20) SCC 760.
➢ Bharat Broadband Network Vs. United Telecoms Ltd.
reported in 2019 (5) SCC 755.
➢ HARSAC and Anr. Vs. Pan India Consultants reported in 2021 (3) SCC 103.
➢ Jaipur JDUSS Ltd. Vs. Ajay Sales and Suppliers reported in 2021 (3) SCC Online SC 730.
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 15 of 37 ➢ Ellora Papermills Vs. State of M.P. reported in 2022 (3) SCC 1.
➢ Dharma Prasthanam Vs. M/s Madhok Construction Pvt. Ltd. reported in 2005 (9) SCC 686.
(15) In the case titled TRF Limited Vs. Energo Engineering Projects Ltd. reported in (2017) 8 SCC 377 the Full Bench of Supreme Court headed by Hon'ble Mr. Justice Deepak Mishra had an opportunity to reprise and articulate the course corrective effect introduction of Section 12(5) read with Schedule 7 of the Arbitration & Conciliation Act. The issue before Hon'ble Full Bench of the Supreme Court was, "Whether a person who is ineligible to preside an Arbitral Tribunal on account of operation of law i.e. Section 12(5) read with Schedule 7 of the Act would be eligible to nominate another person as Arbitrator." While comparing the unamended Section 12 of the Act with the amended Section 12 of the Act, post 2015 Amendment, the Hon'ble Supreme Court had observed and I quote as under:
".......12.SubSection (5) of Section 12, on which immense stress has been laid by the learned counsel for the appellant, as has been reproduced above, commences with a nonobstante clause. It categorically lays down that if a person whose relationship with the parties or the counsel for the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. There is a qualifier which indicates that parties may subsequent to the disputes arisen between them, waive the applicability by express agreement in writing. The qualifier finds place in the proviso appended to subsection 5 of Section 12. On a careful scrutiny of the proviso,it is discernible that there are fundamentally three components, namely the parties Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 16 of 37 can waive the applicability of the subsection; the said waiver can only take place subsequent to dispute having arisen between the parties; and such waiver must be by an express agreement in writing......"
(16) The Hon'ble Full Bench distinguished that the Arbitral Agreements where both sides are required to appoint one Arbitrator each who, in turn, appoint a Third Neutral Arbitrator with cases where the Arbitrator Clause gives full power to only one party to appoint a Sole Arbitrator in this matter. While appreciating the concern of the appellant that by virtue of Section 12(5) read with Schedule 7 of the Act an employee/ official of a disputing party cannot act as an Arbitrator, such an employee/official cannot also appoint another Arbitrator unilaterally Hon'ble Apex Court observed as under: ".......53.The aforesaid authorities have been commended to us to establish the proposition that if the nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself. According to learned counsel for the appellant, ineligibility strikes at the root of his power to arbitrate or get it arbitrated upon by a nominee.
54.In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectablity. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 17 of 37 infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so....."
(17) The aspect of Unilateral Appointment of Arbitrator and its derelictious effect on neutrality, independence and impartiality of Arbitral proceedings Hon'ble Supreme Court discussed the issue threadbare in case titled Perkins Eastman Architects DPC Vs. HSCC India Limited reported in (2020) 20 SCC 760. Taking cue from 'TRF Judgment' the aspect which was taken up for consideration by the Apex Court in Perkins Eastman Judgment is where a Managing Director or any official or authority who is a disputing party may not be acting as an Arbitrator but empowered under the Arbitration Clause to appoint another person of choice or discretion as an Arbitrator. The Hon'ble Bench observed and I quote as under:
"...... We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second category, the Managing Director is not to act as an arbitrator himself but is empowered or authorised to appoint any other person of his choice or discretion as an arbitrator. If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases. If the interest that he has in Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 18 of 37 the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present irrespective of whether the matter stands under the first or second category of cases. We are conscious that if such deduction is drawn from the decision of this Court in TRF Limited, all cases having clauses similar to that with which we are presently concerned, a party to the agreement would be disentitled to make any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator....."
