Bombay High Court
Meenu Arora And 6 Ors vs Dewan Housing Finance Corporation Ltd on 4 March, 2019
Equivalent citations: AIRONLINE 2019 BOM 1112
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
CARBP 396-17.doc
Anand IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION PETITION NO. 396 OF 2017
1. Meenu Arora .Petitioners
2. Raj Kumar Arora
3. Ethics Exports Pvt. Ltd.
4. M/s. Delhi Stock Lot
5. Rama Batra
6. Vasudha Arora
7. Nirati Arora
Vs.
Dewan Housing Finance Corporation Ltd. .Respondent
Ms Reema Merchant i/b. Shubro Dey, Advocate, for the Petitioners
Ms Sarita Yadav i/b. Shrivastav & Co., Advocate, for the Respondents
CORAM : G. S. Kulkarni, J.
Reserved on : 17 January 2019
Pronounced on : 4 March 2019
JUDGMENT
. This Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenges the Award dated 26.08.2016 passed by the learned sole Arbitrator, whereby the respondent's/Claimant's claim for recovery of amounts interalia under the Loan Agreement dated 28.02.2014 has been allowed in the following terms :-
"(i) The Respondents do pay to the Claimant a sum of Rs. 3,01,69,143 /- ( Rupees Three Crores One Lakh Sixty Nine Thousand One Hundred Forty Three Only ) together with 1 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc interest calculated on this outstanding due amount Rs. 3,01,69,143 /- @ 18% per annum from the date of award till the payment by the Respondents or realization thereof by the Claimant. Besides this, the Claimant have their right to lien over the mortgaged immovable property situated at Flat No. - 1102, 11 th Floor, Tower - 6, Lotus 300, Sector - 107, Noida -
201301, Delhi until the payment of decritical amount has been made by the Respondents in full;
(ii) The Claimant can recover the outstanding dues from the Respondents by appropriating the monies, securities, assets of deposits of the Respondents which are in possession of the Claimant under any other account., scheme and agreement and can exercise all or any of its rights under any of the Borrower's or the Co-Borrower's or the Guarantor's Agreement (including this Agreement with the Claimant at the sole discretion of the Claimant;
(iii) The Respondents, in the first instance, do pay to the Claimant the costs of arbitral proceedings including the fee of arbitrator quantified at Rs. 1000/- and an amount of Rs. 500/- towards expenses incurred in Stamp Duty imposed on this award, as the same has been received from the Claimant. The Claimant is further directed to deduct the amount from the award amount, if any, paid by the Respondents during the arbitration proceedings i. e. from the date of commencement till date of award."
2. The relevant facts are:-
(I) In or around October, 2012, the Petitioner No. 1 was interested in purchasing a Flat No. - 1102, 11 th Floor, Tower - 6, Lotus 300, Sector - 107, Noida - 201301, Delhi. The project under the name and 2 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc style "Lotus 300" was to be developed by one M/s. Hacienda Projects Pvt. Ltd.. This project was also financed by the Respondents which is Non Banking Financial Company.
(II) An Agreement dated 12.10.2012 came to be entered between the Petitioner No. 1 and M/s. Hacienda Projects Pvt. Ltd. for allotment of the said flat. As the Respondent was financing the project, M/s. Hacienda Projects Pvt. Ltd. insisted that the Petitioners avail a loan not from any other Bank/Institution, but from the Respondent. The Petitioners thus agreed to avail the loan from the Respondents.
3. Accordingly, in February, 2004, after negotiations and discussions, the Petitioners agreed to avail housing loan of Rs. 2,40,04,119/- from the Respondent which was required to be repaid in 240 monthly installments of Rs. 2,25,528/-. Consequent thereto, the Petitioner No. 1 also entered into a Tripartite Agreement dated 28.02.2014 with M/s. Hacienda Projects Pvt. Ltd. and the Respondent.
4. To the dismay of the Petitioners and the other flat purchasers on 25.11.2014, M/s. Hacienda Projects Pvt. Ltd. issued a notice to all the allottees informing that the work in relation to the project "Lotus 300" was stopped in view of certain orders passed by the 3 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc Supreme Court. In January, 2015, the said project came to standstill as there was litigation pending in respect of the project land. The Petitioners, in these circumstances, by their letter dated 30.01.2015 addressed to M/s. Hacienda Projects Pvt. Ltd. informed that in view of the delay in completion of the project, the Petitioners wished to cancel the allotment of the said flat.
