Delhi District Court
S K Tiwari vs Bansal Credit Limited on 27 October, 2023
IN THE COURT OF Dr. KAMINI LAU: DISTRICT JUDGE
(COMMERCIAL COURT)02, CENTRAL DISTRICT,
TIS HAZARI COURTS, DELHI
OMP (COMM) No. 169/2022
CNR No. DLCT010156462022
Sh. S.K. Tiwari
S/o Sh. L.M. Tiwari
R/o House No. E3/161, Gali No.6,
Pusta4, MCD Schook Road,
Sonia Vihar, Delhi - 110094
...... Petitioner
Versus
M/s. Bansal Credits Limited
(Through its Directors Kanwal Aggarwal,
Jeewan Aggarwal, Vipan Kumar Aggarwal,
Veena Aggarwal, Hari Ram Gupta, Jagdip Kumar Anand)
Having Registered Office at:
1, Ansari Road, 2nd Floor,
Kiran Sadan, Above Allahabad Bank,
Darya Ganj, New, Delhi110002
......Respondent
Date of filing of Objections: 15.11.2022
Judgment Reserved on: 04.10.2023
Date of Judgment: 27.10.2023
TABLE OF CONTENTS
Sr. No. Title Page No.
1 Brief facts/ Case of the petitioner 26
2 Case of the respondent 69
3 List of Authorities & Legal Position 1032
4 Findings & Observations 3241
5 Conclusion 42
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022
Judgment dated: 27.10.2023 Page No. 1 of 42
Present: Petitioner S.K. Tiwari in person.
Ms. Varsha Advocate/ Proxy for the Respondent.
JUDGMENT:
(1) These objections under Section 34 of the Arbitration and Conciliation Act, 1996 have been filed by the petitioner for setting aside the Arbitral Award dated 06.07.2022 passed by the Ld. Sole Arbitrator Sh. B.K. Roy.
BRIEF FACTS:
Case of the petitioner:
(2) The Brief Facts as borne out from the petition/ objections are as under:
➢ That the petitioner/ objector purchased a vehicle i.e. Auto Passenger Bajaj RE for Rs.1,55,379/ for which he has availed a loan facility from the respondent. ➢ That the parties entered into a loan agreement dated 21.11.2017 and as per the contritions explained by the executive of the respondent, the total loan amount was Rs.2,50,000/ which was to be repaid by the petitioner in 36 monthly installments of Rs.7,560/ each.
➢ That out of the 36 EMIs the petitioner had paid 22 installments to the Green Valley finance and Leasing Pvt. Ltd. who is the executive/ representative/ guarantor of the respondent at Moti Nagar in cash.
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 2 of 42 ➢ That due to some family issues the petitioner had to go to native village as a result of which he missed a few installments and later due to Covid19 breakdown, he again missed EMIs.
➢ That the petitioner informed the representative of the respondent about the financial crises, who assured the objector of proper assistance in this regard. ➢ That the representative of the respondent company informed the petitioner that he has to pay Rs.3,01,000/ on which the petitioner asked him to provide the loan statement and the calculations but the representative then asked the petitioner to give all his receipts and assured that he will the complete details and statement of loan.
➢ That the petitioner being naïve provided the receipts and details of all the payments made by him to the executive of the respondent but when the petitioner visited the office of the representative of respondent, he refused to provide the same.
➢ That the respondent had sent a legal notice dated 27.08.2021 to the petitioner which he received and thereafter filed a petition at Patiala House Courts, New Delhi under Section 9 of the Arbitration and Conciliation Act, 1996 along with an application for passing interim exparte orders for appointment of the Receiver.
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 3 of 42 ➢ That the Court at Patiala House Court passed an order on 07.10.2021 without having territorial jurisdiction and even after knowing that the vehicle would be seized, the petitioner/ objector paid a sum of Rs.9,000/ to the respondent company on 20.10.2021 but his vehicle was seized on the said date itself.
➢ That the respondent appointed the Sole Arbitrator for the adjudication of this matter.
➢ That during the proceedings of arbitration, the petitioner filed an application for rejecting the petition filed by the respondent but the said application was rejected by the Ld. Court at Patiala House Courts on the ground that the proceedings have been commenced with the Sole Arbitrator.
➢ That the petitioner/ objector had also filed an application under Section 16 of the Act before the Ld. Sole Arbitrator which was also dismissed by the Ld. Sole Arbitrator vide order dated 02.02.2022. ➢ That there is a vested interest of the Sole Arbitrator in the arbitration proceedings since the counsel for the respondent company and the Sole Arbitrator are association in the same Chamber and both pursue their legal practice together and in legal cases of respondent, they conspire to get favourable results out of the case. ➢ That throughout the proceedings, the Ld. Sole Arbitrator ignored the law and passed an Award dated 06.07.2022 in favour of the present respondent copy of S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 4 of 42 which award was received by the petitioner through Speed Post on 30.07.2022.
(3) The petitioner has now challenged the impugned award dated 30.07.2022 on the following grounds:
➢ Because the respondent company and their executive/ representative from Moti Nagar disclosed the loan tenure of the petitioner as three years whereas they signed the loan agreement for four years by taking advantage of the illiteracy of the petitioner. ➢ Because the respondent has failed to fulfill the legal requirement of providing the loan agreement and repayment schedule to the petitioner immediately after signing the loan agreement dated 21.11.2017. ➢ Because the respondent and their executive ignored the various requests of the petitioner to provide the loan statement and other important information regarding the loan of the vehicle.
➢ Because the vehicle of the petitioner has been seized pursuant to order dated 07.10.2021 which order was passed by the Ld. Court at Patiala House Courts, New Delhi without territorial jurisdiction. ➢ Because the petitioner did not receive any notice/ acknowledgement regarding the appointment of the Sole Arbitrator.
➢ Because the respondent and Guarantor No.1 i.e. Seema Jha, who has vested interest in the respondent, illegally S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 5 of 42 got signed the loan agreement from the petitioner. ➢ That in the loan agreement, the terms for appointment of an arbitrator are not valid and are against the law and in fact, Clause 10.14 of the Loan Agreement is arbitrary and not valid.
➢ That the appointment of the Sole arbitrator by the respondent is against the wellsettled law by the Hon'ble Supreme Court and various High Courts. ➢ That after the first appearance before the Sole Arbitrator, the petitioner objected to the illegal arbitration clause and filed an application under Section 16 of the Act, which application was rejected by the Ld. Arbitrator without passing any speaking order.
➢ That the Sole Arbitrator has passed the arbitration award in violation of principle of natural justice.