(18) While discussing the above referred Voestalpine Judgment and Law Commission of India, 176 th and 246th Report the Apex Court highlighted that the principles of procedural fairness, impartiality and independence cannot be discarded at any stage of the proceedings, which I quote as under:
"......Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of consideration of the Arbitral Tribunal, it would be incongruous to say that "Parties Autonomy" can be exercised in complete disregard of these principles and even if the same has been agreed prior to the disputes having risen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of parties apparent agreement. A sensible law cannot, for instance, permit appointment of an Arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the parties agree.......
In fact, when the party appointing an adjudicator in the suit, the duty to appoint an impartial and independent adjudicator is that much more onerous and the right to natural justice cannot be said to have been waived only on the basis of a "Prior: Agreement between the parties at the time of Contract or before arising out of the disputes...".
(19) In the case of Bharat Broadband Network Vs. United Telecoms Limited reported in (2019) 5 SCC 755 while dealing Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 19 of 37 with an issue of Section 12(5) read with Schedule 7 qua unilateral appointment of arbitrator by official of the disputing company, the Bench headed by Hon'ble Mr. Justice R. F. Nariman dealt with an issue wherein during the pendency of arbitral proceedings before a Sole Arbitrator who was unilaterally appointed by CMD of Bharat Broadband Network, an application was moved before the Arbitrator by the Bharat Broadband Network company that in the light of TRF Limited the Tribunal would be de jure unable to perform the function as Arbitrator and that he should withdraw from the arbitration so that an application under Section 11 of the Act can be filed before the High Court. The plea was rejected by the Arbitrator. When Bharat Broadband Network approached Delhi High Court, the High Court rejected the plea of the Bharat Broadband Network on the ground that since the Sole Arbitrator was appointed by Bharat Broadband Network itself, it is estopped from making a plea for removal of the arbitrator. While discussing Voestalpine Schienen Hon'ble Supreme Court held and I quote as under:
"...... Section 12(5), on the other hand, is a new provision which relates to the de jure inability of an arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the non obstante clause in Section 12(5) the moment any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the 7th Schedule. The subSection then declares that such person shall be "ineligible" to be appointed as arbitrator. The only way in which this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 20 of 37 an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the 7th Schedule, he is, as a matter of law, ineligible to be appointed as an arbitrator. The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes having arisen between them, waive the applicability of this subsection by an "express agreement in writing". The express agreement in writing" has reference to a person who is interdicted by the 7 th Schedule, but who is stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the 7th Schedule......"
(20) Further, in the case of Dharma Prasthanam Vs. M/s Madhok Construction Pvt. Ltd. reported in (2005) 9 SCC 686 Hon'ble Supreme Court while dealing with the aspect of 'Unilateral Appointment of Arbitrator' even in the pre2015 Amendment period observed as under:
".....A unilateral appointment as well as a unilateral reference, both will be illegal. It would make a difference if in respect of a unilateral appointment and reference if the other party had submitted to the jurisdiction of an arbitrator so appointed and if the rights which it has under such an agreement has been waived, then an arbitrator so appointed may proceed with the reference and the party submitting to his jurisdiction and participating in the proceedings before him may later on not be allowed to raise any objection in with regard to such appointment of arbitrator...."
(21) In case titled Haryana Space Application Centre (HARSAC) and Anr. Vs. Pan India Consultants, reported in (2021) 3 SCC 103 the Full Bench of Hon'ble Supreme Court dealt with a case where the petitioner appointed the Principal Secretary of the State as Nominee Arbitrator and arbitral Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 21 of 37 proceedings were going on in for more than 4 years, the Hon'ble Supreme Court held that the application of Section 12(5) read with Schedule 7 of the Act is mandatory and not derogable and I quote as under:
"........We are of the view that the appointment of the Principal Secretary, Government of Haryana as the nominee arbitrator of HARSAC which is a Nodal Agency of the Government of Haryana, would be invalid under Section 12(5) of the Arbitration and Conciliation Act, 1996 (as amended by the 2015 Amendment Act) provides that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties, or counsel falls within any of the categories specified in the 7th Schedule, shall be ineligible to be appointed as an arbitrator.........
