Delhi District Court
Siddharth Kukreja And Ors vs Phool Kumar on 9 May, 2024
IN THE COURT OF GORAKH NATH PANDEY
DISTRICT JUDGE (COMMERCIAL COURT),
NORTH DISTRICT, ROHINI COURTS: DELHI.
OMP (COMM.) 16/2020
CNR No.DLNT010024672020
(1) Sh. Siddharth Kukreja,
S/o Sh. Sanjiv Kukreja,
R/o B-131, Gujrawala Town,
Delhi - 110009.
(2) Sh. Sanjiv Kukreja,
S/o Late Sh. Mahender Kumar Kukreja,
R/o B-131, Gujranwala Town,
Delhi - 110009.
(3) Smt. Rajni Kukreja,
S/o Sh. Sanjiv Kukreja,
R/o B-131, Gujrawala Town,
Delhi - 110009.
...... Petitioners.
VERSUS
Sh. Phool Kumar,
S/o Shri Amar Singh,
R/o 203, Main Road,
Khichri Pur Village,
Delhi - 110091.
...... Respondent.
Date of Institution : 17.03.2020
Date of final arguments : 09.05.2024
Date of decision : 09.05.2024
Decision : Allowed.
OMP (COMM.) 16/2020
SIDDHARTH KUKREJA AND ORS. VS. PHOOL KUMAR
Page no.1/10
J U D G E M E N T:-
1. Vide this petition u/s 34 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act), the Petitioners have assailed the arbitral award dated 18.12.2019 passed by Sole Arbitrator in Arbitration Case No.4/2019 (hereinafter called the impugned Award) and prayed to set aside the same being illegal.
2. It has been averred in the petition that the respondent initiated the arbitration proceedings against the petitioners herein on the basis of loan agreement dated 26.04.2019 executed between the parties. The petitioners herein appeared before the Ld. Sole Arbitrator and also filed their reply. Ld. Sole Arbitrator passed the award dated 18.12.2019 against the petitioners herein.
It is submitted by the Ld. Counsel for the Petitioners that the impugned award suffers from several infirmities as under:
(i) the impugned award is perverse and bad in law;
(ii) the impugned award is vitiated by fraud;
(iii) Ld. Sole Arbitrator has not considered the materials on record while passing the award;
(iv) Ld. Sole Arbitrator passed the award in a mechanical manner;
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(v) The arbitrator in the case was unilaterally appointed without the consent of the petitioners;
(vi) Ld. Arbitrator erred in misconstruing the settle principles of law while passing the award.
In view of these circumstances, it is claimed that the appointment of Sole Arbitrator to adjudicate upon the disputes between the parties was illegal and void ab-initio and the arbitration proceedings were vitiated right since their commencement. It is prayed that the impugned award may please be set aside
3. The respondent filed reply to the petition contending that the petitioners had been duly intimated about the appointment of the Sole Arbitrator and therefore, no fault can be found in the appointment of Sole Arbitrator in this case. It is submitted that the loan agreement contained arbitration clause 4 as well as the name of the Sole Arbitrator which was duly signed by the petitioners. The respondent denied the other contentions made in the petition and lastly prayed to dismiss the petition. The counsel for the respondent also relied upon the following judgment in support of her contentions:
(i) Haryana Tourism Ltd. Vs. Kandhari Beverages Ltd.
reported as 2022 Legal Eagle (SC) 28;
(ii) IRCON International Ltd. Vs. AFCONS Infrastructure Ltd. reported as AIR Online 2023 Del 437;
OMP (COMM.) 16/2020 SIDDHARTH KUKREJA AND ORS. VS. PHOOL KUMAR Page no.3/10
(iii) Canara Nidhi Ltd. Vs. M. Shashikala & Ors.; and
(iv) Sarvesh Bisaria Vs. Hari Om Anand (Dead Through Legal Heirs) passed by Hon'ble High Court of Delhi in CS 160/2020 dated 12.07.2022.
4. I have considered the rival contentions by the parties.
5. It has been held by the Hon'ble Supreme Court in TRF Ltd. Vs. Energo Engineering Projects Ltd. (2017) 8 SCC 377 that when the Managing Director of a Company has been specifically made ineligible to act as an Arbitrator in a dispute involving the Company by virtue of Section 12 (5) of the Arbitration and Conciliation Act, 1996 r/w 7 th Schedule, he cannot nominate any other person also as an Arbitrator. It would be apposite to reproduce the following paragraph of the said Judgment:-
"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 OMP (COMM.) 16/2020 SIDDHARTH KUKREJA AND ORS. VS. PHOOL KUMAR Page no.4/10 to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so".
