Delhi District Court
M/S Kakda Rolling Mills vs M/S Paisalo Digital Limited on 8 June, 2023
IN THE COURT OF SH. AJAY KUMAR JAIN:
DISTRICT JUDGE COMMERCIAL COURT 03 SOUTH EAST
DISTRICT, SAKET COURTS, NEW DELHI.
IN THE MATTER OF:
OMP (COMM) NO. 13/19
1. M/s Kakda Rolling Mills
15-C, Industrial Area, Govindpura,
Bhopal - 462025 (M.P)
2. Shri Vishal Goel
S/o Shri Narendra Kumar Goel
R/o B1-6, Kakda Abinav Homes
Ayodhya Bypass, Bhopal- 462024 (M.P)
3. Shri Narendra Kumar Goel
S/o Shri Deep Chand Goel
R/o B1-6, Kakda Abinav Homes
Ayodhya Bypass, Bhopal- 462024 (M.P)
4. Shri Neeraj Goel
S/o Shri Narendra Kumar Goel
R/o B1-6, Kakda Abinav Homes
Ayodhya Bypass, Bhopal- 462024 (M.P)
....Petitioners.
Versus
M/s Paisalo Digital Limited
(Formerly known as M/s S.E. Investments Ltd.)
101, Cse Pocket-52, Near Police Station,
Cr Park, New Delhi ...Claimant/Respondent
Date of Institution : 18.01.2019
Date of Arguments : 30.05.2023
Date of Judgment : 08.06.2023
OMP (COMM) 13/19
M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 1 of 43
JUDGMENT
1. Vide this judgment, I shall dispose of the petition under Section 34 of the Arbitration and Conciliation Act to set aside the arbitral award dated 20.10.2018 passed against the petitioners by the Ld. Sole Arbitrator.
2. Brief facts of the case are that the petitioner no. 1 approached the respondent/claimant for grant of loan pursuant to which, at the request of petitioners, the loan of Rs. 50 lacs was sanctioned which was later on disbursed and the relevant documents were executed. The petitioner no. 3 and 4 stood as guarantor. The Arbitrator after considering the evidence on record have passed the award in favour of the claimant/respondent.
3. Ld. counsel for the petitioners submitted that the Arbitrator erred in calculations. The claimant filed the exaggerated claim and the petitioners are not liable to pay such a huge amount, however, Ld. Counsel for the respondent submitted that the Arbitrator has passed the reasoned award and there is no infirmity in the impugned award passed. The Arbitrator passed the award in terms of the agreement. However, during arguments a query is raised by this court over the maintainability of the arbitration proceedings as the Arbitrator is unilaterally appointed by the claimant/respondent. Ld. Counsel for the respondent submitted that the agreement is executed prior to the amendment in October 2015 and secondly the petitioners are not raising this objection and fully participated in the arbitration proceedings. Ld. Counsel submitted that OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 2 of 43 there is no possibility of petitioners giving consent in writing after dispute for arbitration proceedings. Ld. Counsel submitted that there is no infirmity in the arbitration proceedings conducted by the Arbitrator who is unilaterally appointed by the claimant/respondent, however, it was consented by the petitioners at the time of execution of loan agreement.
4. Written submissions also filed on behalf of the parties.
5. Arguments heard. Record perused.
6. As per the loan agreement, the relevant clause on the basis of which the arbitration proceedings were initiated is reproduced as under:-
"..20. Any conflict, difference, controversies, or disputes arising between the parties, if not resolved mutually, shall be submitted/ referred to the arbitration of the Sole Arbitrator. The notices like Demand Notice, Loan Recall-cum-Demand Notice and/or telephonic conversations/mails shall be deemed to be sufficient proof for opportunity given to the Borrower and/ or Guarantor(s) for resolving the issues and efforts of Amicable Settlement made by the Company. The Borrower and Guarantor(s) hereby agree and give their free consent to the Company i.e. SEIL to appoint/nominate any person/ professional as Sole Arbitrator without any prior consent or reference to them. Such rights of appointing an arbitrator are not questionable by the Borrower and /or the Guarantor(s). The notice for Appointment of Arbitrator and the Statement of Claims can be forwarded by the Company Le. SEIL on the same day to the Arbitrator and the Borrower as well as the Guarantor(s) so as to facilitate early disposal of Arbitration proceedings...."