The arbitrator is a manager, director or part of the management of has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration......... Section 12(5) read with the 7th Schedule is a mandatory and nonderogable provision of the Act. In the facts of the present case, the Principal Secretary to the Government of Haryana would be ineligible to be appointed as an arbitrator, since he would have a controlling influence on the Appellant Company being a nodal agency of the State.
The Counsel for both parties during the course of hearing have consented to the substitution of the existing tribunal, by the appointment of a Sole Arbitrator to complete the arbitral proceedings....."
(22) In case titled Jaipur Jila Dugdh Utpadak Sehkari Sangh Ltd. Vs. Ajay Sales and Suppliers, reported in 2021 SCC Online SC 730, the Supreme Court Bench headed by HMJ M R Shah dealt with a case where the Arbitration Clause dated 31.03.2015 provided for appointment of Sangh's Chairman as Sole Arbitrator. When the dispute arose and Arbitration was invoked on 19.10.2019, the respondent approached High Court of Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 22 of 37 Rajasthan which under Section 11 of the Act where a fresh Arbitrator was appointed. When the High Court's order was challenged before the Supreme Court with a plea that the Arbitration Clause preexisted the 2015 Amendment of The Act and inclusion of Section 12(5) and Schedule 7, Hon'ble Apex Court while dismissing the petition challenging the High Court order observed as under:
"..... So far as the submission on behalf of the petitioners that the agreement was prior to the insertion of Sub Section 5 of Section 12 read with 7th Schedule to the Act and therefore the disqualification under SubSection 5 of Section 12 read with 7th Schedule to the Act shall not be applicable and that once an arbitratorChairman started the arbitration proceedings thereafter the High Court is not justified in appointing an Arbitrator are concerned the aforesaid has no substance and can to be accepted in view of the decision of this Court in TRF Limited Judgment(supra), Bharat Broadband Network Judgment (supra), Voestalpine Schienen Judgment (supra). In the aforesaid decisions this Court had an occasion to consider in detail the object and purpose of insertion of SubSection 5 of Section 12 read with 7th Schedule to the Act. In the case of Voestalpine Schienen Judgment(supra) it is observed and held by this Court that the main purpose for amending the provision was to provide for 'Neutrality of Arbitrators'. It is further observed that in order to achieve this, Subsection 5 of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subjectmatter of the dispute falls under any of the categories specified in the 7th Schedule, he shall be ineligible to be appointed as an arbitrator. It is further observed that in such an eventuality i.e. when the arbitration clause finds foul with the amended provisions (SubSection 5) of Section 12 read with 7th Schedule the appointment of an Arbitrator would be beyond pale of the arbitration agreement, empowering the Court to appoint such arbitrator as may be permissible. It is further observed that, that would be the effect of nonobstante clause contained in SubSection5 of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of the arbitration Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd.
OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 23 of 37 agreement..........
It is further observed and held by this Court in the aforesaid decision that independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which shall apply to all judicial and quasi judicial proceedings. It is further observed that it is for this reason that notwithstanding the fact that relationship between the parties, to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstanding the same nonindependence and nonimpartiality of such arbitrator would render him ineligible to conduct the arbitration....."
(23) In another case under the title Ellora Papermills Vs. State of M.P., reported in (2022) 3 SCC 1 Hon'ble Supreme Court on 04.01.2022 dealt with a matter wherein the dispute pertained to year 199394 and the Arbitral Tribunal consisting of officers of State of MP was constituted much prior to promulgation of 2015 Amendment and inclusion of Section 12(5) and 7th Schedule w.e.f. 23.10.2015. High Court did not interfere with the Tribunal citing the reason that the Tribunal started functioning prior to 23.10.2015 and that the appellant had already participated in the proceedings. Hon'ble Supreme Court while relying on TRF Limited, Bharat Broadband, Voestalpine and Ajay Sales Judgments stressed that 'Neutrality of Arbitrators', their independence and impartiality is critical for the entire process. The Bench reiterated and I quote as under:
"...... Though, the Law Commission discussed the aforesaid aspect under the heading "Neutrality of Arbirators", the focus of discussion was on impartiality and independence of the arbitrators which has relation to or bias towards one of the parties. In the field of Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 24 of 37 international arbitration, neutrality is generally related to the nationality of the arbitrator. In international sphere, the "appearance of neutrality" is considered equally important, which means that an arbitrator is neutral if his nationality is different from that of the parties. However, that is not the aspect which is being considered and the term "neutrality" used is relatable to impartiality and independence of the arbitrators, without any bias towards any of the parties. In fact, the term "Neutrality of Arbitrators" is commonly used in this context as well........