(4) The petitioner has prayed that the impugned arbitral award dated 06.07.2022 passed by the Sole Arbitrator be set aside; the seized vehicle of the petitioner be directed to be returned; the arbitration clause 10.14 of the agreement dated 21.11.2017 be declared as null and void and compensation be awarded in favour of the petitioner/ objector.
Case of the respondent:
(5) The respondent M/s. Bansal Credits Private Limited has filed a detailed reply to the petition under Section 34 of the S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 6 of 42 Arbitration & Conciliation Act 1996. The case of the respondent is as under:
➢ That the present objection/ petition does not fall under the ambit of Section 34 since there is no ground and error in the award dated 06.07.2022 which fall under the ambit of Section 34 of the Arbitration and Conciliation Act.
➢ That the present petition is only abuse of process of law since the Sole Arbitrator after full consideration of material facts available on record and ample appreciation of evidences, had passed a reasoned award.
➢ That the present objections are not maintainable being barred by limitation since the petitioner has filed the present petition on 14.11.2022 against the award dated 06.07.2022 which was admittedly received by the petitioner on 30.07.2022 and the petitioner has failed to mention the specific and valid reason for delay.
➢ That the petitioner/ objector was well aware about each and every stage of arbitration proceedings since he has contested and presented his case before the Ld. Arbitrator diligently whereas on the contrary he did not file any single document to show that he has received the award on 30.07.2022.
➢ That the application under Section 16 of the Arbitration and Conciliation Act was moved by the petitioner only for the purpose of challenging the S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 7 of 42 jurisdiction of the Arbitral Tribunal on the ground that arbitration Clause 10.14 of the loan agreement dated 21.11.2017 is arbitrary and not valid whereas on the other hand the petitioner has never disputed loan agreement either in his pleadings or in all other applications.
➢ That the issue of competence of Arbitral Tribunal has been properly dealt with by the Ld. Sole Arbitrator vide order dated 02.02.2022.
➢ That the arbitration proceedings have been invoked by the respondent vide notice dated 11.11.2021 which was sent on 12.11.2021 but despite having received the same, the petitioner never challenged the appointment of the sale arbitrator under the relevant provisions o Section 12 and 13 of the Arbitration and Conciliation Act, within 15 days.
➢ That the vehicle in question was repossessed by the respondent on 20.10.2021 pursuant to the order dated 07.10.2021 passed by the Hon'ble Court under Section 9 of the Act.
➢ That the respondent had also moved an application under Section 17 of the Act for sale of the repossessed vehicle, which application was allowed by the Ld. Arbitrator vide order dated 24.05.2022 and thereafter the Award was passed by the Ld. Arbitrator on 06.07.2022 and accordingly the vehicle in question S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 8 of 42 was sold to Sh. Himanshu Bhutani for a consideration of Rs.2,50,000/ which amount was duly adjusted in the loan account of the petitioner. ➢ That out of the total amount of Rs.2,50,000/, a sum of Rs.90,000/ was paid by the petitioner on 04.10.2022 and an amount of Rs.1,60,000/ was paid on 14.10.2022 by the said purchaser.
➢ That as per the terms of the agreement, the petitioner had agreed to pay a total amount of Rs.3,64,000/ in 48 monthly installments of which 1st to 47th installments were of Rs.7,560/ whereas the 48th installment was of Rs.8,680/ but the petitioner failed to maintain the financial discipline and as on 30.11.2021 a sum of Rs.3,32,975/ was due upon the petitioner. ➢ That the application under Section 9 of the Arbitration and Conciliation Act was filed within the proper jurisdiction of the court concerned since the agreement was executed between the parties in New Delhi i.e. Registered Office of the respondent and Clause 10.15 of the Loan Agreement dated 21.11.2017 also provide the exclusive jurisdiction of the court of New Delhi. (6) On merits, the respondent has denied all the averments and the grounds raised by the petitioner/ objector. According to the respondent, the Award in question is a reasoned award which has been passed by the Ld. Arbitrator after following due process of law.
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 9 of 42 List of Authorities:
(7) I have gone through the written memorandum of arguments filed by the parties. In so far as the petitioner/ objector is concerned, Ld. Counsel has placed his reliance upon the authorities in the case of Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. reported in 2019 SCC Online SC 1517 and in the case of Proddatur Cable TV Digi Services Vs. Siti Cable Network Limited reported in 2020 SCC Online Del
350.
(8) On the other hand, Ld. Counsel for the respondent has only filed his written memorandum of arguments but has not relied upon any judgment/ authority.
Legal Position:
(9) Before coming to the merits of the grounds raised before me, I may observe that the provisions of Section 12(1) of the Arbitration and Conciliation Act, 1996 provides the Grounds for Challenge as under:
12. Grounds for challenge: (1) When a person is approached in connection with his possible appointment as an Arbitrator, he shall disclose in writing any circumstances,
(a) such as the existence either direct or indirect, of any past or present, relationship with or interest in any of the parties or in relation to the subject−matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and
(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 10 of 42 Explanation 1.− The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an Arbitrator.
Explanation 2.− The disclosure shall be made by such person in the form specified in the Sixth Schedule.
(2) An Arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub−section (1) unless they have already been informed of them by him.
(3) An Arbitrator may be challenged only if −
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties.
(4) A party may challenge an Arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject−matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator:
Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub− section by an express agreement in writing...."
(10) Further, Section 21 of the Arbitration and Conciliation Act, 1996 provides as under:
".... 21. Commencement of arbitral proceedings: Unless otherwise agreed by the parties, the arbitral proceedings, in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent....."
(11) I also note that Section 34 (1) of the Arbitration and Conciliation Act, 1996 provide that the arbitral award may be S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 11 of 42 set aside by the court on an application for setting aside the same being made on any grounds specified in the subsection (2) and within the time prescribed. The provisions of Section 34 (2) (a) are reproduced as under:
"....... 2 (a) the party making the application furnishes proof that
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon,under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or failing such agreement, was not in accordance with this Part.'
(b) the Court finds that −
(i) the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
[Explanation 1. − For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if, −
(i) the making of the award was induced or affected by fraud or corruption or was in violation S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 12 of 42 of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.] [Explanation 2 For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute] [(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.] (12) The issue before me is relating to maintainability of the Award passed by a unilaterally appointed Arbitrator, which according to the petitioner defeats the very objective relating to inclusion of Section 12 (5) and Schedule 7 in the Arbitration and Conciliation Act, 1996 by way of Arbitration and Conciliation (Amendment) Act, 2015 w.e.f. 23.10.2015 in the light of law laid down by the Hon'ble Apex Court debarring Unilateral Appointment of Sole Arbitrators which is Anti thesis to "Nemo Judex in causa sua" No one can be a Judge in his own cause.