6. The said proposition of law enunciated in the above noted Judgment of the Hon'ble Supreme Court has been affirmed in the subsequent Judgments in Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. (2019) 17 SCR 275 and Bharat Broadband Network Ltd. Vs. United Telecoms Ltd. (2019) 6 SCR 97 also.
7. In the instant case also, the respondent was not competent to appoint the Arbitrator in view of the law enunciated by the Hon'ble Supreme Court in the above judgements and therefore, the Arbitrator appointed by him was ineligible to conduct the arbitration proceedings. Thus, it is evident that arbitral reference itself in this case began with an illegal act and vitiate the entire arbitral proceedings from their inception. The logical inference which can be gathered from these circumstances would be that the award passed by such an Arbitrator is void ab-initio. The same is non-est in the eyes of law.
8. It is also evident from the materials on record that that the Arbitrator had been appointed by the Management of the Respondent Company unilaterally without seeking consent or approval from the Petitioners and this fact is not denied by the respondent as well.
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9. By now, it is very settled law in view of the various pronouncements of the Hon'ble Supreme and the Hon'ble High Courts that the awards passed by the unilaterally appointed Arbitrators are non-est in the eyes of law and would not survive the challenge u/s 34 of the Arbitration and Conciliation Act, 1996 for the reason that they lack inherent jurisdiction to conduct the proceedings.
10. In Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. (2019) 17 S.C.R. 275, it was held by the Apex Court that in a case where only one party has a right to appoint a Sole Arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. It was further held that a person who has an interest in the outcome or decision of the dispute must not have the power to appoint a Sole Arbitrator and that has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 and recognized by the decision of the Court in TRF Ltd. Vs. Energo Engineering Projects Limited (2017) 7 S.C.R. 409.
11. The Hon'ble Supreme Court, again in case Bharat Broadband Network Ltd. Vs. United Telecoms Ltd. (2019) 6 S.C.R. 97 held that a unilaterally appointed Arbitrator is de jure ineligible to perform his functions and his mandate is automatically terminated u/s 14 (1) (a) of the Act. Further, any prior agreement to do away with this ineligibility would be wiped OMP (COMM.) 16/2020 SIDDHARTH KUKREJA AND ORS. VS. PHOOL KUMAR Page no.6/10 out by the non-obstante clause contained in Section 12 (5) of the Act and the same can be cured only through an express waiver.
12. In Ram Kumar & Ors. Vs. Shriman Transport Finance Co. Limited reported as MANU/DE/4941/2022, the Hon'ble High Court has observed as under:-
"8. Clearly, an award rendered by a person who is ineligible to act as an arbitrator would be of little value; it cannot be considered as an arbitral award under the A&C Act. While it is permissible for the parties to agree to waive the ineligibility of an arbitrator, the proviso to Section 12(5) of the A&C Act makes it clear that such an agreement requires to be in writing. In Proddatur Cable TV Digi Services v. Siti Cable Network Limited: (2020) 267 DLT 51, the learned Single Judge of this Court, following the decision in TRF Ltd. v. Energo Engineering Projects Ltd. (supra) and Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. (supra), held that unilateral appointment of an arbitrator by a party is impermissible."
13. The Calcutta High Court in Cholamandalam Investment and finance Company Ltd. Vs. Amarpali Enterprises and Anr., EC No. 122/2022 decided on 14.03.2023, has analyzed all the above Judgements as well as some other relevant pronouncements on the said issue and has laid down following principles:-
"(a) As held in HRD Corp (supra), arbitrators falling under Schedule VII of the Act are ineligible as they lack inherent jurisdiction. Such ineligibility was extended to persons appointed by persons falling under Schedule VII of the Act in TRF Limited (supra). This ineligibility was ultimately extended to persons who are unilaterally appointed by one of the parties to the arbitration in Perkins (supra).