Keeping in mind the afore quoted recommendation of the Law Commission, with which spirit, Section 12 has been amended by the Amendment Act, 2015, it is manifest that the main purpose for amending the provision was to provide for neutrality of arbitrators. In order to achieve this, subSection 5 of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the 7th Schedule, he shall be ineligible to be appointed as an arbitrator. In such an eventuality i.e. when the arbitration clause finds foul with the amended provisions extracted above, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the Court to appoint such arbitrator(s) as may be permissible. That would be the effect of non obstante clause contained in subSection 5 of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of arbitration agreement....."
(24) In the case titled as SMS Limited Vs. Rail Vikas Nigam Limited reported in 2020 Latest Caselaw 190 Delhi wherein Hon'ble Delhi High Court dealt with an aspect where Railways claimed that it is offering a panel of 37 names for selection of the Arbitrator but the same was opposed by the plaintiff company as the proposed Arbitrators were primarily retired Railway Officers and few of them were from other PSUs. While referring to Voestalpine Judgment and Perkins Eastman Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 25 of 37 Judgment of Hon'ble Supreme Court it was ruled by Hon'ble Delhi High Court that:
"...... It is pertinent to note that in case of Perkins Eastman the Supreme Court while dealing with the application under Order 7 Rule 6 read with Section 11(12)(a) of the Act held that as per scheme of Section 11 of the Act if there are justifiable doubts as to the independence and impartiality of the person nominated and if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, an appointment can be made by the Court....."
(25) In the case of Proddatur Cable TV Digi Services Vs. Siti Cable Network Ltd. reported in 2020 Latest Caselaw 328 Delhi, Hon'ble High Court of Delhi dealt with a case where appointment of the Arbitrator was challenged on the ground that the Arbitrator was 'Unilaterally Appointed' in violations of TRF Judgment and Perkins Eastman Judgment of Hon'ble Supreme Court. The relevant para of the judgment of Hon'ble High Court is reproduced as under:
"......Lastly the reliance of the respondent on the judgment of the Supreme Court in the case of Central Organisation is also of no avail to the respondent. In the said case, the Supreme Court was dealing with an arbitration clause which required a panel of arbitrators to be provided by the Railways to the other party to the contract, in terms of clause 64.3(a)(ii) of the GCC. The Court held that since one party was to provide a panel and the other party had the choice to short list the Arbitrator of its choice from the panel and only from the shortlisted names, Railways was bound to appoint at least one Arbitrator to constitute the Arbitral Tribunal, the parties had a level playing filed. The Arbitrator appointed by the Railways of its choice was balanced by the second Arbitrator being of the choice of the other party. Thus, the elements of fairness, transparency and impartiality were taken care of....."
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 26 of 37 (26) Further, in the case of City Lifeline Travels Pvt. Ltd. Vs. Delhi Jal Board reported in 2021 Latest Caselaw 276 Delhi the Hon'ble High Court of Delhi held and I quote as under:
"........ The contention that the decision in the case of Perkins Eastman ought to be read in a restrictive manner is not persuasive. On the contrary, the said decision must be read in expansive manner. The efficacy of arbitration as an alternate dispute resolution mechanism rests on the foundation that the disputes would be adjudicated by independent and impartial arbitrators. The decision in Perkins Eastman recognizes the importance of ensuring that Arbitrators not be appointed by persons who are otherwise interested in the matter so as to obviate any doubt as to the impartiality and independence of the Arbitral Tribunal. The necessity for instituting necessary safeguards for the same cannot be understated."
