Delhi District Court
Bhawar Singh And Anr vs M/S Shree Ank Finhold Pvt Ltd on 23 September, 2023
BEFORE THE COURT OF SH. SURINDER S. RATHI, DISTRICT JUDGE
(COMM.)-03 SHAHDARA, KKD, DELHI
OMP (Comm.) No.10/2022
1. Bhawar Singh
S/o Sh. Arjun Singh
R/o A-245, Street No.3
25 Ft. Road, Near Primary School
East Gokalpur, Delhi.
2. Deepak Yadav
S/o Sh. Suresh Kumar Yadav
R/o 1/5174, Gali No.7,
Balbir Nagar, Delhi.
..........Objectors
Vs.
M/s Shree ANK Finhold Pvt. Ltd.
75th, 2nd Floor, Vijay Block
Vikas Marg, Delhi-110092.
.........Respondent
Date of Institution : 27.07.2022
Date of Final Arguments : 23.09.2023
Date of Judgment : 23.09.2023
Decision : Allowed
Section 34 Arbitration and Conciliation Petition
1. By this order I shall dispose of objection petition by two JDs under Section 34 of Arbitration and Conciliation Act 1996 against an ex-parte award suffered by them on 23.10.2021 by Ld. Arbitrator Sh. Suresh Aggarwal, who was appointed Sole Arbitrator in the matter by the respondent company.
2. Brief facts necessary for disposal of this petition as per objection petition and the award in question are that objectors approached the respondent NBFC, a duly incorporated company for availing an auto loan for purchasing a TATA CNG Bus.
OMP (Comm.) No.10/2022 Page 1 of 39Bhawar Singh and Anr. Vs. M/s Shree ANK Upon due documentation the loan of Rs.9.10 lakhs was sanctioned and loan agreement was entered on 08.12.2018. It was supposed to be repaid in 29 EMIs of Rs.32,000/- each starting from 10.01.2019. It is case of the respondent that the objectors did not adhere to financial discipline and paid only one instalment. As such the respondent finance company invoked the arbitration clause and proceeded to unilaterally appoint to adjudicate the dispute. As per award he appears to have issued notices to the respondent before proceeding ex-parte against them followed by passing of the award in the question whereby objector was directed to pay Rs.9,64,363/- with 12% interest apart from cost of proceedings.
3. In the objection petition it is pleaded by the objector that in November 2018 he wanted to marry up his daughter and as such he approached the respondent finance company who agreed to offer him a loan of Rs.7 lakhs against hypothecation of his TATA CNG Bus UP-14GT-6973. He was assured that once the vehicle is hypothecated in the name of respondent finance company they will transfer the amount of Rs.7 lakhs after 15 days of the same. He was made to sign several blank bunches of papers in the name of loan agreement. He has specifically pleaded that the promised loan of Rs.7 lakhs was never received by him in his bank either within the time period promised or even thereafter till date. It is pleaded that his daughter's marriage could not be solemnized as planned and as such he apprised the respondent that he does not need the loan amount and requested them to not to transfer the same. He also requested them to cancel the loan agreement and the documents signed by him.
4. It is further pleaded that the finance company misused the cheque taken by them from him as they filed the amount of Rs.9 lakhs in the same. It was got dishonoured and a frivolous Section 138 NI Act complaint was filed against him. It is pleaded that all these facts were concealed from the claim petition before the Arbitrator. It is pleaded that defendant is shown to have paid Rs.32,200/- on OMP (Comm.) No.10/2022 Page 2 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK 13.03.2019, Rs.1.73 lakhs on 26.03.2021 and Rs.1.70 lakhs on 27.03.2021 to the finance company whereas he has never paid a single penny to them simply because no loan was taken.
5. In the detailed reply filed the finance company reiterated its case mentioned in the claim petition. It was claimed that the loan was sanctioned and disbursed but objector did not adhere to financial discipline.
6. I have heard arguments of Sh. Pankaj Chauhan, Ld. Counsel for petitioner/claimant and Sh. B B Sharma, Ld. Counsel for respondent alongwith AR of respondent in person and have perused the material available on record as well as reply filed with this petition.
7. During the course of hearing the finance company was directed to share with the Court the proof of actual disbursement of loan of Rs. 7 lakhs to the objector. However neither any such document was filed with the reply nor the same was produced before this Court despite directions.
8. Perusal of the loan agreement containing the arbitration clause shows that the name of the Arbitrator has been inserted apparently on a later point of time. Not only the same is in different handwriting and Ink but also in the award the arbitrator categorically concedes that he has been appointed Sole Arbitrator by the respondent finance company.
9. The law with regard to unilateral appointment is well-settled.
10. Before entering the other objections raised by the Objection Petitioner, the issue of unilateral appointment of the Sole Arbitrator deserves to be taken before hand in so far as this issue goes to the root of the matter and has the potential of taking away the jurisdiction of the Tribunal to adjudicate the disputes raised by the petitioner.
11. At the onset it would be handy to have a glance at the statutory provision qua the objections which can be raised by the petitioner under Section 34 of Arbitration and Conciliation Act, 1996" is reproduced as under:
OMP (Comm.) No.10/2022 Page 3 of 39Bhawar Singh and Anr. Vs. M/s Shree ANK Section 34: Application for setting aside arbitral award. --
(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if--
(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 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; or
(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. --Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
[(5) An application under this Section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.] OMP (Comm.) No.10/2022 Page 4 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK [(6) An application under this section shall be disposed of expeditiously and in any event within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.]
12. The aspect of legality of an Ex-Parte Award passed by a unilaterally appointed Arbitrator as raised can be discussed and decided under following heads:
I. Decree/Award passed by Arbitral Tribunal without jurisdiction is a nullity.
II. 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.
III.Law Commission of India's 176th and 246th Report on Arbitration and Conciliation Amended Bill and "Neutrality of Arbitrators".
IV. Law laid by Hon'ble Supreme Court in authoritative Judgments debarring "Unilateral Appointment of Sole Arbitrators".
(i) TRF Limited Vs. Energo Engineering Projects Ltd.1
(ii) Voestalpine Schienen GMVH Vs. DMRC Ltd. 2
(iii)Perkins Eastman Architects DPC Vs. HSCC IndiaLtd.3
(iv) Bharat Broadband Network Vs. United Telecoms Ltd.4
(v) HARSAC and Anr. Vs. Pan India Consultants5
(vi) Jaipur JDUSS Ltd. Vs. Ajay Sales and Suppliers6,
(vii) Ellora Papermills Vs. State of M.P.7 8
(viii)Dharma Prasthanam Vs. M/s Madhok Construction Pvt. Ltd.
V. UNCITRAL Model Law on Commercial Arbitration 1985 and UNCITRAL Arbitration Rules, 2021 proscribe and forbid Unilateral appointment of Sole Arbitrator by a disputing party.