(13) Firstly, coming to the objective behind inclusion of Section 12 (5) and Schedule 7 in the Arbitration and Conciliation Act, 1996 by way of Arbitration and Conciliation (Amendment) Act, 2015 w.e.f. 23.10.2015. I may observe that Section 12(5) was introduced in this 1996 Act by way of Arbitration and Conciliation (Amendment) Act, 2015 notified S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 13 of 42 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 S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 14 of 42 persons in the management and controlling the company.
x. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate in one of the parties.
xi. The arbitrator is a legal representative of an entity that is a party in the arbitration.
xii. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.
xiii. The arbitrator has a significant financial interest in one of the parties or the outcome of the case. xiv. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom.
Relationship of the Arbitrator to the dispute xv. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.
xvi. The arbitrator has previous involvement in the case.
Arbitrator's direct or indirect interest in the dispute xvii. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.
xviii. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.
xix. The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute.
Explanation 1The term "close family member" refers to a spouse, sibling, child, parent or life partner.
Explanation 2 The term "affiliate" encompasses all companies in one group of companies including the parent company.
Explanation 3 For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialized pool. If in such fields it is the custom and practice for parties frequently to appoint the same S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 15 of 42 arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above.
(14) Secondly, the Hon'ble Supreme Court in numerous authoritative pronouncements, detailed as under, has debarred the unilateral appointment of Sole Arbitrators:
➢ TRF Limited Vs. Energo Engineering Projects Ltd.
reported in 2017 (8) SCC 377.
➢ Voestalpine Schienen GMVH Vs. DMRC Ltd.
reported in 2017 (4) SCC 665.
➢ Perkins Eastman Architects DPC Vs. HSCC India
Ltd. reported in 2020 (20) SCC 760.
➢ Bharat Broadband Network Vs. United Telecoms Ltd.
reported in 2019 (5) SCC 755.
➢ HARSAC and Anr. Vs. Pan India Consultants
reported in 2021 (3) SCC 103.
➢ Jaipur JDUSS Ltd. Vs. Ajay Sales and Suppliers
reported in 2021 (3) SCC Online SC 730.
➢ Ellora Papermills Vs. State of M.P. reported in 2022
(3) SCC 1.
➢ Dharma Prasthanam Vs. M/s Madhok Construction
Pvt. Ltd. reported in 2005 (9) SCC 686.
(15) In the case titled TRF Limited Vs. Energo
Engineering Projects Ltd. reported in (2017) 8 SCC 377 the Full Bench of Supreme Court headed by Hon'ble Mr. Justice Deepak Mishra had an opportunity to reprise and articulate the course corrective effect introduction of Section 12(5) read with Schedule 7 of the Arbitration & Conciliation Act. The issue S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 16 of 42 before Hon'ble Full Bench of the Supreme Court was, "Whether a person who is ineligible to preside an Arbitral Tribunal on account of operation of law i.e. Section 12(5) read with Schedule 7 of the Act would be eligible to nominate another person as Arbitrator." While comparing the unamended Section 12 of the Act with the amended Section 12 of the Act, post 2015 Amendment, the Hon'ble Supreme Court had observed and I quote as under:
".......12.SubSection (5) of Section 12, on which immense stress has been laid by the learned counsel for the appellant, as has been reproduced above, commences with a nonobstante clause. It categorically lays down that if a person whose relationship with the parties or the counsel for the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. There is a qualifier which indicates that parties may subsequent to the disputes arisen between them, waive the applicability by express agreement in writing. The qualifier finds place in the proviso appended to subsection 5 of Section 12. On a careful scrutiny of the proviso,it is discernible that there are fundamentally three components, namely the parties can waive the applicability of the subsection; the said waiver can only take place subsequent to dispute having arisen between the parties; and such waiver must be by an express agreement in writing......"
(16) The Hon'ble Full Bench distinguished that the Arbitral Agreements where both sides are required to appoint one Arbitrator each who, in turn, appoint a Third Neutral Arbitrator with cases where the Arbitrator Clause gives full power to only one party to appoint a Sole Arbitrator in this matter. While appreciating the concern of the appellant that by virtue of Section 12(5) read with Schedule 7 of the Act an S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 17 of 42 employee/ official of a disputing party cannot act as an Arbitrator, such an employee/official cannot also appoint another Arbitrator unilaterally Hon'ble Apex Court observed as under: ".......53.The aforesaid authorities have been commended to us to establish the proposition that if the nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself. According to learned counsel for the appellant, ineligibility strikes at the root of his power to arbitrate or get it arbitrated upon by a nominee.
54.In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectablity. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so....."
(17) The aspect of Unilateral Appointment of Arbitrator and its derelictious effect on neutrality, independence and impartiality of Arbitral proceedings Hon'ble Supreme Court discussed the issue threadbare in case titled Perkins Eastman Architects DPC Vs. HSCC India Limited reported in (2020) 20 S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 18 of 42 SCC 760. Taking cue from 'TRF Judgment' the aspect which was taken up for consideration by the Apex Court in Perkins Eastman Judgment is where a Managing Director or any official or authority who is a disputing party may not be acting as an Arbitrator but empowered under the Arbitration Clause to appoint another person of choice or discretion as an Arbitrator. The Hon'ble Bench observed and I quote as under:
"...... We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second category, the Managing Director is not to act as an arbitrator himself but is empowered or authorised to appoint any other person of his choice or discretion as an arbitrator. If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases. If the interest that he has in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present irrespective of whether the matter stands under the first or second category of cases. We are conscious that if such deduction is drawn from the decision of this Court in TRF Limited, all cases having clauses similar to that with which we are presently concerned, a party to the agreement would be disentitled to make any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator....."
(18) While discussing the above referred Voestalpine Judgment and Law Commission of India, 176 th and 246th Report S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 19 of 42 the Apex Court highlighted that the principles of procedural fairness, impartiality and independence cannot be discarded at any stage of the proceedings, which I quote as under:
"......Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of consideration of the Arbitral Tribunal, it would be incongruous to say that "Parties Autonomy" can be exercised in complete disregard of these principles and even if the same has been agreed prior to the disputes having risen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of parties apparent agreement. A sensible law cannot, for instance, permit appointment of an Arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the parties agree.......
In fact, when the party appointing an adjudicator in the suit, the duty to appoint an impartial and independent adjudicator is that much more onerous and the right to natural justice cannot be said to have been waived only on the basis of a "Prior: Agreement between the parties at the time of Contract or before arising out of the disputes...".