7. The bare perusal of the clause of the agreement shows that any dispute in relation to the agreement if unresolved then the dispute shall OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 3 of 43 be referred to the arbitration. The Arbitrator shall be nominated by the claimant, however, post 2015 amendment in the Act, this clause is ex- facie bad and is in contravention of the provision of the Arbitration and Conciliation Act which goes to the root of the matter and arbitrator become de jure ineligible to act as an arbitrator by operation of law.
8. Three concepts found in the Arbitration Act that facilitate the continuing presence of an independent and impartial arbitral tribunal:
1. Ineligibility of arbitrators - Section 12(5) of the Arbitration Act,
2. Disclosure by arbitrators - Sections 12 (1) and 12 (2) of the Arbitration Act,
3. Challenge to arbitrators - Sections 12(3), 12 (4) and 13 of the Arbitration Act.
Pursuant to the Proviso to Section 12(5) of the 1996 Act, parties may waive the applicability of Section 12(5) by an express agreement in writing post the dispute having arisen. This condition of the agreement being expressly in writing is the statutory sine qua non, without which an otherwise ineligible person cannot be free from the effect of Section 12(5). Nothing less of an 'express agreement in writing would suffice for the waiver of the application of Section 12(5). Such a waiver precluding the application of Section 12(5) cannot be compelled from a party.
9. The relevant paras of the judgment of Hon'ble Kerala High Court dealing with the similar issue in case title 'Hedge Finance Private OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 4 of 43 Limited Vs. Bijish Joseph, OP (C) No. 1263 of 2022 dated 02.08.2022' observed as under :-
"....18. Section 12 of the Act has been interpreted by the Hon'ble Supreme Court in Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd in the following paragraphs:
"18. Keeping in mind the aforequoted recommendation of the Law Commission, with which spirit, Section 12 has been amended by the Amendment Act, 2015, it is manifest that the main purpose for amending the provision was to provide for neutrality of arbitrators. In order to achieve this, sub-section (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject-matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator. In such an eventuality i.e. when the arbitration clause finds foul with the amended provisions extracted above, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator(s) as may be permissible. That would be the effect of non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of the arbitration agreement.
xxx xxx xxx xxx "20. Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi-judicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered notwithstanding the into same between the non-independence parties, and non- impartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 5 of 43 interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Hashwani v. Jivraj [Hashwani v. Jivraj, (2011) 1 WLR 1872 : 2011 UKSC 40] in the following words : (WLR p. 1889, para 45) '45. ... the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties.'
21. Similarly, Cour de Cassation, France, in a judgment delivered in 1972 in Consorts Ury [Fouchard, Gaillard, Goldman on International Commercial Arbitration, 562 [Emmanuel Gaillard & John Savage (Eds.) 1999] {quoting Cour de cassation [Cass.] [Supreme Court for judicial matters] Consorts Ury v. S.A. des Galeries Lafayette, Cass. 2e civ., 13-4- 1972, JCP, Pt. II, No. 17189 (1972) (France)}.] , underlined that:
'an independent mind is indispensable in the exercise of judicial power, whatever the source of that power may be, and it is one of the essential qualities of an arbitrator'.
22. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration proceedings.
xxx xxx xxx xxx xxx
OMP (COMM) 13/19
M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 6 of 43
30. Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the Law Commission also in its report, duty becomes more onerous in government contracts, where one of the parties to the dispute is the Government or public sector 18 O.P (C)No.1263 of 2022 undertaking itself and the authority to appoint the arbitrator rests with it. xxx xxx xxxx".
19. Subsequently, a three Judge Bench of the Hon'ble Supreme Court in TRF Ltd v.Energo Engineering Projects Ltd has declared 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 OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 7 of 43 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. Thus, there is subtle distinction. (omitted).
xxx xxxx xxx xxx xxx xxx
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".
20. Again, in Bharat Broadband Network Ltd vs. United Telecoms Ltd the Hon'ble Supreme Court has held as follows:
"14. From a conspectus of the above decisions, it is clear that Section 12(1), as substituted by the Arbitration and Conciliation (Amendment) Act, 2015 ["Amendment Act, 2015"], makes it clear that when a person is approached in connection with his possible appointment as an arbitrator, it is his duty to disclose in writing any circumstances which are likely to give rise to justifiable doubts as to his independence or impartiality. The OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 8 of 43 disclosure is to be made in the form specified in the Sixth Schedule, and the grounds stated in the Fifth Schedule are to serve as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Once this is done, the appointment of the arbitrator may be challenged on the ground that justifiable doubts have arisen under sub-section (3) of Section 12 subject to the caveat entered by sub- section (4) of Section
12. The challenge procedure is then set out in Section 13, together with the time limit laid down in Section 13(2). What is important to note is that the arbitral tribunal must first decide on the said challenge, and if it is not successful, the tribunal shall continue the proceedings and make an award. It is only post award that the party challenging the appointment of an arbitrator may make an application for setting aside such an award in accordance with Section 34 of the Act.