VI. Legal position on unilateral appointment of Sole Arbitrator in other countries.
VII. Why NBFCs imposed their chosen Sole Arbitrator on the borrower and why there is resistance abiding Hon'ble Supreme Court ruled on TRF Limited, Perkins Eastman Judgments? 1 2017(8) SCC 377, 2017 Latest Caselaw 918 SC 2 (2017) 4 SCC 665, 2017 Latest Caselaw 919 SC 3 (2020) 20 SCC 760, 2019 Latest Caselaw 1154 SC 4 (2019) 5 SCC 755, 2019 Latest Caselaw 395 SC 5 (2021) 3 SCC 103, 2021 Latest Caselaw 33 SC 6 2021 SCC Online SC 730, 2021 Latest Caselaw 710 SC 7 (2022) 3 SCC 1 , 2022 Latest Caselaw 8SC 8 (2005) 9 SCC 686 OMP (Comm.) No.10/2022 Page 5 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK VIII. Adverse effect of one sided arbitrators on "Enforcement of Contract" component of "Ease of Doing Business" Ranking of India in World Bank's Doing Business Reports of Invesment Friendly Nations.
IX. Ad-hoc Arbitrations by Unilaterally Appointed Sole Arbitrators weakening people's faith in Arbitration as an ADR.
X. Justice B. N. Srikrishna Report on Arbitration stressed on strengthening 'Institutional Arbitration Centres' in India.
XI. Unilateral appointment of Arbitrator is Anti-thesis to "Nemo Judex in causa cua"- No one can be a Judge in his own case.
XII. Whether CORE Judgment has over-ruled TRF Limited Judgment of Hon'ble Supreme Court?
XIII. Conclusion
13. Now I will endeavour to discuss these aspects and submissions made on behalf of parties at length.
(I) Decree/Award passed by Arbitral Tribunal without jurisdiction is a nullity.
14. Thus the question to be dealt by this Court necessarily restricts itself to the vires of the Ex-Parte Award and cross-check if it is lawful and is a not non est or nullity. The Law in this regard is no longer res integra. There are several authoritative pronouncements in this regard.
15. In case title Chiranjilal Shrilal Goenka v. Jasjit Singh and Ors. (1993) 2 SCC 507, Hon'ble Apex Court ruled that:
18.It is settled law that a decree passed by a court without jurisdiction on the subject matter or on the grounds on which the decree made which goes to the root of its jurisdiction or lacks inherent jurisdiction is a coram non judice. A decree passed by such a court is a nullity and is non est. Its invalidity can be set up whenever it is sought to be enforced or is acted upon as a foundation for a right, even at the stage of execution or in collateral proceedings. The defect of jurisdiction strikes at the very authority of the court to pass decree which cannot be cured by consent or waiver of the party."
(Emphasis Supplied) OMP (Comm.) No.10/2022 Page 6 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK
16. In case title Sunder Dass Vs. Ram Prakash9 of Hon'ble Mr. Justice P. N. Bhagwati while speaking in for the Bench ruled, "The validity of a decree can be challenged in execution proceedings only on the ground that the court which passed the decree lacked inherent jurisdiction. A court is said to be lacking in jurisdiction when it could not have seisin of the case because the subject matter was wholly foreign to its jurisdiction or that the defendant was dead at the time of institution of the suit or when the suit was decreed. Inherent lack of jurisdiction means a power or jurisdiction which does not at all exist or vest in a court. A court lacks inherent jurisdiction when the subject matter is wholly foreign to its ambit and is totally unconnected with its recognized jurisdiction."
(Emphasis Supplied)
17. In case title Kiran Singh Vs. Chaman Paswan10 Full Bench of Hon'ble Supreme Court ruled, "It is a fundamental principle that a decree passed by a court without jurisdictiion is a nullity and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction whether it is pecuniary or territorial, or whether it is in respect of the subject matter of the action, strikes at the very authority of the Court to pass any decree and such defect cannot be cured even by consent of parties."
(Emphasis Supplied)
18. In Case title Urban Improvement Trust, Jodhpur Vs. Gokul Narain11, Hon'ble Supreme Court held that,
15. A decree passed by a Court without jurisdiction over the subject- matter or on any other ground which goes to the root of its exercise of jurisdiction or inherent jurisdiction, is a nullity. A decree passed by such a court is a nullity and is non est. Its invalidity can be set up whenever it is sought to be enforced or is acted upon as a foundation for a right even at the stage of execution or in collateral proceedings. The defect of jurisdiction strikes at the authority of the Court to pass a decree which cannot be cured by consent or waiver of the party."
(Emphasis Supplied)
19. In case title Saraswat Trading Agency Vs. Union of India 12, it is held by High Court that, "If Court finds that decree is a nullity, Court cannot proceed to execute it. A decree which is a nullity in the eye of law is no decree and, hence, even by consent of the parties such a decree cannot be executed by the Court. But for this reason it cannot be denied the remedy available to it under Section 47. If the Court finds that the decree is a nullity, the Court cannot proceed to 9 AIR 1977 SC 1201 10 1954 Latest Caselaw 43 SC 11 AIR 1996 SC 1819 , 1996 Latest Caselaw 332 SC 12 AIR 2004 Cal 267 (270) OMP (Comm.) No.10/2022 Page 7 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK execute it, and it is the duty of the Court to hold that the decree is not executable."
(Emphasis Supplied)
20. In Daland Uchha Bidyapith Vs. State of Orissa13, it is held that, "Execution cannot be refused except in case of nullity Execution of the decree ought not to be refused, unless the decree itself is a nullity."
21. In case title Brakewel Automative Components (India Private) Ltd. Vs. P.R. Selvam Alagppan14, Hon'ble Supreme Court ruled at para 23 that, "Through this view has echoed time out of number in similar pronouncements of this Court in Dhurandhar Prasad Singh Vs. Jain Prakash University and Others, AIR 2001 SC 2552, while dwelling on the scope of Section 47 of the Code, it was ruled that the powers of the court thereunder are quite different and much narrower than those in appeal/revision or review. The exercise of power under Section 47 of the Code is microscopic and lied in a very narrow inspection hole and an executing court can allow objection to the executability of the decree if it is found that the same is void ab initio and is a nullity, apart from the ground that it is not capable of execution under the law, either because the same was passed in ignorance of such provision of law or the law was promulgated making a decree unexecutable after its passing. None of the above eventualities as recognised in law for rendering a decree unexecutable, exists in the case in hand. For obvious reasons, we do not wish to burden this adjudication by multiplying the decisions favouring the same view."
(Emphasis Supplied)
22. In Bijendra Kumar Vs. Pradeep Kumar and Ors. 15 Hon'ble Delhi High Court while discussing another plea between Section 47 CPC and Section 36 of Arbitration and Conciliation Act, 1996 observed, "An Award which is a nullity being against public policy can always be challenged even at the stage of execution in as much as, if we take a most extreme example that an Award is passed that 'A' will steal money for 'B' then surely 'B' cannot enforce the Award/decree stating that 'A' should give him particular amount of money which was to be stolen by 'B' for being given to 'A'."