(19) In the case of Bharat Broadband Network Vs. United Telecoms Limited reported in (2019) 5 SCC 755 while dealing with an issue of Section 12(5) read with Schedule 7 qua unilateral appointment of arbitrator by official of the disputing company, the Bench headed by Hon'ble Mr. Justice R. F. Nariman dealt with an issue wherein during the pendency of arbitral proceedings before a Sole Arbitrator who was unilaterally appointed by CMD of Bharat Broadband Network, an application was moved before the Arbitrator by the Bharat Broadband Network company that in the light of TRF Limited S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 20 of 42 the Tribunal would be de jure unable to perform the function as Arbitrator and that he should withdraw from the arbitration so that an application under Section 11 of the Act can be filed before the High Court. The plea was rejected by the Arbitrator. When Bharat Broadband Network approached Delhi High Court, the High Court rejected the plea of the Bharat Broadband Network on the ground that since the Sole Arbitrator was appointed by Bharat Broadband Network itself, it is estopped from making a plea for removal of the arbitrator. While discussing Voestalpine Schienen Hon'ble Supreme Court held and I quote as under:
"...... Section 12(5), on the other hand, is a new provision which relates to the de jure inability of an arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the non obstante clause in Section 12(5) the moment any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the 7th Schedule. The subSection then declares that such person shall be "ineligible" to be appointed as arbitrator. The only way in which this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the 7th Schedule, he is, as a matter of law, ineligible to be appointed as an arbitrator. The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes having arisen between them, waive the applicability of this subsection by an "express agreement in writing". The express agreement in writing" has reference to a person who is interdicted by the 7 th Schedule, but who is stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the 7th Schedule......"
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 21 of 42 (20) Further, in the case of Dharma Prasthanam Vs. M/s Madhok Construction Pvt. Ltd. reported in (2005) 9 SCC 686 Hon'ble Supreme Court while dealing with the aspect of 'Unilateral Appointment of Arbitrator' even in the pre2015 Amendment period observed as under:
".....A unilateral appointment as well as a unilateral reference, both will be illegal. It would make a difference if in respect of a unilateral appointment and reference if the other party had submitted to the jurisdiction of an arbitrator so appointed and if the rights which it has under such an agreement has been waived, then an arbitrator so appointed may proceed with the reference and the party submitting to his jurisdiction and participating in the proceedings before him may later on not be allowed to raise any objection in with regard to such appointment of arbitrator...."
(21) In case titled Haryana Space Application Centre (HARSAC) and Anr. Vs. Pan India Consultants, reported in (2021) 3 SCC 103 the Full Bench of Hon'ble Supreme Court dealt with a case where the petitioner appointed the Principal Secretary of the State as Nominee Arbitrator and arbitral proceedings were going on in for more than 4 years, the Hon'ble Supreme Court held that the application of Section 12(5) read with Schedule 7 of the Act is mandatory and not derogable and I quote as under:
"........We are of the view that the appointment of the Principal Secretary, Government of Haryana as the nominee arbitrator of HARSAC which is a Nodal Agency of the Government of Haryana, would be invalid under Section 12(5) of the Arbitration and Conciliation Act, 1996 (as amended by the 2015 Amendment Act) provides that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties, or counsel falls within any of the categories specified in the 7th Schedule, shall be ineligible to be appointed as an S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 22 of 42 arbitrator.........
The arbitrator is a manager, director or part of the management of has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration......... Section 12(5) read with the 7th Schedule is a mandatory and nonderogable provision of the Act. In the facts of the present case, the Principal Secretary to the Government of Haryana would be ineligible to be appointed as an arbitrator, since he would have a controlling influence on the Appellant Company being a nodal agency of the State.
The Counsel for both parties during the course of hearing have consented to the substitution of the existing tribunal, by the appointment of a Sole Arbitrator to complete the arbitral proceedings....."
(22) In case titled Jaipur Jila Dugdh Utpadak Sehkari Sangh Ltd. Vs. Ajay Sales and Suppliers, reported in 2021 SCC Online SC 730, the Supreme Court Bench headed by HMJ M R Shah dealt with a case where the Arbitration Clause dated 31.03.2015 provided for appointment of Sangh's Chairman as Sole Arbitrator. When the dispute arose and Arbitration was invoked on 19.10.2019, the respondent approached High Court of Rajasthan which under Section 11 of the Act where a fresh Arbitrator was appointed. When the High Court's order was challenged before the Supreme Court with a plea that the Arbitration Clause preexisted the 2015 Amendment of The Act and inclusion of Section 12(5) and Schedule 7, Hon'ble Apex Court while dismissing the petition challenging the High Court order observed as under:
"..... So far as the submission on behalf of the petitioners that the agreement was prior to the insertion of Sub Section 5 of Section 12 read with 7th Schedule to the Act and therefore the disqualification under SubSection 5 S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 23 of 42 of Section 12 read with 7th Schedule to the Act shall not be applicable and that once an arbitratorChairman started the arbitration proceedings thereafter the High Court is not justified in appointing an Arbitrator are concerned the aforesaid has no substance and can to be accepted in view of the decision of this Court in TRF Limited Judgment(supra), Bharat Broadband Network Judgment (supra), Voestalpine Schienen Judgment (supra). In the aforesaid decisions this Court had an occasion to consider in detail the object and purpose of insertion of SubSection 5 of Section 12 read with 7th Schedule to the Act. In the case of Voestalpine Schienen Judgment(supra) it is observed and held by this Court that the main purpose for amending the provision was to provide for 'Neutrality of Arbitrators'. It is further observed that in order to achieve this, Subsection 5 of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subjectmatter of the dispute falls under any of the categories specified in the 7th Schedule, he shall be ineligible to be appointed as an arbitrator. It is further observed that in such an eventuality i.e. when the arbitration clause finds foul with the amended provisions (SubSection 5) of Section 12 read with 7th Schedule the appointment of an Arbitrator would be beyond pale of the arbitration agreement, empowering the Court to appoint such arbitrator as may be permissible. It is further observed that, that would be the effect of nonobstante clause contained in SubSection5 of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of the arbitration agreement..........
It is further observed and held by this Court in the aforeasaid decision that independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which shall apply to all judicial and quasi judicial proceedings. It is further observed that it is for this reason that notwithstanding the fact that relationship between the parties, to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstanding the same nonindependence and nonimpartiality of such arbitrator would render him ineligible to conduct the arbitration....."