(27) Again in case of Abraham Memorial Education Trust Vs. Prodigy Development Institution in OMP (Comm). 391 of 2020 Hon'ble High Court dealt with the award which was passed ExParte by 'Unilaterally Appointed Arbitrator' and held as under:
"......Since the Arbitrator's appointment was contrary to the provisions of Arbitration Agreement and Act, the unilateral reference of disputes and the proceedings before the Sole Arbitrator are void ab initio and the award so rendered is a nullity in law. Hence, the impugned award cannot be sustained and the Court has no hesitation in setting aside the award and it is ordered accordingly......"
(28) Similarly, in the case of M/s Fam Bhagat Infratech Private Limited Vs. Alok Kumar Agarwal reported in 2021 SCC Online Delhi 2486 the Hon'ble High Court while dealing with the challenge to Arbitral Clause which provided that 'Unilateral Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 27 of 37 Appointment of Arbitrator' observed and I quote as under:
"..... Clearly, in view of the law laid down by the Supreme Court in Perkins Eastman and Bharat Broadband as well as Section 12(5) of the Arbitration and Conciliation Act, 1996, read with the 7th Schedule thereto, Clause 9.1 is rendered unsustainable in law, as it confers exclusive jurisdiction to one of the parties to the arbitration agreement to appoint the arbitrator....."
(29) Further, in the case titled M/s India Cements Capital Limited Vs. William reported in 2015 SCC Online Ker 24805 the Hon'ble Kerala High Court observed as under:
"......20. Petitioner's contention that if an award is declared to be a nullity in execution proceedings, it will amount to adding one more ground to Section 34 of the Act is totally unacceptable. As mentioned earlier, Section 34 of the Act provides seven grounds to set aside an award. If the expression "set aside" is understood correctly, there will not be any lack of clarity or obfuscation. Ordinarily, the expression "set aside" is understood as meaning abandon, abjure, abrogate, discard, dispense with, to omit, reject, repudiate, etc. The term "set aside" is defined in Black's Law Dictionary (8th Edition) as vb.(of a court) to annul or vacate ( a judgment, order, etc.). The term "set aside" in the legal parlance means, to cancel, annul or revoke a judgment or order. It is an indisputable proposition that in order to set aside a decree or order or award, there must be one in existence. In other words, a decree or award not in existence cannot be set aside. No one can seek to set aside a decree or award which is not in existence. That exercised will be as futile, rather as impossible, as one attempting to commit feticide of an unborn foetus. Therefore, what is provided in Section 34 of the Act is only ways and means to set aside an award made in an arbitral proceedings. As succinctly stated by the Hon'ble Supreme Court, what is sought to be achieved by taking recourse to Section 47 of the Code is to make a declaration that the decree(here, an award) sought to be executed is a nullity. In other words, seeking a pronouncement that there is no executable decree of award at all. If the end result of an adjudication under Section 47 of the Code is entering a finding that there is no decree or award at all, there cannot be a question of setting aside such a decree of award in that proceedings.
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 28 of 37 Therefore, the contention of the revision petitioner that the declaration of nullity of an award in a proceeding under Section 47 of the Code will tantamount to adding one more ground to Section 34 of the Act is legally incorrect and therefore, not acceptable......."
(30) The celebrated judgments of TRF Limited, Perkins Eastman of Hon'ble Supreme Court have been relied by other High Courts as well. In case title Ravi Realcons Pvt. Ltd. Vs. Chief Engineer and Anr. reported in 2022 SCC Online CAL 751 the Hon'ble High Court of Calcutta observed as under:
"...... In the light of judgments in TRF Limited and Perkins Eastman in Section 12(5) of the Arbitration and Conciliation Act, it is clear that a person who may have an interest in the outcome of the dispute should not be made an Arbitrator....."
(31) While distinguishing the judgment of CORE judgments of Hon'ble Supreme Court on facts this Bench went on to observe that:
"...... The judgments in CORE judgment are justiciable on facts as the same relate to appointment of arbitrator as per Arbitration Clause has not dehorsed the ratio of Perkins Eastman....."