(Emphasis Supplied) 13AIR 1993 Ori 257:1993 (1) Ori LR 77 14 (2017) 5 SCC 371, 2017 Latest Caselaw 235 SC 15Ex.FA no. 38 of 2012 dated 15.10.2014 OMP (Comm.) No.10/2022 Page 8 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK (II) Objective behind inclusion of Section 12 (5) and Schedule 7 of Arbitration and Conciliation Act, 1996 by way of Arbitration and Conciliation (Amendment) Act, 2015 w.e.f. 23.10.2015.
23. 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.
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 OMP (Comm.) No.10/2022 Page 9 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK 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. 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 1-The 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.
(III) Law Commission of India's 176th and 246th Report on Arbitration and Conciliation Amended Bill and "Neutrality of Arbitrators".
24. Ministry of Law and Justice, Government of India had constituted Law Commission of India which paved the way for bringing up the aforesaid amendments in order to preserve the sanctity of arbitral proceedings by making them 'Neutral', 'Impartial' and 'Unbiased'. The Law Commission recommended maintaining of a healthy balance between the critical component of 'Neutrality and Impartiality' on the one hand and simultaneously balancing the 'Party Autonomy' in arbitrations. The Law Commission Reports recommended--
- Incorporating guidelines of International Bar Association to establish the standards of independence and impartiality in the form of Schedule 5 and Schedule 7 of the Act.
OMP (Comm.) No.10/2022 Page 10 of 39Bhawar Singh and Anr. Vs. M/s Shree ANK
- Introducing Section 12(5) of the Act which would disqualify any person whose relationship with the parties, counsel or the subject matter of the dispute falls under the categories set out in the Schedules. The Law Commission of India emphasised on the neutrality in arbitration in following words in paras number 53 to 60 of its 246th Report:-
"NEUTRALITY OF ARBITRATORS"
53. It is universally accepted that any quasi-judicial process including Arbitration process must be in accordance with Principles of Natural Justice. In this context of Arbitration Neutrality of Arbitrators viz. their independence and impartiality is critical to the entire process.
54.In the Act, the test for neutrality is set out in section 12(3) which provides "An arbitrator may be challenged only if (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality..."
55.The Act does not lay down any other conditions to identify the "circumstances" which give rise to "justifiable doubts", and it is clear that there can be many such circumstances and situations. The test is not whether, given the circumstances, there is any actual bias for that is setting the bar too high; but, whether the circumstances in question give rise to any justifiable apprehensions of bias.
56.The limits of this provision has been tested in the Indian Supreme Court in the context of contracts with State entities naming particular persons/designations (associated with that entity) as a potential arbitrator. It appears to be settled by a series of decisions of the Supreme Court (See Executive Engineer, Irrigation Division, Puri v. Gangaram Chhapolia, 1984 (3) SCC 627; Secretary to Government Transport Department, Madras v. Munusamy Mudaliar, 1988 (Supp) SCC 651; International Authority of India v. K.D. Bali and Anr, 1988 (2) SCC 360; S. Rajan v. State of Kerala, 1992 (3) SCC 608; M/s. Indian Drugs & Pharmaceuticals v. M/s. Indo-Swiss Synthetics Germ Manufacturing Co.Ltd., 1996 (1) SCC 54; Union of India v. M.P. Gupta, (2004) 10 SCC 504; Ace Pipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation Ltd., 2007 (5) SCC 304) that arbitration agreements in government contracts which provide for arbitration by a serving employee of the department, are valid and enforceable. While the Supreme Court, in Indian Oil Corp. Ltd. v. Raja Transport (P) Ltd., 2009 8 SCC 520 carved out a minor exception in situations when the arbitrator "was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate (as contrasted from an officer of an inferior rank in some other department) to the officer whose decision is the subject matter of the dispute", and this exception was used by the Supreme Court in Denel Propreitory Ltd. v. Govt. of India, Ministry of Defence, AIR 2012 SC 817 and Bipromasz Bipron Trading SA v. Bharat Electronics Ltd., (2012) 6 SCC 384, to appoint an independent arbitrator under section 11, this is not enough.
OMP (Comm.) No.10/2022 Page 11 of 39Bhawar Singh and Anr. Vs. M/s Shree ANK
57.The balance between procedural fairness and binding nature of these contracts, appears to have been tilted in favour of the latter by the Supreme Court, and the Commission believes the present position of law is far from satisfactory. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the arbitral tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles - even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the 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 agreed. The Commission hastens to add that Mr. PK Malhotra, the ex officio member of the Law Commission suggested having an exception for the State, and allow State parties to appoint employee arbitrators. The Commission is of the opinion that, on this issue, there cannot be any distinction between State and non-State parties. The concept of party autonomy cannot be stretched to a point where it negates the very basis of having impartial and independent adjudicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, 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 the contract and before arising of the disputes.
58.Large scale amendments have been suggested to address this fundamental issue of neutrality of arbitrators, which the Commission believes is critical to the functioning of the arbitration process in India. In particular, amendments have been proposed to sections 11, 12 and 14 of the Act.
59.The Commission has proposed the requirement of having specific disclosures by the arbitrator, at the stage of his possible appointment, regarding existence of any relationship or interest of any kind which is likely to give rise to justifiable doubts. The Commission has proposed the incorporation of the Fourth Schedule, which has drawn from the Red and Orange lists of the IBA Guidelines on Conflicts of Interest in International Arbitration, and which would be treated as a "guide" to determine whether circumstances exist which give rise to such justifiable doubts. On the other hand, in terms of the proposed section 12 (5) of the Act and the Fifth Schedule which incorporates the categories from the Red list of the IBA Guidelines (as above), the person proposed to be appointed as an arbitrator shall be ineligible to be so appointed, notwithstanding any prior agreement to the contrary. In the event such an ineligible person is purported to be appointed as an arbitrator, he shall be de jure deemed to be unable to perform his functions, in terms of the proposed explanation to section 14. Therefore, while the disclosure is required with respect to a broader list of categories (as set out in the Fourth Schedule, and as based on the Red and Orange lists of the IBA Guidelines), the ineligibility to be appointed as an arbitrator (and the consequent de jure inability to so act) follows from a smaller and more serious sub-set of situations (as set out in the Fifth Schedule, and as OMP (Comm.) No.10/2022 Page 12 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK based on the Red list of the IBA Guidelines).