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 24 of 42 (23) In another case under the title Ellora Papermills Vs. State of M.P., reported in (2022) 3 SCC 1 Hon'ble Supreme Court on 04.01.2022 dealt with a matter wherein the dispute pertained to year 199394 and the Arbitral Tribunal consisting of officers of State of MP was constituted much prior to promulgation of 2015 Amendment and inclusion of Section 12(5) and 7th Schedule w.e.f. 23.10.2015. High Court did not interfere with the Tribunal citing the reason that the Tribunal started functioning prior to 23.10.2015 and that the appellant had already participated in the proceedings. Hon'ble Supreme Court while relying on TRF Limited, Bharat Broadband, Voestalpine and Ajay Sales Judgments stressed that 'Neutrality of Arbitrators', their independence and impartiality is critical for the entire process. The Bench reiterated and I quote as under:
"...... Though, the Law Commission discussed the aforesaid aspect under the heading "Neutrality of Arbirators", the focus of discussion was on impartiality and independence of the arbitrators which has relation to or bias towards one of the parties. In the field of international arbitration, neutrality is generally related to the nationality of the arbitrator. In international sphere, the "appearance of neutrality" is considered equally important, which means that an arbitrator is neutral if his nationality is different from that of the parties. However, that is not the aspect which is being considered and the term "neutrality" used is relatable to impartiality and independence of the arbitrators, without any bias towards any of the parties. In fact, the term "Neutrality of Arbitrators" is commonly used in this context as well........
Keeping in mind the afore quoted recommendation of the Law Commission, with which spirit, Section 12 has been amended by the Amendment Act, 2015, it is manifest that the main purpose for amending the provision was to provide for neutrality of arbitrators. In order to achieve this, subSection 5 of Section 12 lays down that S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 25 of 42 notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the 7th Schedule, he shall be ineligible to be appointed as an arbitrator. In such an eventuality i.e. when the arbitration clause finds foul with the amended provisions extracted above, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the Court to appoint such arbitrator(s) as may be permissible. That would be the effect of non obstante clause contained in subSection 5 of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of arbitration agreement....."
(24) In the case titled as SMS Limited Vs. Rail Vikas Nigam Limited reported in 2020 Latest Caselaw 190 Delhi wherein Hon'ble Delhi High Court dealt with an aspect where Railways claimed that it is offering a panel of 37 names for selection of the Arbitrator but the same was opposed by the plaintiff company as the proposed Arbitrators were primarily retired Railway Officers and few of them were from other PSUs. While referring to Voestalpine Judgment and Perkins Eastman Judgment of Hon'ble Supreme Court it was ruled by Hon'ble Delhi High Court that:
"...... It is pertinent to note that in case of Perkins Eastman the Supreme Court while dealing with the application under Order 7 Rule 6 read with Section 11(12)(a) of the Act held that as per scheme of Section 11 of the Act if there are justifiable doubts as to the independence and impartiality of the person nominated and if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, an appointment can be made by the Court....."
(25) In the case of Proddatur Cable TV Digi Services Vs. Siti Cable Network Ltd. reported in 2020 Latest Caselaw 328 S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 26 of 42 Delhi, Hon'ble High Court of Delhi dealt with a case where appointment of the Arbitrator was challenged on the ground that the Arbitrator was 'Unilaterally Appointed' in violations of TRF Judgment and Perkins Eastman Judgment of Hon'ble Supreme Court. The relevant para of the judgment of Hon'ble High Court is reproduced as under:
"......Lastly the reliance of the respondent on the judgment of the Supreme Court in the case of Central Organisation is also of no avail to the respondent. In the said case, the Supreme Court was dealing with an arbitration clause which required a panel of arbitrators to be provided by the Railways to the other party to the contract, in terms of clause 64.3(a)(ii) of the GCC. The Court held that since one party was to provide a panel and the other party had the choice to short list the Arbitrator of its choice from the panel and only from the shortlisted names, Railways was bound to appoint at least one Arbitrator to constitute the Arbitral Tribunal, the parties had a level playing filed. The Arbitrator appointed by the Railways of its choice was balanced by the second Arbitrator being of the choice of the other party. Thus, the elements of fairness, transparency and impartiality were taken care of....."
(26) Further, in the case of City Lifeline Travels Pvt. Ltd. Vs. Delhi Jal Board reported in 2021 Latest Caselaw 276 Delhi the Hon'ble High Court of Delhi held and I quote as under:
"........ The contention that the decision in the case of Perkins Eastman ought to be read in a restrictive manner is not persuasive. On the contrary, the said decision must be read in expansive manner. The efficacy of arbitration as an alternate dispute resolution mechanism rests on the foundation that the disputes would be adjudicated by independent and impartial arbitrators. The decision in Perkins Eastman recognizes the importance of ensuring that Arbitrators not be appointed by persons who are otherwise interested in the matter so as to obviate any doubt as to the impartiality and independence of the Arbitral Tribunal. The necessity for instituting necessary safeguards for the same cannot be understated."
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 27 of 42 (27) Again in case of Abraham Memorial Education Trust Vs. Prodigy Development Institution in OMP (Comm). 391 of 2020 Hon'ble High Court dealt with the award which was passed by 'Unilaterally Appointed Arbitrator' and held as under:
"......Since the Arbitrator's appointment was contrary to the provisions of Arbitration Agreement and Act, the unilateral reference of disputes and the proceedings before the Sole Arbitrator are void ab initio and the award so rendered is a nullity in law. Hence, the impugned award cannot be sustained and the Court has no hesitation in setting aside the award and it is ordered accordingly......"
(28) Similarly, in the case of M/s Fam Bhagat Infratech Private Limited Vs. Alok Kumar Agarwal reported in 2021 SCC Online Delhi 2486 the Hon'ble High Court while dealing with the challenge to Arbitral Clause which provided that 'Unilateral Appointment of Arbitrator' observed and I quote as under:
"..... Clearly, in view of the law laid down by the Supreme Court in Perkins Eastman and Bharat Broadband as well as Section 12(5) of the Arbitration and Conciliation Act, 1996, read with the 7th Schedule thereto, Clause 9.1 is rendered unsustainable in law, as it confers exclusive jurisdiction to one of the parties to the arbitration agreement to appoint the arbitrator....."
(29) Further, in the case titled M/s India Cements Capital Limited Vs. William reported in 2015 SCC Online Ker 24805 the Hon'ble Kerala High Court observed as under:
"......20. Petitioner's contention that if an award is declared to be a nullity in execution proceedings, it will amount to adding one more ground to Section 34 of the Act is totally unacceptable. As mentioned earlier, Section 34 of the Act provides seven grounds to set aside an award. If S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 28 of 42 the expression "set aside" is understood correctly, there will not be any lack of clarity or obfuscation. Ordinarily, the expression "set aside" is understood as meaning abandon, abjure, abrogate, discard, dispense with, to omit, reject, repudiate, etc. The term "set aside" is defined in Black's Law Dictionary (8th Edition) as vb.(of a court) to annul or vacate ( a judgment, order, etc.). The term "set aside" in the legal parlance means, to cancel, annul or revoke a judgment or order. It is an indisputable proposition that in order to set aside a decree or order or award, there must be one in existence. In other words, a decree or award not in existence cannot be set aside. No one can seek to set aside a decree or award which is not in existence. That exercised will be as futile, rather as impossible, as one attempting to commit feticide of an unborn foetus. Therefore, what is provided in Section 34 of the Act is only ways and means to set aside an award made in an arbitral proceedings. As succinctly stated by the Hon'ble Supreme Court, what is sought to be achieved by taking recourse to Section 47 of the Code is to make a declaration that the decree(here, an award) sought to be executed is a nullity. In other words, seeking a pronouncement that there is no executable decree of award at all. If the end result of an adjudication under Section 47 of the Code is entering a finding that there is no decree or award at all, there cannot be a question of setting aside such a decree of award in that proceedings. Therefore, the contention of the revision petitioner that the declaration of nullity of an award in a proceeding under Section 47 of the Code will tantamount to adding one more ground to Section 34 of the Act is legally incorrect and therefore, not acceptable......."