(32) In the case of Priya Mallaiseth Vs. VLCC Healthcare Limited reported in 2022 SCC Online Del 1137 the Hon'ble Delhi High Court has observed as under:
"...... The arbitration agreement between the parties as noted above is not in dispute. Firstly considering Mr. Sethna's second contention that Clause 13.1 when it confers an authority on the respondent to appoint an arbitrator, it would be rendered bad in law in view of the principles of law as laid down by the Supreme Court in Perkins Eastman needs acceptance adverting to the principles of law as laid down in these decisions. Applying Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 29 of 37 these principles the respondent cannot have a unilateral authority to appoint an arbitral tribunal...."
(33) Owing to inherent illegality in 'Unilateral Appointment of Sole Arbitrators' by one of the disputing parties is now so well established by Parliament and the Hon'ble Supreme Court that in several cases the parties themselves concede to this Legal Position and accept that unilateral appointment made by them may be set aside. In the case of Ekta Medical Systems Private Limited Vs. Institute of Liver and Biliary Sciences reported in 2021 SCC Online DEL 3979, when the petitioner raised the issue of unilateral appointment and carrying on of arbitral proceedings in violation of Section 12(5) read with Schedule 7 of the Act while citing Perkins Eastman. Ld. Counsel for respondent, simply conceded to the legal position and paved the way for appointment of a neutral arbitrator by the High Court. Hon'ble Delhi High Court observed and I quote as under:
"......The petitioners, by this petition, seek termination of the mandate of the arbitrator, presently in seisin of the disputes between the parties in view of Section 12(5) of the Arbitration and Conciliation Act, 1996 ("the 1996 Act") read with judgments of the Supreme Court in Bharat Broadband Network Ltd. Vs. United Telecoms Ltd., Perkins Eastman Architects DPC vs. HSCC(India) Ltd. And Haryana Space Application Centre Vs. Pan India Consultants Pvt. Ltd........
Mr. Sanjay Poddar, learned Senior Counsel for the respondent, fairly concedes to the applicability of Section 12(5) of the 1996 Act as well as the aforesaid decisions and, therefore submits that this Court may appoint an arbitrator in place of the arbitrator presently in seisin of the disputes....."
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 30 of 37 (34) Further, in the case of Overnite Express Limited Vs. Delhi Metro Rail Corporation reported in 2022 SCC Online Del 2488 the Hon'ble Delhi High Court while relying Voestalpine Judgment concluded that offering a panel of 5 names by one party to the opposite party is no longer a valid procedure. The relevant portion is reproduced as under:
"....... The procedure of forwarding a panel of five names to the other contracting party to choose its nominee Arbitrator is now held to be no longer a valid procedure.........
The respondent has no doubt given a panel of five retired District Judges, but it cannot be overlooked that it is a restrictive panel restricting the choice of the petitioner to pick up any one of those five which tantamounts to unilateral appointment of an Arbitrator by the Respondent, which may create a doubt about the Arbitrator being partial or biased. Though one may hasten to State and emphasise that the retired District Judges may be person of impeccable integrity, but the issue here is of a perceived bias which cannot be permitted. Hence, it is held that the procedure adopted by the respondent for appointment of Arbitrator from the panel cannot be sustained in the light of the observations of the Apex Court in Voestalpine Schienen GMVH Vs. Delhi Metro Rail Corporation Ltd. (2017) 4 SCC
665....".
(35) In the case titled AK Builders vs DSIDC, reported in 2022 Latest Case Law 606 Del a coequal Bench of Hon'ble Delhi High Court expressed reservation regarding the findings in the case of Kanodia Infratech Ltd. Vs. Dalmia Cement (Bharat) Ltd. reported in 2021 Latest Caselaw 2975 Del. The Bench held that mere participation in proceedings before a unilaterally appointed Arbitrator does not constitute waiver of Section 12(5) read with Schedule 7 of the Act. While relying on TRF Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 31 of 37 Ltd, Perkins Eastman and Bharat Broadband Judgements of Hon'ble Supreme Court, the unilaterally appointed Arbitrator was removed and replaced.