60.The Commission, however, feels that real and genuine party autonomy must be respected, and, in certain situations, parties should be allowed to waive even the categories of ineligibility as set in the proposed Fifth Schedule. This could be in situations of family arbitrations or other arbitrations where a person commands the blind faith and trust of the parties to the dispute, despite the existence of objective "justifiable doubts" regarding his independence and impartiality. To deal with such situations, the Commission has proposed the proviso to section 12 (5), where parties may, subsequent to disputes having arisen between them, waive the applicability of the proposed section 12 (5) by an express agreement in writing. In all other cases, the general rule in the proposed section 12 (5) must be followed. In the event the High Court is approached in connection with appointment of an arbitrator, the Commission has proposed seeking the disclosure in terms of section 12 (1) and in which context the High Court or the designate is to have "due regard" to the contents of such disclosure in appointing the arbitrator. "
(Emphasis Supplied)
25. While welcoming the above Statutory development in the sphere of Arbitration in India, Hon'ble Supreme Court, in Voestalpine Schienen GMVH Vs. Delhi Metro Rail Corporation Ltd.,16 ,a case between an Austrian company and Delhi Metro Rail Corporation highlighed and emphasised the salutory need of "Neutrality of Arbitrators while the DMRC insisted that the Contractor shall choose the Arbitral Tribunal from 5 names sent by DMRC to them from an inhouse panel maintained by the DMRC. It was pleaded by the Austrian company that this is in direct violation of Section 12(5) of the Act. Hon'ble Supreme Court discussed the objective of Arbitration and Conciliation Act, 1996 and the various amendments brought in it by way of Amendment Act no. 3 of 2016 w.e.f. 23.10.2015. The Apex Court stressed that these amendments were brought in consonance with Law Commission of India's 176th and 246th Report. Hon'ble Supreme Court observed,
15. Apart from other amendments, Section 12 was also amended and the amended provision has already been reproduced above. This amendment is also based on the recommendation of the Law Commission which specifically dealt with the issue of 'neutrality of arbitrators' and a discussion in this behalf is contained in paras 53 to 60 and we would like to reproduce the entire discussion hereinbelow:
17.We may put a note of clarification here. Though, the Law Commission 16 (2017) 4 SCC 665 OMP (Comm.) No.10/2022 Page 13 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK discussed the aforesaid aspect under the heading "Neutrality of Arbitrators", 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 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.
18.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, sub-section (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 Seventh 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 sub-section (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of arbitration agreement.
26. While highlighting the importance of Neutrality of Arbitrators and the need that the Tribunal should work in an independent and impartial manner, Hon'ble Supreme Court thus ruled that even if an Arbitration Clause allowing unilateral appointments pre-existed before 2015 Amendment, it is rendered a cipher and a naught with promulgation Section 12(5) read with Seventh Schedule of the Act specifically when there is a non-obstante clause. Hon'ble Supreme Court stated that even prior to inclusion of Section 12(5) read with Schedule 7 of the Act several judgments were passed in context of Section 11(8) of the Act which recommended that the choice of Arbitrator made by the parties can be given a go-
bye in order to maintain the neutrality, independence and impartiality. The Apex Court further observed in Voestalpine Judgment:-
19. "We may mention here that there are number of judgments of this Court even prior to the amendment of Section 12 where courts have appointed the arbitrators, giving a go-by to the agreed arbitration clause in certain OMP (Comm.) No.10/2022 Page 14 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK contingencies and situations, having regards to the provisions of unamended Section 11(8) of the Act which, inter alia, provided that while appointing the arbitrator, Chief Justice, or the person or the institution designated by him, shall have regard to the other conditions as are likely to secure the appointment of an independent and impartial arbitrator."
Taking note of the below mentioned judgments, Hon'ble Apex Court in summed up the position. i.e. Datar Switchgears Ltd. v. Tata Finance Ltd. & Anr.(2000) 8 SCC 151 Punj Lloyd Ltd. v. Petronet MHB Ltd,(2006) 2 SCC 638 Union of India v. Bharat Battery Manufacturing Co. (P) Ltd.,(2007) 7 SCC 684 Deep Trading Co. v. Indian Oil Corporation (2013) 4 SCC 35. Union of India v. Singh Builders Syndicate (2009) 4 SCC 523 Northern Eastern Railway v. Tripple Engineering Works (2014) 9 SCC 288 Union of India and others v. Uttar Pradesh State Bridge Corporation(2015) 2 SCC 52
20. "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 applied to all judicial and quasi judicial proceedings. 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 non-independence and non-impartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial.
30.Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the Law Commission also in its report, duty becomes more onerous in Government contracts, where one of the parties to dispute is the Government or public sector undertaking itself and the authority to appoint the arbitrator rests with it."
(Emphasis Supplied)
27. As stressed and highlighted by Hon'ble Supreme Court, 'Neutrality of the Arbitral Tribunal' is the soul of adjudication of a dispute and the same cannot be compromised. By quoting Law Commission of India and other judgments of Apex Court of period even prior to inclusion of Section 12(5) read with Schedule 7 of the Act, it is authoritatively ruled that "Neutrality of the Arbitrators is not compromisable."
OMP (Comm.) No.10/2022 Page 15 of 39Bhawar Singh and Anr. Vs. M/s Shree ANK (IV) Law laid by Hon'ble Supreme Court in several authoritative Judgments debarring "Unilateral Appointment of Sole Arbitrators" :
● TRF Limited Vs. Energo Engineering Projects Limited (supra) ● Perkins Eastman Architects DPC Vs. HSCC India Limited (supra) ● Voestalpine Schienen GMVH Vs. DMRC Ltd. (supra) ● Bharat Broadband Network Vs. United Telecoms Limited (supra) ● HARSAC and Anr. Vs. Pan India Consultants (supra) ● Jaipur JDUSS Ltd. Vs. Ajay Sales and Suppliers (supra) ● Ellora Papermills Vs. State of M.P. (supra) ● Dharma Prasthanam Vs. Madhok Construction Pvt. Ltd. (supra) ● Kotak Mahindra Bank Ltd. Vs. Narender Kumar Prajapat and Ors., Latest Caselaw 709 Del dated 23.11.2022
28. In case titled TRF Limited Vs. Energo Engineering Projects Ltd. (2017) 8 SCC 377 Full Bench of Hon'ble Supreme Court led by Justice Deepak Mishra had the opportunity to reprise and articulate the course corrective effect introduction of Section 12(5) read with Schedule 7 of the 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, Hon'ble Supreme Court ruled:
"12.Sub-Section (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 non-obstante 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 sub-section 5 of Section 12. On a careful scrutiny of the proviso,it is discernible that there are fundamentally three components, namely the parties can waive the applicability of the sub-section; 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."OMP (Comm.) No.10/2022 Page 16 of 39
Bhawar Singh and Anr. Vs. M/s Shree ANK (Emphasis Supplied)
29. 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:-
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 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.
(Emphasis Supplied)
30. 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 title Perkins Eastman Architects DPC Vs. HSCC India Limited, (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 OMP (Comm.) No.10/2022 Page 17 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK discretion as an Arbitrator. The Bench Observed:
"We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited4 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 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 Limited4, 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.
31. While discussing the above referred Voestalpine Judgment and Law Commission of India, 176th 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. The Supreme Court Bench quoted in Perkins Judgment, "
"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".