(30) The celebrated judgments of TRF Limited, Perkins Eastman of Hon'ble Supreme Court have been relied by other High Courts as well. In case title Ravi Realcons Pvt. Ltd. Vs. Chief Engineer and Anr. reported in 2022 SCC Online CAL 751 the Hon'ble High Court of Calcutta observed as under:
"...... In the light of judgments in TRF Limited and Perkins Eastman in Section 12(5) of the Arbitration and Conciliation Act, it is clear that a person who may have an interest in the outcome of the dispute should not be made S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 29 of 42 an Arbitrator....."
(31) While distinguishing the judgment of CORE judgments of Hon'ble Supreme Court on facts this Bench went on to observe that:
"...... The judgments in CORE judgment are justiciable on facts as the same relate to appointment of arbitrator as per Arbitration Clause has not dehorsed the ratio of Perkins Eastman....."
(32) In the case of Priya Mallaiseth Vs. VLCC Healthcare Limited reported in 2022 SCC Online Del 1137 the Hon'ble Delhi High Court has observed as under:
"...... The arbitration agreement between the parties as noted above is not in dispute. Firstly considering Mr. Sethna's second contention that Clause 13.1 when it confers an authority on the respondent to appoint an arbitrator, it would be rendered bad in law in view of the principles of law as laid down by the Supreme Court in Perkins Eastman needs acceptance adverting to the principles of law as laid down in these decisions. Applying these principles the respondent cannot have a unilateral authority to appoint an arbitral tribunal...."
(33) Owing to inherent illegality in 'Unilateral Appointment of Sole Arbitrators' by one of the disputing parties is now so well established by Parliament and the Hon'ble Supreme Court that in several cases the parties themselves concede to this Legal Position and accept that unilateral appointment made by them may be set aside. In the case of Ekta Medical Systems Private Limited Vs. Institute of Liver and Biliary Sciences reported in 2021 SCC Online DEL 3979, when the petitioner raised the issue of unilateral appointment and carrying on of arbitral proceedings in violation of Section 12(5) S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 30 of 42 read with Schedule 7 of the Act while citing Perkins Eastman. Ld. Counsel for respondent, simply conceded to the legal position and paved the way for appointment of a neutral arbitrator by the High Court. Hon'ble Delhi High Court observed and I quote as under:
"......The petitioners, by this petition, seek termination of the mandate of the arbitrator, presently in seisin of the disputes between the parties in view of Section 12(5) of the Arbitration and Conciliation Act, 1996 ("the 1996 Act") read with judgments of the Supreme Court in Bharat Broadband Network Ltd. Vs. United Telecoms Ltd., Perkins Eastman Architects DPC vs. HSCC(India) Ltd. And Haryana Space Application Centre Vs. Pan India Consultants Pvt. Ltd........
Mr. Sanjay Poddar, learned Senior Counsel for the respondent, fairly concedes to the applicability of Section 12(5) of the 1996 Act as well as the aforesaid decisions and, therefore submits that this Court may appoint an arbitrator in place of the arbitrator presently in seisin of the disputes....."
(34) Further, in the case of Overnite Express Limited Vs. Delhi Metro Rail Corporation reported in 2022 SCC Online Del 2488 the Hon'ble Delhi High Court while relying Voestalpine Judgment concluded that offering a panel of 5 names by one party to the opposite party is no longer a valid procedure. The relevant portion is reproduced as under:
"....... The procedure of forwarding a panel of five names to the other contracting party to choose its nominee Arbitrator is now held to be no longer a valid procedure.........
The respondent has no doubt given a panel of five retired District Judges, but it cannot be overlooked that it is a restrictive panel restricting the choice of the petitioner to pick up any one of those five which tantamounts to unilateral appointment of an Arbitrator by the Respondent, which may create a doubt about the Arbitrator being partial or biased. Though one may S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 31 of 42 hasten to State and emphasise that the retired District Judges may be person of impeccable integrity, but the issue here is of a perceived bias which cannot be permitted. Hence, it is held that the procedure adopted by the respondent for appointment of Arbitrator from the panel cannot be sustained in the light of the observations of the Apex Court in Voestalpine Schienen GMVH Vs. Delhi Metro Rail Corporation Ltd. (2017) 4 SCC
665....".
(35) In the case titled AK Builders vs DSIDC, reported in 2022 Latest Case Law 606 Del a coequal Bench of Hon'ble Delhi High Court expressed reservation regarding the findings in the case of Kanodia Infratech Ltd. Vs. Dalmia Cement (Bharat) Ltd. reported in 2021 Latest Caselaw 2975 Del. The Bench held that mere participation in proceedings before a unilaterally appointed Arbitrator does not constitute waiver of Section 12(5) read with Schedule 7 of the Act. While relying on TRF Ltd, Perkins Eastman and Bharat Broadband Judgements of Hon'ble Supreme Court, the unilaterally appointed Arbitrator was removed and replaced.
(36) Lastly, I may observe that one of the most fundamental Principles of Natural Justice which is the soul and fulcrum of any judicial or quasijudicial process is that No one can be a Judge in his own cause (Nemo Judex in causa sua).
(37) The Law Commission of India in its Reports, Parliament of India in the 2015 Amendment of Arbitration and Conciliation Act, 1996 and repeatedly ruled by authoritatively judgments of Hon'ble Supreme Court, 'Neutrality of Arbitration Proceedings' cannot be allowed to be succumb or got hijacked by S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 32 of 42 insistence of a large section of Government Departments and Corporations to continue to violate the impartiality, probity and unbiasedness of arbitration proceedings. In fact, unilateral appointment of Arbitrator is antithesis to "Nemo Judex in causa sua". The unilateral appointment of arbitrators is germane to this vice and when the first step is taken in a wrong direction and is rendered non est, every next step and the culmination of the arbitral journey into an award is nothing but a zilch or nullity.