15. 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 Seventh Schedule. The sub-section then declares that such person appointed as arbitrator. shall be "ineligible" to be 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 Seventh 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 have arisen between them, waive the applicability of this sub- section by an "express agreement in writing". Obviously, the "express agreement in writing" has reference to a person who is interdicted by the Seventh Schedule, but who is stated by parties (after the disputes have arisen between them) to be a OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 9 of 43 person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule.
16. The Law Commission Report, which has been extensively referred to in some of our judgments, makes it clear that there are certain minimum levels of independence and impartiality that should be required of the arbitral process, regardless of the parties' agreement. This being the case, the Law Commission then found:
"59. The Commission has proposed the requirement of having specific disclosures by the arbitrator, at the stage of his possible appointment, regarding existence of any relationship or interest of any kind which is likely to give rise to justifiable doubts. The Commission has proposed the incorporation of the Fourth Schedule, which has drawn from the Red and Orange lists of the IBA Guidelines on Conflicts of Interest in International Arbitration, and which would be treated as a "guide" to determine whether circumstances exist which give rise to such justifiable doubts. On the other hand, in terms of the proposed section 12 (5) of the Act and the Fifth Schedule which incorporates the categories from the Red list of the IBA Guidelines (as above), the person proposed to be appointed as an arbitrator shall be ineligible to be so appointed, notwithstanding any prior agreement to the contrary. In the event such an ineligible person is purported to be appointed as an arbitrator, he shall be de jure deemed to be unable to perform his functions, in terms of the proposed explanation to section 14. Therefore, while the disclosure is required with respect to a broader list of categories (as set out in the Fourth Schedule, and as based on the Red and Orange lists of the IBA Guidelines), the ineligibility to be appointed as an arbitrator (and the consequent de jure inability to so act) follows from a smaller and more serious sub-set of situations (as set out in the Fifth Schedule, and as based on the Red list of the IBA Guidelines).
60. The Commission, however, feels that real and genuine party autonomy must be respected, and, in certain situations, parties should be allowed to waive even the categories of ineligibility as set in the proposed Fifth Schedule. This could be in situations of family arbitrations or other arbitrations where a person commands the blind faith and trust of the parties to the OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 10 of 43 dispute, despite the existence of objective "justifiable doubts"
regarding his independence and impartiality. To deal with such situations, the Commission has proposed the proviso to section 12 (5), where parties may, subsequent to disputes having arisen between them, waive the applicability of the proposed section 12 (5) by an express agreement in writing. In all other cases, the general rule in the proposed section 12 (5) must be followed. In the event the High Court is approached in connection with appointment of an arbitrator, the Commission has proposed seeking the disclosure in terms of section 12 (1), and in which context the High Court or the designate is to have "due regard" to the contents of such disclosure in appointing the arbitrator." (emphasis in original) Thus, it will be seen that party autonomy is to be respected only in certain exceptional situations which could be situations which arise in family arbitrations or other arbitrations where a person subjectively commands blind faith and trust of the parties to the dispute, despite the existence of objective justifiable doubts regarding his independence and impartiality".
21. Recently, in Perkins Eastman Architects DPC and another vs. HSCC (India) Ltd, the Hon'ble Supreme Court has in paragraphs 20 and 21 held as follows:
"20. We thus have two categories of cases. The first, similar to the one dealt with in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] 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 OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 11 of 43 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 Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] , 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.
21. But, in our view that has to be the logical deduction from TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] Para 50 of the decision shows that this Court was concerned with the issue, "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator". The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter- balanced by equal power with the other party. But, 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. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377: (2017) 4 SCC (Civ) 72]".
OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 12 of 43
22. On an analysis of the amended provisions of the Arbitration and Conciliation Act, 1996 and the exposition of the law laid down by the Hon'ble Supreme Court in the afore-cited decisions, it is abundantly clear that the law mandates that there should be neutrality not only for the Arbitrator but also in the arbitrator selection process as well. Thus, in the post- 2015 amendment era, there are only two modes of appointment of a sole Arbitrator (i) by express agreement in writing between the parties, post the dispute, agreeing to waive the applicability of Section 12 of the Act or (ii) by order of appointment by the High Court under Section 11 of the Act. If the appointment of a sole arbitrator is made other than by the above two methods, the appointment is ex facie bad and is in contravention of the provisions of the Act, which goes to the roots of the matter, and the Arbitrator becomes de jure ineligible to act as an arbitrator by the operation of law.