5. The Respondent, however, addressed a Demand Notice dated 12.05.2016 calling upon the Petitioners to pay an amount of Rs. 2,79,41,915/-, being the principal amount together with outstanding EMIs, penal interest. The Petitioners replied to the said notice by their Advocate's letter dated 21.05.2016 and disputed the claim / demand raised by the Respondent. The Respondent also issued a winding up notice against the Petitioner nos.3 and 4 under the provisions of Sections 433 and 434 of the Companies Act, 1956, however, no winding up proceedings were filed by the Respondent.
6. The Respondent again by their letter dated 04.08.2016 claimed an amount of Rs. 2,40,04,119/- from the Petitioners as also invoked the arbitration agreement. The Respondent informed the Petitioners that they intended to appoint Mr. Anis Ahmed as a sole 4 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc Arbitrator.
7. The Respondent by its letter dated 11.08.2016 also informed Mr. Anis Ahmed that they intended to appoint him as a sole Arbitrator to adjudicate the disputes which had arisen between the Petitioners and the Respondent under the Loan Agreement dated 28.02.2014. Thus, this notice of the Respondent's Advocate was a notice under Section 21 of the Act. Mr. Anis Ahmed also agreed to be appointed as a sole Arbitrator and confirmed his consent.
8. The Petitioners by their Advocate's letter dated 27.08.2016, responded to the notice dated 04.08.2016 of the Respondent under Section 21 of the Act and contended that the notice appointing a sole Arbitrator is not maintainable, as it does not conform to the provisions of the Arbitration and Conciliation (Amendment) Act, 2015. Again the Petitioners' Advocate addressed a letter to the same effect to the advocate for the Respondent on 29.08.2016. The Petitioners contend that such unilateral appointment was illegal considering the arbitration agreement and the amended provisions of Section 12 of the Act as incorporated by Act 3 of 2016 (with effect from 23 October 2015).
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9. On 26.08.2016, the Respondent filed a Statement of claim alongwith documents before the sole Arbitrator. The sole Arbitrator, accordingly, issued a notice dated 26.08.2016 upon Petitioners calling to appear before him on 07.09.2016. The said notice of the learned Arbitrator also recorded that there were no circumstances existing that gave rise to justifiable doubts as to his independence or impartiality, as recorded in the following terms :-
"Please be informed that there are no circumstances exist that give rise to justifiable doubts as to my independence or impartiality in resolving the disputes referred. In this regard, the statutory disclosure in the prescribed format, under Sixth Schedule as per Section 12(1) of the Arbitration and Conciliation Act, 1996. In connection with my possible appointment of sole Arbitrator has already been issued to the parties concerned and procedure of arbitration proceedings is annexed with this letter."
10. Thereafter, the Petitioners replied to the learned Arbitrator's notice dated 26.08.2016 by their letter dated 08.09.2016 inter alia recording that the Petitioners are strongly objecting to the appointment of the learned Arbitrator and requested not to conduct the arbitration in haste.
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11. On 10.10.2016, the petitioners filed an Application under Section 12 of the Arbitration and Conciliation Act, 1996 objecting to the appointment of the learned Arbitrator on the following grounds :-
(1) That, you have been consultant / advisor of DHFL i. e. claimant company and needless to say that you have business relationship with claimant company and also have a close relationship with Diwan Housing Finance Limited (DHFL) / claimant company with the persons in the management in the said company;
(2) That, you failed to disclose by your letter that the number of matters in which you have been arbitrator by the claimant company and awards were passed against the claimant company, that gives the reasonable apprehension that in the same mechanic way the award shall be passed in the favour of the claimant and against me;
(3) That, by the letter of intent dated 11.08.2016 your appointment as sole arbitrator and the consent thereof by you on the same day, coupled with the precedence that the claimant company regularly appoints you as arbitrator leaves reasonable doubt that you have cordial relations with the officials of the claimant company, which otherwise shall not be possible unless awards goes in their favour and therefore I have serious doubt that you will be an impartial arbitrator in this case, since the important facet in all Arbitration matters is equal and fair opportunity at every stage in the Arbitration proceedings;
(4) That, you have been working as a lawyer in same law firm which has been representing the claimant and in other words 7 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc you have been beneficiary and have a significant financial interest in claimant's company and an affiliate of it;
(5) That you have already been legal representative of claimant's company in several matters, which is going to participate in arbitration proceedings. Moreover you have provided legal advice and expert opinion to the claimant party in the issues placed before you as you have also not paid any heed to the contents of our letter dated 08.09.2016 which was issued in response to your letter reference DHFL / 26 / 2016 dated 06.09.2016 by us regarding attitude and conduct of Claimant Company." (emphasis supplied) Further, in para 9 of the said Application, the Petitioners objected to the appointment of the arbitrator specifically pointing out Section 12 read with Fifth Schedule and the Seventh Schedule of the Act and contended as under :-
"Also, amendment to Section 12 as per the new law makes the declaration on the part of the arbitrator about his independence s and impartiality more onerous. A Schedule has been inserted (Fifth Schedule) which lists the grounds that would give rise to justifiable doubt to independence and impartiality of arbitrator and the circumstances given in Fifth Schedule are very exhaustive. Any person not falling under any of the grounds mentioned in the Fifth Schedule is not likely to be independent and impartial in all respects. Also, another Schedule (seventh schedule) is added and a provision has been inserted that notwithstanding any prior agreement of the parties, if the arbitrator's relationship with the parties or the counsel or the subject matter of dispute falls in any of the categories
8 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc mentioned in the seventh schedule, it would act as an ineligibility to act as an arbitrator.