(Emphasis Supplied) OMP (Comm.) No.10/2022 Page 18 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK
32. In case title Bharat Broadband Network Vs. United Telecoms Limited, (2019) 5 SCC 755 while dealing with an issue of Section 12(5) read with Schedule 7 qua unilateral appointment of arbitrator by official of the disputing company, the Bench led by 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 ruled that, "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 7 th Schedule. The sub-Section 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 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 sub-section by an "express agreement in writing". The express agreement in writing" has reference to a person who is interdicted by the 7th 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 7 th Schedule.
33. In case title Dharma Prasthanam Vs. M/s Madhok Construction Pvt. Ltd. (2005) 9 SCC 686 Hon'ble Supreme Court while dealing with the aspect of 'Unilateral Appointment of Arbitrator' even in the pre-2015 Amendment period OMP (Comm.) No.10/2022 Page 19 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK ruled, "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."
34. In case title Haryana Space Application Centre (HARSAC) and Anr. Vs. Pan India Consultants, (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 proceedings were going on in for more than 4 years, Full Bench of Hon'ble Supreme Court ruled that the application of Section 12(5) read with Schedule 7 of the Act is mandatory and not derogable. The Apex Court ruled, "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 cousel falls within any of the categories specified in the 7 th 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 non- derogable 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."
(Emphasis Supplied)
35. Lately, in case title Jaipur Jila Dugdh Utpadak Sehkari Sangh Ltd. Vs. Ajay Sales and Suppliers, 2021 SCC Online SC 730, the Supreme Court Bench headed by HMJ M R Shah dealt with a case where the Arbitration Clause dated OMP (Comm.) No.10/2022 Page 20 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK 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 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 pre- existed the 2015 Amendment of The Act and inclusion of Section 12(5) and Schedule 7 Hon'ble Supreme Court while dismissing the petition challenging the High Court order ruled that, "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 Sub-Section 5 of Section 12 read with 7th Schedule to the Act shall not be applicable and that once an arbitrator-Chairman 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 Sub-Section 5 of Section 12 read with 7 th 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, Sub-section 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 7 th 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 (Sub-Section 5) of Section 12 read with 7 th 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 non- obstante clause contained in Sub-Section5 of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of the arbitration agreement..........
It is further observed and held by this Court in the aforeasaid decision that independence and imparitality 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 non-independence and non-impartiality of such arbitrator would render him ineligible to conduct the arbitration.
OMP (Comm.) No.10/2022 Page 21 of 39Bhawar Singh and Anr. Vs. M/s Shree ANK (Emphasis Supplied)
36. In another case title Ellora Papermills Vs. State of M.P., (2022) 3 SCC 1 Hon'ble Supreme Court on 04.01.2022 dealt with a matter wherein the dispute pertained to year 1993-94 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, "Though, the Law Commission discussed the aforesaid aspect under the heading "Neutrality of Arbirators", the focus of discussion was on imparitality and independenceof the arbitrators which has relation to or bias towards one of the parties. In the field of international arbitration, neutrality is generally related to the nationality of the arbitrator. In international sphere, the "appearnace 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 imparitality 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 aforequoted 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, sub-Section 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 7 th 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 sub-Section 5 of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of arbitration agreement.
OMP (Comm.) No.10/2022 Page 22 of 39Bhawar Singh and Anr. Vs. M/s Shree ANK
37. In case title SMS Limited Vs. Rail Vikas Nigam Limited 17, 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 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 Eastmen 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,"
38. In case title Proddatur Cable TV Digi Services Vs. Siti Cable Network Ltd.18, 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."
39. In case title City Lifeline Travels Pvt. Ltd. Vs. Delhi Jal Board 19, Hon'ble High Court of Delhi ruled that, "The contention that the decision in the case of Perkins Eastman ought to be 17 2020 Latest Caselaw 190 Delhi 18 2020 Latest Caselaw 328 Delhi 19 2021 Latest Caselaw 276 Delhi OMP (Comm.) No.10/2022 Page 23 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK 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."
(Emphasis Supplied)
40. In case title Abraham Memorial Education Trust Vs. Prodigy Development Institution20 Delhi, dated 03.03.2021 Hon'ble High Court dealt with the award which was passed Ex-Parte by 'Unilaterally Appointed Arbitrator' and held, "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."
(Emphasis Supplied)
41. In case title M/s Fam Bhagat Infratech Private Limited Vs. Alok Kumar Agarwal21, Hon'ble High Court while dealing with the challenge to Arbitral Clause which provided that 'Unilateral Appointment of Arbitrator' ruled, "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 7 th 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.
(Emphasis Supplied)
42. In case title M/s India Cements Capital Limited Vs. William 22, Hon'ble Kerala High Court at para no. 20 observed that,
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, 20 OMP (Comm.) 391 of 2020 21 2021 SCC Online Delhi 2486 22 2015 SCC OnLine Ker 24805 OMP (Comm.) No.10/2022 Page 24 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK repudiate, etc. The term "set aside" is defined in Black's Law Dictionary (8 th 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 succintly 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. 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."
43. The celebrated judgments of TRF Limited, Perkins Eastman Hon'ble Supreme Court have been relied by other High Courts as well.
44. In case title Ravi Realcons Pvt. Ltd. Vs. Chief Engineer and Anr.23 Hon'ble High Court of Calcutta observed, " 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."
45. While distinguishing the judgment of CORE judgments of Hon'ble Supreme Court on facts this Bench went on to rule 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."
46. In case title Priya Mallaiseth Vs. VLCC Healthcare Limited24, Hon'ble Delhi High Court ruled, "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 23 2022 SCC Online CAL 751 24 2022 SCC Online Del 1137 OMP (Comm.) No.10/2022 Page 25 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK adverting to the principles of law as laid down in these decisions. Applying these principles the respondent cannot have a unilateral authority to appoint an arbitral tribunal."
47. In case titled Kotak Mahindra Bank Ltd. Vs. Narender Kumar Prajapat and Ors., 2023 Latest Caselaw 709 Del dated 23.11.2022 passed by this Court wherein Hon'ble High Court upheld the said order and observed that:
"This Court finds no infirmity with the aforesaid view of (District Judge, Commercial Court). 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 that a decision, cannot be considered as valid. Thus clearly such an impugned award cannot be enforced".
48. 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 case titled Ekta Medical Systems Private Limited Vs. Institute of Liver and Biliary Sciences25, 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 ruled that, "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."
25 2021 SCC Online DEL 3979 OMP (Comm.) No.10/2022 Page 26 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK (V) UNCITRAL Model Law on Commercial Arbitration 1985 and UNCITRAL Arbitration Rules, 2021 proscribe and forbid Unilateral appointent of Sole Arbitrator by a disputing party.