23. Then the question would arise, can an interim award passed by an ineligible Arbitrator be enforced through a Court under Section 17 (2) of the Act. The law laid down in Chiranjilal Shrilal Goenka, TRF Ltd. (supra) and Mantoo Sarkar v. Oriental Insurance Co. Ltd and others [(2009) 2 SCC 244] and Sneh Lata Goel v. Pushplata and others [ (2019) 3 SCC 594] is sufficient to fortify the elementary principle that a decree passed by the Court without jurisdiction goes to the very roots of the matter and the decree is a nullity. Thus, I have no doubt in my mind that an interim award passed by an arbitrator who was appointed in contravention of the provisions of the Act and the law laid down by the Honourable Supreme Court extracted above, is bad in law and as a corollary to the same, the award is unenforceable. It should be borne in mind that the enforcement of an award is a serious matter and the court is cast with the responsibility to ascertain whether the interim award is passed by an arbitrator who is competent to be appointed in accordance with law. As observed in TRF Ltd, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Therefore, the interim award becomes worthless...."
10. As per mandate of the this judgment, based upon various judgments of the Hon'ble Supreme Court, there should be neutrality not OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 13 of 43 only for the arbitrator but also in the arbitration selection process as well. In the post 2015, amendment era there are only two modes of appointment of sole arbitrator (i) by express agreement in writing between the parties, post the disputes, agreeing to waive the applicability of section 12 of the Act or by order of appointment by High Court under section 11 of the Act. If the appointment is made other than by the two methods the said appointment is ex-facie bad and is in contravention of the Act. The arbitrator become dejure ineligible to act as an arbitrator by operation of law. In present case, the arbitration clause clearly gives mandate to the respondent to unilaterally appoint the arbitrator which is bad in law post amendment, and admittedly after the dispute there is no express agreement in writing between the parties to waive the applicability of section 12 (5). The consent envisaged for waiver is express agreement of waiver which is completely missing in the present case. Hon'ble Apex Court in 'Bharat Broadbrand Network Limited Vs. United Telecoms Limited, (2019) 5 SCC 755' held as under :
"......20.This then brings us to the applicability of the proviso to Section 12(5) on the facts of this case. Unlike Section 4 of the Act which deals with deemed waiver of the right to object by conduct, the proviso to Section 12(5) will only apply if subsequent to disputes having arisen between the parties, the parties waive the applicability of sub-section (5) of Section 12 by an express agreement in writing. For this reason,the argument based on the analogy of Section 7 of the Act must also be rejected. Section 7 deals with arbitration agreements that must be in writing, and then explains that such agreements may be contained in documents which provide a record of such agreements. On the other hand, Section 12(5) refers to an OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 14 of 43 "express agreement in writing". The expression "express agreement in writing" refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct. Here, Section 9 of the Indian Contract Act, 1872 becomes important. It states:
"9. Promises, express and implied.--In so far as a proposal or acceptance of any promise is made in words,the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words,the promise is said to be implied."It is thus necessary that there be an "express" agreement in writing. This agreement must be an agreement by which both parties, with full knowledge of the fact that Shri Khan is ineligible to be appointed as an arbitrator, still go ahead and say that they have full faith and confidence in him to continue as such......."
11. Hon'ble Supreme Court in case title 'Ellora Paper Mills Limited Vs. The State of Madhya Pradesh, Civil Appeal No. 7697 OF 2021, dt 04.01.2022' reproduced as under :
"..18. Keeping in mind the aforequoted recommendation of the Law Commission, with which spirit, Section 12 has been amended by the Amendment Act, 2015, it is manifest that the main purpose for amending the provision was to provide for neutrality of arbitrators. In order to achieve this, sub-section (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator. In such an eventuality i.e. when the arbitration clause finds foul with the amended provisions extracted above, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator(s) as may be permissible. That would be the effect of non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of arbitration agreement."