It is, therefore, I have strong reservations regarding your appointment as arbitrator. It is requested you to take up the matter with the claimant to forward this matter to a relevant arbitrator with the consent of both the concerned parties."
(emphasis supplied)
12. The Petitioners contend that on 11.11.2016, the sole Arbitrator fixed a hearing on the Petitioners' Application under Section 12 of the Act. However, on the said date, Petitioners' Advocate was not available, the learned arbitrator was informed well in advance by the Petitioners' Advocate by a letter dated 09.11.2016 requesting the sole Arbitrator to adjourn the hearing on 11.11.2016. The petitioners contend that despite the adjournment application, the sole Arbitrator proceeded to ex-parte decide the Petitioners' application under Section 12 of the Act and by an order dated 15.11.2016 dismissed the said objection application of the Petitioners and directed that the claim of the Respondent would be heard ex-parte, and soon thereafter, on 28.11.2016, the sole Arbitrator passed the impugned Award awarding in favour of the respondent an amount of Rs. 3,01,69,143/- together with interest calculated on the said amount at 18% p. a. from the date of the Award till the payment and / or realization thereof.
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13. Learned counsel for the Petitioners in assailing the impugned award would submit that the impugned Award is bad and illegal principally for the reason that the appointment of the learned arbitrator itself does not conform to the requirements of Section 12(1) of the Act as amended by Act No. 3 of 2016 with effect from 23.10.2015. Learned Counsel for the petitioners would contend that Section 12(1) interalia postulates a requirement that when a person is approached in connection with his possible appointment as an arbitrator, he is under an obligation to disclose in writing any circumstances which we likely to give rise a doubt as to his independence or impartiality and the existence of any direct relationship in past or present with or interest in any of the parties or in relation to the subject matter in dispute which would be either financial, business, professional, or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality. Learned counsel for the Petitioners also would refer to explanation 1 below Section 12(1) which provides that the grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which would give rise to justifiable doubts as to the independence or impartiality of an arbitrator. A reference is also made to sub-section (5) of Section 12 which provides that notwithstanding any prior agreement 10 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc 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, such person shall be ineligible to be appointed as an arbitrator. Item 22 of 5 th Schedule to the Act read with 12(1)(b) provides that if the Arbitrator has within the past three years been appointed as Arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties, it becomes one of the grounds under the Fifth Schedule to give justifiable doubts as to the independence or impartiality of the arbitrators. It is, therefore, her submission that appointment of the Arbitrator itself was illegal and contrary to the provisions of Section 12 read with Fifth Schedule of the Act.
14 Learned counsel for the Petitioners would support her above contentions referring to the disclosure as made by the sole Arbitrator under Section 12 which reads as under :-
THE SIXTH SCHEDULE
1. Name of the Arbitrator Anis Ahmed, Advocate
3. Prior experience (including The undersigned declared that he is an experience with Arbitrations) advocate and is dealing with arbitration proceedings since the year 2007.
4 No. of on going arbitration The undersigned have been nominated
proceedings as arbitrator in multiple arbitration
proceedings by different financial
complains/institution, banks, etc.
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including the claimant herein and that
more than 3 arbitration proceedings of
the different claimants are pending
before the undersigned.
5. Circumstances disclosing any past or The undersigned has no relationship
present relationship with or interest with any of the parties nor has any
in any of the parties or in relation to interest in the subject matter in dispute
the subject matter in dispute, whether whether financial, business,
financial, business, professional or professional or other kind, save and
other kind, which is likely to give rise except the fact that within the past to justifiable doubts as to your three years the undersigned has been independence or impartiality (list appointed as arbitrator on more than out) three occasions by one of the parties.