49. The first statutory enactment on arbitrations in India was in the 19 th Century i.e. Indian Arbitration Act, 1899. It was replaced by Arbitration Act, 1940. However, in so far as the 1940 Act was found to be largely dependent on Judicial interventions and the Awards passed had no finality till such time they were made a 'Rule of Court by a Civil Court, Parliament of India decided to re-enact the Law of Arbitration in India on the lines of United Nations Commission on International Law (UNCITRAL) Model Law on Commercial Arbitration 1985. While adopting the same the current Arbitration and Conciliation Act, 1996 was promulgated and notified on 22.08.1996.
50. In the latest UNCITRAL Arbitration Rules adopted in 2021 under Section II "Composition of Arbitral Tribunal". Articles 8, 9 and 10 pertain to appointment of arbitrators, it is specifically provided that in case it is agreed that the dispute shall be resolved through 'Sole Arbitrator', the parties have only 2 options.
First: They can mutually agree on the name of a Sole Arbitrator within 30 days of invocation of arbitration. OR Second: In case no agreement is reached on the mutually acceptable name, party can make a request to the "Appointing Authority" who in turn will appoint a neutral and impartial Sole Arbitrator.
51. Article 6 of the UNCITRAL Arbitration Rules 2021 governs designation of "Appointing Authority" it provides that if the parties do not reach an agreement on designation of Appointing Authority, a party can propose the name of one or more institutions or persons including Secretary General of Permanent Court of Arbitration (PCA) at The Hague. Once the name is proposed and no consensus is reached between the disputing parties out of the institutions and names proposed within 30 days, by default Secretary General of PCA would become Appointing OMP (Comm.) No.10/2022 Page 27 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK Authority in the matter.
52. The sum and substances that at no point of time either of the disputing party can be allowed to unilaterally appoint a Sole Arbitrator in its own dispute. The insistence on the part of NBFCs and PSUs to continue to unilaterally appoint Sole Arbitrators of their choice is in clear violation of UNCITRAL Model Arbitration Rules and is blatant violation of Full Bench decision of Hon'ble Supreme Court in TRF Limited.
(VI) Legal position on unilateral appointment of Sole Arbitrator in other countries
53. Neutrality in arbitration has been adopted as a touchstone for fair and impartial arbitration and 'Equality of the Parties' World over.
54. United Kingdom: As per Section 16-18 of Arbitration Act the default mechanism for appointment of arbitrators when the Tribunal consists of a Sole Arbitrator provides that such an Arbitrator shall be jointly appointed by the parties within 28 days upon invocation of Arbitration Clause.
55. France: In a very famous French Judgment of Siemens AG & BKMI Industrienlagen GMBH Vs. Ducto Consortium Construction Co., also famously known as the "Ducto Case", the issue of equality as a matter of public policy in appointing an Arbitrator was discussed, way back in 1992. The agreement entered into between the parties had a multi-party arbitration agreement wherein, BKMI and Dutco the two defendants were requested to agree on a joint arbitrator, which was done under protest. This was subsequently challenged. ICC and Paris Court of Appeal did not see any problem with the appointment. However, the Cour de Cassation (French Supreme Court) set aside the order passed by the Paris Court of Appeal and considered the appointment process to be contrary to the public policy stating that the "equality of the parties in the appointment of arbitrators is a matter of public policy which can be waived only OMP (Comm.) No.10/2022 Page 28 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK after the disputes has arisen."
56. As a result of this judgment, various arbitration institutions such as ICC, the German Institutions of Arbitration etc. provided for appointment of arbitrators by the institution wherein the parties are unable to agree on a joint arbitrator. Thus, party equality has been well-recognised internationally since decades. The landmark Ducto Case has been followed by Hon'ble Supreme Court in Perkins Eastman, "An independent mind is indispensable in the exercise of judicial powers, whatever the source of that power may be and it is one of the essential quality of an Arbitrator."
57. Russia: The rule of equlity of parties is strictly followed in arbitral proceedings in Russia. In case titled "Russia Telephone Company Vs. Sony Ericsson Communication Rus, Space no.1831/12, Presidum of the Supreme Commercial Court of Russia ruled that,"an arbitration clause that gave one of the parties the additional, unilateral option of referring arbitration disputes is invalid.
(VII) Why M/s Shree ANK Finhold Pvt. Ltd. continue to impose their chosen Sole Arbitrator on the borrower and why there is resistance in abiding Hon'ble Supreme Court ruled on TRF Limited, Perkins Eastman Judgments?
58. As detailed supra, the purpose and purport of Section 12(5) read with Schedule 7 is to instill neutrality, imparitality and fairness in Arbitrations in India. It has been ruled to be mandatory and binding on all concerned not only by Full Bench of the Hon'ble Supreme Court but also by Division Benches of Hon'ble Supreme Court as also followed by numerous judgments of Hon'ble High Court in Delhi and other High Courts of India. It is strange that the NBFCs like the award holder in the case in hand continue to do a shut-eye to the above legal provision and the binding dicta of the Supreme Court which as per Article 141 of the Constitution of India is Law of the Land and continue to appoint Sole OMP (Comm.) No.10/2022 Page 29 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK Arbitrators unilaterally. The reluctance in having a neutral arbitrator for the purpose of adjudication of disputes is either rooted in lack of confidence on the merits of the dispute or just an act of sheer arrogance, indifference and non- abidance of the law. They seem to be toeing the same old line of taking a chance, with a mind that they would fall in line only when some objection is taken by the respondent at any point of time or some Court in some Order objects to the same. This conscious illegality which is continuing unabatedly in blatant violation of Statutory Laws and Law laid by Hon'ble Supreme Court needs to be stopped and curbed effectively.
(VIII) Adverse effect of one sided arbitrators on "Enforcement of Contract component of "Ease of Doing Business" Ranking of India in World Bank's Doing Business Reports of Investment Friendly Nations.
59. Every Nation in the World today strives for improving Social and Economic well-being of its citizens. One of the sure way for any Economy to thrive is by attracting Foreign Direct Investment(FDI). World Bank has been preparing an 'Ease of Doing Business Report' of all countries of the World based on how investment-friendly the countries, its polices and infrastructure are for Foreign investors. The Annual Report consists of 10 components/parameters which included 'Enforcement of Contract' as well.
60. In the last around one decade as compared the Rank 142 in 2014, India's Rank in 'Ease of Doing Business' climbed to Rank 61 out of 191 odd countries. But still when we compare our ranking on the indicator "Enforcement of Contracts" it shows that we are still at the Rank 163. While Prime Minster of India has made a call to make India a 5 Trillion US Dollar Economy, the same can be achieved not only by strengthening our dispute resolution infrastructure and also by ensuring fair, neutral, time-bound adjudication of disputes not only before OMP (Comm.) No.10/2022 Page 30 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK Commercial Courts in India but also before Arbitration Tribunal under Arbitration and Conciliation Act, 1996. One of the reason of inclusion of Section 12(5) read with Schedule 7 in the Act was to instill transparency and fairness in appointment of Arbitrators and bringing an end to the era of unilateral appointment of chosen Sole Arbitrators. In today's digitally connected World, unethical Arbitral Proceedings can't hidden on remain localised. If we wish to make Government of India's call for 'Resolve in India', a reality we have to work on Ethics, Neutrality and Efficiency of our Arbitration Infra. We will never be able to create Indian version of ICA (Paris), LCIA (London) and SIAC (Singapore) if we do not respect judgments of Hon'ble Supreme Court and UNCITRAL Model Laws on Arbitration on Ethical Arbitrations.