Findings & Observations:
(38) By application of the above principles of law to the facts of the present case, I now proceed to decide the objections raised by the objector/ petitioner.
(39) The main ground on which the petitioner is challenging the impugned award is that Sole Arbitrator Sh. B.K. Roy was appointed unilaterally and no consent was obtained from the petitioner. In this regard, I may observe that a bare reading of Section 21 of the Arbitration and Conciliation Act shows that arbitral proceedings commence on the date on which the request for the dispute to be referred to Arbitration is received by the respondent. Therefore, the commencement of arbitral proceedings is incumbent on the receipt of such request or notice. If no notice is received by the concerned Respondent, there is no commencement of Arbitral proceedings at all.
Emphasis here is also made to the fact that the notice should not only be sent but also that the notice should be received for S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 33 of 42 such request for commencement.
(40) Section 21 has to be read with Section 34 of the Arbitration and Conciliation Act. Section 34 (2) (iii) provides that an award may be set aside, in the event, where the party appointing the Arbitrator has not given proper notice of the appointment of an Arbitrator or the Arbitral proceedings. (41) In the present case, a perusal of the arbitral record reveals that a Reference Letter dated 11.11.2021 was sent by the respondent through Ms. Divya Sharma Advocate to the petitioner herein i.e. Sh. S.K. Tiwari thereby invoking the arbitration clause of the loan agreement and the petitioner was called upon to pay a sum of Rs.3,10,490/ along with future interest and other applicable charges as agreed in the Agreement within a period of 15 days failing which the matter/ dispute shall stand referred for adjudication to the Sole Arbitration Sh. B.K. Roy. It is writ large from the above notice that no List of Arbitrators were provided nor any option was given to the present petitioner nor his consent was obtained for appointment of the Arbitrator. In fact, the name of the Arbitrator was decided by the respondent unilaterally and the petitioner was just informed of the same. The entire arbitral record does not reflect any option having been given to the objector relating to his consent regarding appointment of Arbitrator.
(42) Further, a perusal of the arbitral record shows that an application under Section 16 of the Arbitration and S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 34 of 42 Conciliation Act was filed by the petitioner/ objector before the Ld. Arbitrator challenging the appointment of the Sole Arbitrator unilaterally by the respondent and jurisdiction of the arbitral tribunal to entertain the same in the light of authorities in the case of Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. (Supra) and Proddatur Cable TV Digi Services Vs. Siti Cable Network Limited (Supra). The said application was decided by the Ld. Arbitrator vide an order (placed at Page No. 226 to 229 of the original arbitral record) holding that the above judgments were of no legal consequences and are on different footing without specifically addressing the issue relating to the challenge of appointment of the Arbitrator. Here, I may note that on the preceding page i.e. Page No.225 there is a proceeding sheet dated 07.01.2022 which proceeding was held through virtual mode during pandemic period, after which this order of the Arbitrator from page no. 226 to 229 is found present. In fact, the proceeding sheet dated 07.01.2022 reflects that the matter was listed for 17.01.2022 for filing the reply. The argument of the petitioner that this Undated Order passed separately wherein the Ld. Arbitrator decided his own appointment as legal, appears to have been inserted later between the proceeding sheets dated 07.01.2022 and 17.01.2022, is not all that unfounded. This, I say because there is no mention in the proceeding sheet dated 07.01.2022 of hearing of arguments on application under Section 16 of the Arbitration and Conciliation Act and fixing the same for orders. Similarly, even S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 35 of 42 in the proceeding sheet dated 17.01.2022 there is no mention of this order disposing off the objection raised by the present petitioner under Section 16 of the Arbitration and Conciliation Act. The argument of the Ld. Counsel for the petitioner that the said order has been inserted later on, cannot be ignored. (43) I also note that merely because the petitioner has participated in the proceedings before a unilaterally appointed Arbitrator, it does not constitute waiver of Section 12(5) read with Schedule 7 of the Act (Ref: AK Builders vs DSIDC, reported in 2022 Latest Case Law 606 Del).
(44) I may further note that the Hon'ble Delhi High Court has in the case of Alupro Building Systems Pvt. Ltd. Vs. Ozone Overseas Pvt. Ltd. reported in 2017 SCC Online Del 7228 has explained the relevance of a notice under Section 21 of the Arbitration and Conciliation Act. It was held that the Act does not contemplate unilateral appointment of an Arbitrator by one of the parties, there has to be consensus for such appointment and as such, the notice under Section 21 of the Act serves an important purpose of facilitating such a consensus on the appointment of an Arbitrator. It was further held that the parties may opt to waive the requirement of notice under Section 21 of the Act. However, in the absence of such a waiver, this provision must be given full effect to. The principles as expressed in the case of Alupro Building Systems Pvt. Ltd. (Supra) are shortlisted as under:
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 36 of 42 ➢ The party to the Arbitration Agreement against whom a claim is made should know what the claims are. The notice under Section 21 of the Act provides an opportunity to such party to point out if some of the claims are time barred or barred by law or untenable in fact or if there are counterclaims.
➢ Where the parties have agreed on a procedure for appointment, whether or not such procedure has been followed, will not be known to the other party unless such a notice is received.
➢ It is necessary for the party making an appointment to let the other party know in advance the name of the person who it proposes to appoint as an Arbitrator. This will ensure that the suitability of the person is known to the opposite party including whether or not the person is qualified or disqualified to act as an Arbitrator for the various reasons set forth in the Act. Thus, the notice facilitates the parties in arriving at a consensus for appointing an Arbitrator.
➢ Unless such notice of commencement of Arbitral proceedings is issued, a party seeking reference of disputes to Arbitration upon failure of the other party to adhere to such request will be unable to proceed under Section 11(6) of the Act. Further, the party sending the notice of commencement may be able to proceed under the provisions of Subsection 5 of Section 11 of the Act for the appointment of an Arbitrator if such notice does not evoke any response.
(45) The Hon'ble Delhi High Court in the case of Alupro Building Systems Pvt. Ltd. (Supra) held that the arbitration proceedings conducted without a notice by the respondent to the petitioners/ objectors herein under Section 21 of the Arbitration and Conciliation Act invoking the arbitration S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 37 of 42 clause, are invalid.
(46) In the present case, it is writ large that there was no consensus between the parties for appointing Sh. B.K. Roy as the Sole Arbitrator in as much as there is nothing on record to show that the present petitioner/ objector was provided the list of Arbitrators nor any option was given to him. There is a total non compliance of Section 21 of the Arbitration and Conciliation Act in the present case thereby rendering the entire arbitral proceeding as invalid.