(36) I note that one of the most fundamental Principles of Natural Justice which is the soul and fulcrum of any judicial or quasijudicial process is that No one can be a Judge in his own cause (Nemo Judex in causa sua).
(37) The Law Commission of India in its Reports, Parliament of India in the 2015 Amendment of Arbitration and Conciliation Act, 1996 and repeatedly ruled by authoritatively judgments of Hon'ble Supreme Court, 'Neutrality of Arbitration Proceedings' cannot be allowed to be succumb or got hijacked by insistence of a large section of Government Departments and Corporations to continue to violate the impartiality, probity and unbiasedness of arbitration proceedings. In fact, unilateral appointment of Arbitrator is antithesis to "Nemo Judex in causa sua". The unilateral appointment of arbitrators is germane to this vice and when the first step is taken in a wrong direction and is rendered non est, every next step and the culmination of the arbitral journey into an award is nothing but a zilch or nullity. (38) Further, in the case of Kotak Mahindra Bank Ltd. Vs. Narendra Kumar Prajapat in EFA (Comm) No. 03/2023 decided on 17.05.2023 the Division Bench of Delhi High Court comprising of Hon'ble Mr. Justice Vibhu Bakhru and Hon'ble Mr. Justice Amit Mahajan, has observed that "..... A person who is ineligible to act an Arbitrator, lacks the inherent jurisdiction to render an Arbitral Award under the A&C Act. It is trite law Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 32 of 37 that a decision, by any authority, which lacks inherent jurisdiction to make such a decision, cannot be considered as valid. Thus, clearly, such an impugned award cannot be enforced ....".
Findings & Observations:
(39) By application of the above principles of law to the facts of the present case, I now proceed to decide the objections raised by the objectors/ petitioners.
(40) I may observe that one of the ground on which the petitioners are challenging the impugned award is with regard to the unilateral appointment of the Ld. Sole Arbitrator. Though the petitioners have admitted having received some communications from the respondent and the Ld. Arbitrator but they claimed that the Ld. Sole Arbitrator was appointed without their consent.
(41) In this regard, I may observe that a bare reading of Section 21 of the Arbitration and Conciliation Act shows that arbitral proceedings commence on the date on which the request for the dispute to be referred to Arbitration is received by the respondent. Therefore, the commencement of arbitral proceedings is incumbent on the receipt of such request or notice. If no notice is received by the concerned Respondent, there is no commencement of Arbitral proceedings at all.
Emphasis here is also made to the fact that the notice should not only be sent but also that the notice should be received for such request for commencement.
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 33 of 37 (42) Section 21 has to be read with Section 34 of the Arbitration and Conciliation Act. Section 34 (2) (iii) provides that an award may be set aside, in the event, where the party appointing the Arbitrator has not given proper notice of the appointment of an Arbitrator or the Arbitral proceedings. (43) I may further note that the Hon'ble Delhi High Court has in the case of Alupro Building Systems Pvt. Ltd. Vs. Ozone Overseas Pvt. Ltd. reported in 2017 SCC Online Del 7228 has explained the relevance of a notice under Section 21 of the Arbitration and Conciliation Act. It was held that the Act does not contemplate unilateral appointment of an Arbitrator by one of the parties, there has to be consensus for such appointment and as such, the notice under Section 21 of the Act serves an important purpose of facilitating such a consensus on the appointment of an Arbitrator. It was further held that the parties may opt to waive the requirement of notice under Section 21 of the Act. However, in the absence of such a waiver, this provision must be given full effect to. The principles as expressed in the case of Alupro Building Systems Pvt. Ltd. (Supra) are shortlisted as under:
➢ The party to the Arbitration Agreement against whom a claim is made should know what the claims are. The notice under Section 21 of the Act provides an opportunity to such party to point out if some of the claims are time barred or barred by law or untenable in fact or if there are counterclaims.
➢ Where the parties have agreed on a procedure for appointment, whether or not such procedure has been Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 34 of 37 followed, will not be known to the other party unless such a notice is received.