(IX) Ad-hoc Arbitrations by Unilaterally Appointed Sole Arbitrators weakening people's faith in Arbitration as an ADR.
61. While Ad-hoc Arbitrations by Tribunals appointed with concurrence of the parties or those appointed by Hon'ble High Courts under Section 11 of the Act are working in a neutral and impartial manner but Arbitration proceedings carrying out by unilaterally appointed Ad-hoc Arbitrators are totally working in a one side manner without adhering to either the celebrated Principles of Natural Justice of being neutral and unbiased or sticking to Judicial Ethics as applicable to them in so far as they are performing adjudicatory function under Law promulgated by Parliament of India. More so when Awards passed by them have the strength of a decree of a Civil Court.
OMP (Comm.) No.10/2022 Page 31 of 39Bhawar Singh and Anr. Vs. M/s Shree ANK (X) Justice B. N. Srikrishna Report on Arbitration stressed on strengthening 'Institutional Arbitration Centres' in India
62. A Committee was constituted by Govt. of India led by HMJ B. N. Srikrishna. It also included HMJ Indu Malhotra and HMJ P.S. Narsimhan (before they joined the Bench) as also other legal stalwarts namely Justice R.V. Ravindran Retired Judge, Hon'ble Supreme Court and Sh. K. K Venugopal, Attorney General of India, to analyze what is ailing Arbitration in India. One of the major suggestions made by Justice B. N. Srikrishna Report on Arbitration was to give impetus to Institutional Arbitration Centers which are incorporated under Section 8 of the Companies Act, 2013 or registered under Societies Act, 1860. One of the reasons cited by the Report as to why for parties are not availing the services of Institutional Arbitration and prefer Adhoc Arbitration was that Adhoc Arbitration allows them to choose the Sole Arbitrator of their choice. It is this menace which is supposed to be corrected by Section 12(5) read with Schedule 7.
63. On account of non-abidance to these statutory binding provisions and adherance to the binding judgments of the Apex Court, quality of the ex-parte awards being doled by in-house Sole Arbitrators who are appointed unilaterally, the arbitration environment in the country is getting vitiated. It is being used by the NBFCs for extracting money with exorbitant interest from the borrowers. This is eroding society's faith in Arbitration as a mode of ADR as provided under Section 89 CPC. Arbitration in India is more than 120 years vintage but still the failure to maintain the neutrality and fairness in the entire process, including appointment of arbitrator, is doing a lot of disservice to the concept as a whole and is leading to financial anarchy in the Country.
64. During the course of arguments it is submitted on behalf of the execution petitioner that in India the term "Institutional Arbitration" stands defined in Section 2(ca) of The Act which reads as under:
"Arbitration Institution means an arbitral institution designated by the Supreme Court or a High Court under this Act."OMP (Comm.) No.10/2022 Page 32 of 39
Bhawar Singh and Anr. Vs. M/s Shree ANK
65. The correct legal position on the above definition is that although the above definition was proposed by Arbitration and Conciliation (Amendment) Act, 2019 i.e. Act no. 33 of 2019 but the same is yet to be notified and is as such not binding law in Arbitral arena. Moreover, the proposed amendment of the Act talks of constituted an 'Arbitration Council of India' which, in turn, will prepare a list of Arbitration Institutions on the basis of infrastructure, calibre of arbitrators, performance, compliance of time limits etc. As per proposed amendment, under Section 11(3A) of the Act, the designation of institutions by the Hon'ble Supreme Court and the High Courts is to be carried out only as per the proposal made by the 'Arbitration Council of India'. This Court is apprised by Ld. Counsel for the plaintiff that the controlling Ministry of Arbitration and Conciliation Act, 1996 under Allocation of Business Rules, 1961 is Ministry of Law and Justice, Govt. of India. It is submitted that the Law Ministry, Govt. of India has already prepared and notified a Pan India "List of Arbitral Institutions" offering quality Arbitration and Mediation services and the same is available in public domain.
(XI) Unilateral appointment of Arbitrator is Anti-thesis to "Nemo Judex in causa cua"- "No one can be a Judge in his own case".
66. "Nemo Judex in causa cua"- "No one can be a Judge in his own case" is one of the most fundamental Principles of Natural Justice which is soul and fulcrum of any judicial or quasi-judicial process. As opined by 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 highjacked by insistence of a large section of NBFCs and other Corporations to continue to violate the impartiality, probity and OMP (Comm.) No.10/2022 Page 33 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK unbiasedness of arbitration proceedings in the country.
67. 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.
(XII) Whether CORE Judgment has over-ruled TRF Limited Judgment of Hon'ble Supreme Court?
68. It is submitted by Ld. Counsel for the Respondent that the mandate of TRF Limited (Full Bench) and Perkins Eastman are over-ruled by Central Organisation for Railway Electrification Vs. ECI-SPIC-SMO-MCML(JV)26, a Three-Judge Bench of the Supreme Court. In CORE Judgment the Apex Court allowed the appointment of Arbitral Tribunal from a panel maintained by Railways. The Bench was of the view that since Contractor/opposite party was allowed to choose two names out of a panel of 4 retired railway officers, Arbitral Tribunal, Section 12(5) of the Act is not violated and concerns of TRF Limited stands addressed.
69. This CORE Judgment came for scrutiny before Hon'ble Supreme Court in Union of India Vs. Tantia Construction Limited SLP(c) 12670/2020 decided on 11.01.2021 by another Three-Judge Bench of the Apex Court led by HMJ R. F Nariman. It was found that CORE Judgment is in contradiction of TRF Limited and an order was passed requesting the Hon'ble Chief Justice of India to constitute a 'Larger Bench' for adjudicating on the correctness of the CORE judgment. The relevant para of abovementioned judgment is reproduced as under:
"Having heard Mr. K. M. Nataraj, learned ASG for some time, it is clear that on the facts of the case, the judgment of the High Court cannot be faulted with. Accordingly, the Special Leave Petition is dismissed. However, reliance has been placed upon a recent 3-Judge Bench decision of this court delivered on 17.12.2019 in Central Organisation for Railway Electrification Vs. ECI-
26(2020) 14 SCC 712 OMP (Comm.) No.10/2022 Page 34 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK SPIC-SMO-MCML(JV) (2020) 14 SCC 712. We have perused the aforesaid judgment and prima facie disagree with it for the basic reason that once the appointing authority itself is incapacitated from referring the matter to arbitration, it does not then follow that notwithstanding this yet appointments may be valid depending on the facts of the case. We therefore request the Hon'ble Chief Justice to constitute a larger Bench to look into the correctness of this judgment. Pending application stands disposed of."