(47) It is also evident that after a specific objection was raised by the petitioner before the Ld. Arbitrator with regard to the unilateral appointment of the Arbitrator and the legality of the manner in which the reference was made to him. Pursuant to the same an Undated Order appears to have been inserted between the proceeding sheets dated 07.01.2022 and 17.01.2022 without specifically addressing the issue relating to his unilateral appointment by the Respondent. Be that as it may, on the face of it, Unilateral Appointment of Sole Arbitrator is contrary to the provisions of Arbitration and Conciliation Act, 1996. The Awards rendered by the Sole Arbitrator are non est, void ab initio and nullity in law. Also, the awards so passed by such a Tribunal is 'NonExecutable". The statutory provision of Section 12(5) read with Schedule 7 of the Act duly explained by full Bench of Hon'ble Supreme Court in TRF Judgment and other Supreme Court judgments namely Perkins Eastman, Bharat Broadband and several judgments of the Hon'ble High Court of S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 38 of 42 Delhi it is found that as per legal position as it exists as on date, the unilateral appointment of Sole Arbitrator was void ab initio, nonest and a nullity. The proceedings carried out by such unilaterally appointed arbitrator and the award passed found to have been passed with inherent lack of jurisdiction. As such, this Court is of the firm view that the Sole Arbitrator Sh. B.K. Roy was unilaterally appointed by the respondent M/s. Bansal Credits Pvt. Ltd. was devoid of jurisdiction to try the claim. As such the impugned award passed by him while exercising the jurisdiction which never vested herein is nothing but a nullity and a void document and is accordingly set aside. (48) Even otherwise, vide order dated 19.07.2023 this court court has observed that the respondent had imposed huge incidental charges of Rs.1,20,115.50p upon the petitioner despite the fact that the petitioner had already deposited almost 44% to 45% of the loan amount including interest. It has been observed by this Court that the respondent has already received more than the outstanding principal amount as reflected in the award i.e. Rs.2,50,000/. The relevant portion of the order dated 19.07.2023 is reproduced as under:
"........ I have gone through the records of the case. It is evident that a loan of Rs.2,50,000/ was disbursed by the respondents in favour of the petitioner for purchase of Auto Passenger make Bajaj RE pursuant to which 47 EMIs of Rs.7,560/ each were fixed. The rate of interest was agreed at 11.40% per annum with total interest amount of Rs.1,14,000/ and the total agreed value was Rs.3,64,000/. After some initial payments (not specified in the award), the petitioner defaulted in payment of installments on which the dispute was referred to the Sole Arbitrator. The Ld. Sole Arbitrator passed an Award on S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 39 of 42 06.07.2022 which is under challenge. Vide the impugned award dated 06.07.2022 the petitioner was directed to deposit a sum of Rs.3,23,975/ along with interest @ 24% per annum. As per the impugned award, a sum of Rs.2,03,860/ was due towards principal amount whereas Rs.1,20,115.50p was due towards incidental charges. As apparent from the record placed before me, the petitioner had made payments in respect of 21 EMIs out of 47 EMIs i.e. around 45% of the agreed amount which is including interest.
Further, it is evident from the reply filed by the respondents that the vehicle in question was repossessed on 20.10.2021 and after the impugned award, the vehicle was sold against the consideration amount of Rs.2,50,000/ on 04.10.2022. It is, therefore, apparent that the respondent has already received more than the outstanding principal amount as reflected in the award i.e. Rs.2,50,000/.
The question which arises is whether the award passed by the Sole Arbitrator is consciousable and in consonance with the Public Policy of India. Here, I note that the petitioner had obtained this loan for earning his livelihood and this vehicle i.e. Bajaj Auto passenger has been repossessed by the respondent and auctioned. Had the same been handed over to the petitioner on Superdari, he would have continued to earn his livelihood and deposited the EMIs which has not been done. The respondent imposed huge incidental charges of Rs.1,20,115.50 upon the petitioner despite the fact that the petitioner before defaulting had already deposited almost 44 to 45 percent of the loan amount which was inclusive of interest (Note: As apparent from the material before me almost 21 installments were deposited, a fact not specifically and clearly mentioned in the award though indicated). The Ld. Sole Arbitrator has not only directed the petitioner to deposit the remaining principal amount of Rs.2,03,860/ (out of total agreed amount of Rs.3,64,000/) but also directed the petitioner to deposit the incidental charges of Rs.1,20,115.50 along with interest @ 24% per annum (despite the fact that the agreed rate of interest was 11.40% per annum) and passed the impugned award for a total sum of Rs.3,23,975/ which appears to be highly exorbitant.
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 40 of 42 It has been alleged that the said award is not only erroneous but also against the Public Policy of India. If this be so, then such a practice of going for a Pound of Flesh of the poor borrower/ objector is exploitative. It would be obligation of the Courts of Law to plug such a mischief by appropriate intervention. No law permits such exploitative practices on the pretext of "ease of business". In the present case the manner in which the incidental charges of Rs.1,20,115/ have been imposed, primafacie does not have the backing of law. The Alternative Dispute Redressal mechanism cannot be used in a manner to con in conflict with existing law.
This being the background, the respondent is directed to place on record the detailed calculations showing the total principal amount released to the petitioner; the principal amount outstanding as on the date of passing of impugned award; the valuation of the vehicle in question at the time of its repossession i.e. minimum sale value report and the total principal amount due after adjusting the sale proceeds of the vehicle in question....."
(49) In so far as the aspect of Limitation raised by the respondent is concerned, I may observe that this Court has already held that the entire arbitral proceedings including the appointment of arbitrator are invalid and hence, it does not lie in the mouth of respondent to claim limitation as their defence. (50) However, in so far as the prayer of the petitioner to direct the return of the seized vehicle; declaring the arbitration Clause 10.14 of the agreement dated 21.11.2017 as null and void and to award compensation/ damages to him are concerned, the said reliefs cannot be granted to the petitioner in the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 the vehicle already having been sold. The petitioner shall be at liberty to initiate appropriate legal proceedings in this regard.
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 41 of 42 CONCLUSIONS:
(51) In view of my above discussion, on the basis of material placed on record and in view of settled proposition of law, the objections under Section 34 of the Arbitration & Conciliation Act filed by the petitioner/ objector are Allowed. The Arbitral Award dated 06.07.2022 is hereby setaside. (52) Original arbitral proceedings be sent back.
(53) File be consigned to Record Room.
Announced in the open court (Dr. KAMINI LAU)
Dated: 27.10.2023 District Judge (Commercial Court)02,
Central, Tis Hazari Courts, Delhi
S.K. Tiwari Vs. M/s. Bansal Credits Ltd. OMP (COMM) No. 169/2022 Judgment dated: 27.10.2023 Page No. 42 of 42