The undersigned declares that there are no such circumstances which is likely to give rise to justifiable doubts as to the independence or impartiality of the undersigned while acting as arbitrator. Please note that the undersigned has no relationship with the parties or the counsel or the dispute between the parties, directly or indirectly. It is further clarified that any other grounds mentioned in fifth schedule or seventh schedule to the said act are not applicable to me.
15 Learned counsel for the Petitioners would next submit that the Respondent could not have made a unilateral appointment of the arbitrator and more particularly, considering the arbitration clause contemplated appointment of the sole Arbitrator from the officers of the Respondent which was clearly against mandate of the provisions of Section 12 (1) read with Fifth and the Seventh Schedules of the Act, as the arbitration clause. The Arbitration Agreement as contained in Article 12 of the Agreement reads thus :-
12 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc "All matters, questions, disputes, differences and/or claims arising out of and/ or concerning and/or in connection and/or in consequences of breaches, termination or invalidity thereof or relating to this Agreement whether or not obligations of either or both parties under this contract be subsisting at the time of such dispute and whether or not this Agreement has been terminated or purported to be terminated or completed shall be referred to the Sole Arbitration of the Managing Director, Executive Director(s), President(s) or Vice President(s) of the DHFL or any other authorized person to be appointed / nominated by the Managing Director, Executive Director(s), President(s) or Vice President(s) or any other Officer / Executive not below the level of Senior Manager of the DHFL as his nominee. The proceedings of the said arbitration shall be held at the registered office of the DHFL or any other place to be notified for the same by the arbitrator. The decision/award of the Arbitrator so appointed shall be final and binding on the parties to this Agreement. The arbitration shall be conducted in accordance with the provisions of Arbitration and Conciliation Act, 1996.
Rules thereunder and any amendments thereto. The language of Arbitration shall be English."
(emphasis supplied)
16. The contention of the learned counsel for the Petitioners is to the effect that considering the provisions of Section 12 of the Act alongwith the said Schedules, the arbitration clause had become unworkable by operation of law to enable the Managing Director of the respondents to appoint an arbitrator. It was therefore necessary for the 13 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc Respondent to consult the Petitioners and seek appointment of a sole Arbitrator by consent of the parties and/or, failing which approach this Court under Section 11 of the Arbitration and Conciliation Act, 1996 and more particularly when the invocation in the present case is after the coming into force of the amended provisions of the Act with effect from 23 October 2015.
17. Learned counsel for the Petitioners contends that at the threshold, the Respondent having failed to consider that the appointment of the sole Arbitrator was itself illegal, an Award made by such Arbitrator cannot be a valid and legal Award. To support this submission, learned counsel for the Petitioners has relied on the decision of the three Judges Bench of the Supreme Court in TRF Limited Vs. Energo Engineering Projects Limited, reported in (2017)8 Supreme Court Cases 377.
18. On the other hand, learned counsel for the Respondent has referred to the reply affidavit as placed on record on behalf of the Respondent to contend that the Award is legal and valid and also disclosure as made by the learned Arbitrator under Section 12(1) as annexed to the Petition is in consonance with law. She submits that the 14 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc Award is already subject matter of execution before the appropriate Court. She has drawn my attention to the various contentions as raised in the reply affidavit to submit that the Petitioners were defaulters in repayment of the loan amount and thus, the above technical argument is made on behalf of the Petitioners did not wave with the Court. It is her submission that the learned Arbitrator has examined each and every aspect of the matter and has validly published his Award.
19. I have heard learned counsel for the parties. I have also perused the record.
20. At the outset, it needs to be observed that it is not in dispute that there was a loan agreement between the parties dated 28.02.2014 and that the disputes and differences had arisen between the parties under the said loan agreement, for the reason that the project in question wherein the Petitioners had agreed to purchase a flat, itself could not materialize, due to the disputes which were stated to be pending in the Supreme Court.
21. It is material to note that the Respondent by its advocate's letter dated 04.08.2016 invoked the arbitration agreement and 15 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc intended to appoint Mr. Anis Ahmed, Advocate to adjudicate the disputes and differences between the parties under the said loan agreement. This invocation is, admittedly, after coming into force of the amendment to Section 12 and incorporation of the Fifth and the Seventh Schedules to the Act with effect from 23.10.2015 by Act No. 3 of 2016. These amended provisions provide for stricter and rigorous regime on the independence and impartiality of the arbitrators to be appointed.