(b) The Apex court has judicially expanded the Schedule VII of the Act to include persons unilaterally appointed by one of the parties vide its judgement in Perkins (supra) OMP (COMM.) 16/2020 SIDDHARTH KUKREJA AND ORS. VS. PHOOL KUMAR Page no.7/10 and/or persons appointed by persons falling under Schedule VII of the Act vide its judgement in TRF Limited (supra).
(c) It is a settled principle of law that compliance with Section 12(5) read with Schedule VII is sine qua non for any arbitral reference to gain recognition and validity before the Courts. An arbitral reference which begins with an illegal act vitiates the entire arbitral proceedings from its inception and the same cannot be validated at any later stage. Thus, it would be a logical inference to consider such arbitral proceedings as void ab initio.
(d) Awards passed by a unilaterally appointed arbitrator are non- est in the eyes of law. While Section 47 of the CPC is not directly applicable, guidance has to be sought from the jurisprudence of the Apex Court vis-à-vis decrees passed while lacking inherent jurisdiction. Such decrees do not exist in the eyes of law and similarly awards passed while lacking inherent jurisdiction can be said to have never existed. Therefore, the parties would be free to re-agitate the matter.
e) This judgement is applicable to awards wherein the arbitral proceeding commenced post the 2015 amendment to the Act. It does not deal with proceedings having been initiated pre the 2015 amendment and concluding post the 2015 amendment". (Emphasis supplied).
14. It would also be profitable to reproduce following observations of the Calcutta High Court in the same Judgment:-
"23. The law of arbitration is an alternative dispute resolution mechanism that was brought into the statute books in order to facilitate a quick and efficient method of dispute resolution. The raison d'être of arbitration is to provide liberty to parties wherein they can decide upon various facets of dispute resolution. Ergo, party autonomy is sine qua non of the law of arbitration. However, a virus had emerged wherein finance companies and banks were facilitating appointment of a small cabal of arbitrators in hundreds of cases for themselves. The awards passed were soiled and tainted with bias. It was clear that the borrower was the underdog as he had no choice in the matter of appointment of arbitrator and the very concept of impartiality was given a go bye. In order to overcome this issue, the legislative amendments of 2015 and the judicial pronouncements on OMP (COMM.) 16/2020 SIDDHARTH KUKREJA AND ORS. VS. PHOOL KUMAR Page no.8/10 such amendments by the Apex Court have brought in a level playing field so that no party could have a higher bargaining power in the decision making process for appointment of an arbitrator. Such interpretation, as discussed above, has ensured complete impartiality in such appointments and served the intended purpose of saving the 'small guy' while counter-balancing party autonomy. In conclusion, one may say that the apparent impartiality that existed providing power to one of the parties to choose the arbitrator unilaterally has been taken away as the same was fraught with inequalities at the very threshold of the initiation of the arbitration proceedings. However, the proviso to Section 12(5) of the Act allows for waiver but clarifies that the same has to be explicit and in writing". (Emphasis supplied)
15. Thus, it palpably clear that the awards passed by the unilaterally appointed Arbitrators are non-est in the eyes of law and cannot be considered as an Arbitral Award under the Arbitration and Conciliation Act, 1996 for the reason that the unilateral appointment of the Arbitrators is illegal and defeats very purpose of unbiased and impartial adjudication of the disputes between the parties. Awards passed by such unilaterally appointed Arbitrators will not survive the challenge u/s 34 of the Act.
16. In the instant case, as already noted hereinabove, the Sole Arbitrator had been appointed by the Respondent unilaterally. At no point of time was the concurrence or the consent of the Petitioners sought for his appointment as nothing has been placed on record in this regard by the respondent. On this score also, the impugned arbitral award passed by the Sole OMP (COMM.) 16/2020 SIDDHARTH KUKREJA AND ORS. VS. PHOOL KUMAR Page no.9/10 Arbitrator becomes non-est in eyes of law and cannot survive the challenge u/s 34 of Arbitration and Conciliation Act, 1996.
17. Hence, the petition is allowed and the impugned arbitral award dated 18.12.2019 is hereby set-aside.
18. File be consigned to Record Room after necessary compliance.
Announced in the open court (GORAKH NATH PANDEY) on 09 May, 2024.
th District Judge (Commercial Court) North:Rohini:Delhi/09.05.2024 OMP (COMM.) 16/2020 SIDDHARTH KUKREJA AND ORS. VS. PHOOL KUMAR Page no.10/10