(Emphasis Supplied)
70. Even otherwise once a Three-Judge Full Bench of Hon'ble Supreme Court has already laid the law in TRF Limited as per well-established judicial norms, a co-equal Bench of 3-Judge of Hon'ble Supreme Court in CORE Judgment cannot set aside, dilute or vary the earlier laid law on the subject.
71. While discussing this aspect in a recent case of Hon'ble Delhi High Court titled as Overnite Express Limited Vs. Delhi Metro Rail Corporation 27, pronounced on 02.08.2022, trashed the plea of DMRC that it had offered a panel of 5 retired judicial officers when the plaintiff proposed a name of a retired High Court Judge as its nominee. A plea was raised by DMRC before the Hon'ble High Court that since neutrality and impartiality of retired Judicial officers cannot be questioned and reliance was placed on the CORE judgment, Hon'ble 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. It was ruled:
"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.
(Emphasis Supplied) 27 2022 SCC Online Del 2488 OMP (Comm.) No.10/2022 Page 35 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK
72. In case title Konodia Infratech Limited Vs. Dalmia Cement (Bharat) Limited28, Hon'ble Delhi High Court dealt with the objection petition under Section 34 of the Act wherein issue of "Unilateral Appointment of Sole Arbitrator"
was raised for the first time. While upholding the arbitral award Hon'ble High Court cited following reasonings:
(a) That objector withdrew Section 9 application from the High Court with liberty to approach Sole Arbitrator under Section 17 of the Act.
(b) That Objector filed a Section 16 application challenging the composite reference of dispute but not raising the unilateral appointment of Sole Arbitrator.
(c) That the Objector himself filed counter-claim before the unilaterally appointed Sole Arbitrator without protest.
(d) That the Objector give consent for explanation of time under Section 29A of the Act during the proceedings.
73. It was ruled by the Hon'ble High court that despite being aware of authoritative judgments of TRF Limited and Perkins Eastman the Objector did not raise any objection qua the unilateral appointment of the Arbitrator and constituted to participate in the proceedings.
74. The circumstances and unique facts in the cited case do not relate with the facts of the case in hand even remotely in so far as there was no participation on the part of Judgment Debtor unlike the cited case. As such this judgment is of no avail to the execution petitioner in this matter. Moreover in case titled AK Builders vs DSIDC29, a co-equal Bench of Hon'ble Delhi High Court expressed reservation regarding the findings of Kanodia Judgement. The Bench held that mere participation in proceedings before a unilaterally appointed Arbitrator does not constitute waiver of Section 12(5) r/w Sch. 7 of the Act. While relying on TRF Ltd, Perkins Eastman and Bharat Broadband Judgements of Hon'ble SC the unilaterally appointed Arbitrator was removed and replaced.
75. Post the passing of CORE Judgment, a section of arbitration litigants, specially Central/State Governments, Ministries and Public Sector Undertakings started projecting that they are no longer governed or covered by Three-Judge 28 2021 Latest Caselaw 2975 Del 29 2022 Latest Caselaw 606 Del OMP (Comm.) No.10/2022 Page 36 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK TRF Judgment Perkins Eastman Judgment and Voestalpine Judgment of Hon'ble Supreme Court and that now they are all free to appoint their arbitrators out of a panel which they maintain by picking and choosing names continued to them.
76. As mentioned supra, another Three-Judge Bench led by HMJ R.F. Nariman in Tantia Construction took cognizance of this situation and on 11.01.2021 i.e. within less than one month of passing of CORE Judgment expressed its disagreement over the reasoning and conclusions arrived at in CORE Judgment. The Bench expressly said that once the Appointing Authority itself is incapacitated how can such an Authority be permitted to appoint arbitrators in its own dispute. And the matter was referred to the Chief Justice of India for constituting a larger Bench to decide on the correctness of the CORE Judgment.
77. Evidently, constitution of a Five-Judge Bench to look into the correctness of Three-Judge CORE Judgment may take some time but in the interregnum the Law already laid by Three-Judge TRF Judgment in 2017 shall continue to be the binding law totally unaffected and unchanged by the observations made by co- equal Bench in Three-Judge CORE Judgment.
Conclusion
78. Unilateral Appointment of Sole Arbitrator is non est and void ab initio.
Awards passed by such a Tribunal is 'Non-Executable". 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 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, non-est 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. Suresh OMP (Comm.) No.10/2022 Page 37 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK Agarwal was unilaterally appointed by M/s Shree ANK Finhold Pvt. Ltd. was devoid of jurisdiction to decide the claim petition. 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 asided.
79. The above detailed discussion fairly brings to the fore one fact that 'Unilateral Appointment of Arbitrators' by the M/s Shree ANK Finhold Pvt. Ltd. is nothing but a blatant violation and disregard of Law laid by Full Bench of Hon'ble Supreme Court and is akin to Contempt of Court. Such a conduct by company which is a responsible financial institute serving people through such Unilateral Appointments is nothing but a classic example of abuse of fiscal duty to usurp citizens' Rights to seek justice under this ADR.
80. It is appalling to observe that the M/s Shree ANK Finhold Pvt. Ltd.
appeared to be determined to scorn and ignore with impunity the binding Law of the Land and still gather courage to approach the Courts of Law with their unclean hands to abuse the due process of law in reaping benefits of such ill-gotten Arbitral Award.
81. In the light of the above, I have no hesitation in concluding that the unilateral appointment of the Arbitrator by the respondent company is not only in direct contravention of Section 12(5) read with Schedule 7 of Arbitration and Conciliation Act, 1996 but also violates three Judges judgment in TRF Limited apart from other celebrated judgments of Perkins Eastman, Bharat Broadband and others as referred to supra.
82. During the course of hearing Ld. Counsel for respondent finance company accepted the above legal position and prayed that the objection petition may be allowed and has also prayed that the finance company may be given liberty to reinitiate the proceedings as per rights available under the law.
83. In the light of the above discussion, the fact that the respondent company carried out appointment of Arbitrator Advocate Sh. Suresh Agarwal in clear cut OMP (Comm.) No.10/2022 Page 38 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK violation of statutory provision and settled basic principles of law the award passed by the Arbitrator is rendered null and void. The Section 34 Arbitration and Conciliation Act 1996 objection petition is accordingly allowed. The impugned ex-parte award passed by unilaterally appointed Arbitrator Advocate Sh. Suresh Agarwal on 23.10.2021 is hereby set aside.
84. Parties will have to bear their own costs.
85. File be consigned to Record Room after due compliance.
(SURINDER S. RATHI) District Judge Commercial Court-03 Shahdara District, KKD Delhi/23.09.2023 OMP (Comm.) No.10/2022 Page 39 of 39 Bhawar Singh and Anr. Vs. M/s Shree ANK