22. In the present case, it is clear that the arbitration clause, being Article 12 of the loan agreement provides for sole arbitration of the Managing Director, Executive Director(s), President(s) or Vice President(s) of the Respondent or any other authorized person to be appointed / nominated by the Managing Director or Executive Director(s), President(s) or Vice President(s) etc.. The invocation of the arbitration was by the respondent's notice dated 04.08.2016. As per Section 21 of the Act, the arbitration proceedings commence from the date of this request as made by the Respondent by the said Notice dated 04.08.2016. Thus as the arbitration proceedings commenced from 04.08.2016, undoubtedly, the amended provisions of Section 12 read with the Fifth and the Seventh Schedules of the Act had became 16 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc applicable for the parties and the respondent was required to adhere to these provisions. Learned counsel for the Petitioners thus, would be correct in referring to Item 22 of the Fifth Schedule to contend that the learned Arbitrator so appointed by the Respondent would incur disability, having rendered previous services to the Respondent being appointed as Arbitrator in more than three arbitrations. Item 22 of the fifth Schedule reads thus :-
"22. The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties."
The above contention on behalf of the Petitioners is required to be accepted as correct also in view of the disclosure as made by the learned Arbitrator under Section 12 of the Act which is noted above, wherein it is clearly recorded that in the past three years of his appointment, learned Arbitrator was appointed as an Arbitrator on more than three occasions by the respondent. In fact there is much which can be read from the said disclosure, as although it records that the learned arbitrator has more than three arbitrations of the respondents which are pending, however the learned arbitrator has avoided to furnish the exact number of such arbitrations of the respondents.
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23. It is required to be noted and as seen in many cases, as also can be seen from the arbitration agreement in the present case, that there is an intention to have an in-house arbitration proceedings.It is also seen that arbitrators are attached to the office of the claimants and who considering the nature of business of such concerns, have large number of arbitrations of the same claimants at a given point of time. This is now not permissible, under the amended provisions of Section 12 of the Act read with the Fifth and the Seventh Schedule. In such a mechanism there is definitely likelihood of the arbitral tribunal to cease to be independent and impartial as such arbitrators are appointed across the board, by such claimants in large number of cases, where recovery is required to be made from the defaulting parties.
24. It is thus clear that in the present case the test of independence and impartiality in the appointment of arbitrator stands clearly breached considering the provisions of Section 12 read with Item 22 of the Fifth Schedule to the Act as noted above. The learned Arbitrator after coming into force of the said amended provisions of the Act, had agreed to adjudicate the disputes and differences between the parties, when he was already involved in the professional relationship 18 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc with the respondents and that too in more than three cases on the date of his appointment. The learned arbitrator, therefore, could not have accepted the appointment to adjudicate the disputes and deferences between the parties.
25. Learned counsel for the Petitioners is also correct in her second contention that article 12 of the agreement being the arbitration agreement as entered between the parties had become unworkable by virtue of the amended provisions of the Arbitration and Conciliation Act (Act No. 3 of 2016) as the Respondent either ought to have appointed an arbitrator by consent of the petitioners or in that regard, ought to have approached the High Court under Section 11 of the Act and could not have proceeded to make a unilateral appointment. It is clear from the record that at the outset, the Petitioners by their Advocate's letters dated 27.08.2016 and 29.08.2016 objected to the appointment of the learned Arbitrator in view of the provisions of the amended Act. In these circumstances, a unilateral appointment of the Arbitrator on the part of the Respondent would be required to be held to be illegal and invalid considering the provisions of Section 11, sub- section 5 of the Act which were clearly attracted on such disagreement on the part of the parties. It was necessary for the Petitioners to 19 of 21 ::: Uploaded on - 04/03/2019 ::: Downloaded on - 13/03/2019 06:48:50 ::: CARBP 396-17.doc approach the High Court under Section 11(6) of the Act. In this context the learned counsel for the Petitioners would be correct in placing reliance on the decision of the Supreme Court in TRF Limited (supra) in which the Supreme Court has observed thus :-
"50. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned Senior Counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned Senior Counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor impartiality nor any such other circumstance. We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the "named sole arbitrator" and he has also been conferred with the power to nominate one who can be the arbitrator in his place.
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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 respectability. 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."
26. In view of the above discussion, the Arbitration Petition needs to succeed. The impugned award dated 26.08.2016 passed by the learned Arbitrator is quashed and set aside. No costs.
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