➢ It is necessary for the party making an appointment to let the other party know in advance the name of the person who it proposes to appoint as an Arbitrator. This will ensure that the suitability of the person is known to the opposite party including whether or not the person is qualified or disqualified to act as an Arbitrator for the various reasons set forth in the Act. Thus, the notice facilitates the parties in arriving at a consensus for appointing an Arbitrator.
➢ Unless such notice of commencement of Arbitral proceedings is issued, a party seeking reference of disputes to Arbitration upon failure of the other party to adhere to such request will be unable to proceed under Section 11(6) of the Act. Further, the party sending the notice of commencement may be able to proceed under the provisions of Subsection 5 of Section 11 of the Act for the appointment of an Arbitrator if such notice does not evoke any response.
(44) The Hon'ble Delhi High Court in the case of Alupro Building Systems Pvt. Ltd. (Supra) held that the arbitration proceedings conducted without a notice by the respondent to the petitioners/ objectors herein under Section 21 of the Arbitration and Conciliation Act invoking the arbitration clause, are invalid.
(45) In the present case, the petitioners have admitted having received some communications/ notices from the respondent and the Ld. Arbitrator but according to the petitioner, the Ld. Sole Arbitrator was appointed unilaterally by the respondent without their consent. The respondent has not denied Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd.
OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 35 of 37 this aspect raised by the petitioners and rather, abandoned the present proceedings and stopped appearing before this Court. I also note that a notice was issued to the Ld. Arbitrator Sh. Vinod Dhawan for producing the original arbitral record but despite service of the notice, the original arbitral record has not been produced before this Court. There is nothing on record to show that any List of Arbitrators were provided to the petitioner or any option was given to the present petitioners for appointment of the Sole Arbitrator.
(46) It is writ large that there was no consensus between the parties for appointing Sh. Vinod Dhawan as the Sole Arbitrator in as much as there is nothing on record to show that the present petitioners/ objectors were provided the list of Arbitrators or any option was given to them. There is a total non compliance of Section 21 of the Arbitration and Conciliation Act in the present case thereby rendering the entire arbitral proceeding as invalid.
(47) I may observe that Unilateral Appointment of Sole Arbitrator is contrary to the provisions of Arbitration and Conciliation Act, 1996. The Awards rendered by the Sole Arbitrator are non est, void ab initio and nullity in law. Also, the awards so passed by such a Tribunal is 'NonExecutable". The statutory provision of Section 12(5) read with Schedule 7 of the Act duly explained by full Bench of Hon'ble Supreme Court in TRF Judgment and other Supreme Court judgments namely Perkins Eastman, Bharat Broadband and several judgments of the Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd. OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 36 of 37 Hon'ble High Court of Delhi it is found that as per legal position as it exists as on date, the unilateral appointment of Sole Arbitrator was void ab initio, nonest and a nullity. The proceedings carried out by such unilaterally appointed arbitrator and the award passed found to have been passed with inherent lack of jurisdiction. As such, this Court is of the firm view that the Sole Arbitrator Sh. Vinod Dhawan was unilaterally appointed by the respondent M/s. Ambit Finvest Pvt. Ltd. was devoid of jurisdiction to try the claim. As such the impugned award passed by him while exercising the jurisdiction which never vested herein is nothing but a nullity and a void document and is accordingly set aside.
CONCLUSIONS:
(48) In view of my above discussion, on the basis of material placed on record and in view of settled proposition of law, the objections under Section 34 of the Arbitration & Conciliation Act filed by the petitioner/ objector are Allowed. The Arbitral Award dated 18.02.2021 is hereby setaside.
(49) File be consigned to Record Room.
Announced in the open court (Dr. KAMINI LAU)
Dated: 06.12.2023 District Judge (Commercial Court)02,
Central, Tis Hazari Courts, Delhi
Mukesh Babulal Chauradiya & Anr. Vs. Ambit Finvest Pvt. Ltd.
OMP (COMM) No. 44/2021, Judgment dated: 06.12.2023 Page No. 37 of 37