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15. In the case of Bharat Broadband Network Limited (Supra), it is observed that Sub-section (5) of Section 12 read with Seventh Schedule made it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes 'ineligible' to act as an arbitrator. It is further observed that once he becomes 'ineligible', it is clear that he then become dejure unable to perform his functions inasmuch as in law, he is regarded as 'ineligible'. It further is observed in the said decision that where a person becomes ineligible to be appointed as an arbitrator there is no question of challenge to such arbitrator before such arbitrator in such a case i.e. a case which falls under Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator and this being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator." 8.1 In the aforesaid decision, this Court also negatived the submission that as the contractor participated in the arbitration proceedings before the arbitrator therefore subsequently, he ought not to have approached the High Court for appointment of a fresh arbitrator under Section 11 of the Arbitration Act, 1996. After referring to the decision of this Court in the case of Bharat Broadband Network Limited v. United Telecoms Limited, reported in (2019) 5 SCC 755, it is observed and held in paragraph 20 as under:
"20. Now so far as the submission on behalf of the petitioners that the respondents participated in the arbitration proceedings before the sole arbitrator - Chairman and therefore he ought not to have approached the High Court for appointment of arbitrator under Section 11 is concerned, the same has also no substance. As held by this Court in the case of Bharat Broadband Network Limited (Supra) there must be an 'express agreement' in writing to satisfy the requirements of Section 12(5) proviso. In paragraphs 15 & 20 it is observed and held as under:
OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 16 of 43 "15. 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 Seventh Schedule. The sub-section then declares that such person shall be "ineligible" to be appointed as arbitrator. The only way in which this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the Seventh 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 have arisen between them, waive the applicability of this sub-section by an "express agreement in writing". Obviously, the "express agreement in writing" has reference to a person who is interdicted by the Seventh 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 Seventh Schedule.
xxx xxx xxx
20. This then brings us to the applicability of the proviso to Section 12(5) on the facts of this case.
Unlike Section 4 of the Act which deals with deemed waiver of the right to object by conduct, the proviso to Section 12(5) will only apply if subsequent to disputes having arisen between the parties, the parties waive the applicability of sub-
OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 17 of 43 section (5) of Section 12 by an express agreement in writing. For this reason, the argument based on the analogy of Section 7 of the Act must also be rejected. Section 7 deals with arbitration agreements that must be in writing, and then explains that such agreements may be contained in documents which provide a record of such agreements.
On the other hand, Section 12(5) refers to an "express agreement in writing". The expression "express agreement in writing" refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct. Here, Section 9 of the Indian Contract Act, 1872 becomes important. It states:
"9. Promises, express and implied.--In so far as a proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied." It is thus necessary that there be an "express" agreement in writing. This agreement must be an agreement by which both parties, with full knowledge of the fact that Shri Khan is ineligible to be appointed as an arbitrator, still go ahead and say that they have full faith and confidence in him to continue as such. The facts of the present case disclose no such express agreement. The appointment letter which is relied upon by the High Court as indicating an express agreement on the facts of the case is dated 17.01.2017. On this date, the Managing Director of the appellant was certainly not aware that Shri Khan could not be appointed by him as Section 12(5) read with the Seventh Schedule only went to the invalidity of the appointment of the Managing Director himself as an arbitrator. Shri Khan's invalid appointment only became clear after the declaration of the law by the Supreme Court in TRF Ltd. (supra) which, as we have seen hereinabove, was only on 03.07.2017. After this date, far from there being an express agreement between the parties as to the validity of Shri Khan's appointment, the appellant filed an application on 07.10.2017 before the sole arbitrator, bringing the arbitrator's attention to the judgment in TRF Ltd. (supra) and asking him to declare that he has become de jure incapable of acting as an arbitrator. Equally, the fact that a statement of claim may have been filed before the arbitrator, would not mean OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 18 of 43 that there is an express agreement in words which would make it clear that both parties wish Shri Khan to continue as arbitrator despite being ineligible to act as such. This being the case, the impugned judgment is not correct when it applies Section 4, Section 7, Section 12(4), Section 13(2), and Section 16(2) of the Act to the facts of the present case, and goes on to state that the appellant cannot be allowed to raise the issue of eligibility of an arbitrator, having itself appointed the arbitrator. The judgment under appeal is also in correct in stating that there is an express waiver in writing from the fact that an appointment letter has been issued by the appellant, and a statement of claim has been filed by the respondent before the arbitrator. The moment the appellant came to know that Shri Khan's appointment itself would be invalid, it filed an application before the sole arbitrator for termination of his mandate."
9. In view of the above and for the reasons stated hereinabove, the impugned judgment and order passed by the High Court is contrary to the law laid down by this Court in the cases of TRF (supra), Bharat Broadband Network Limited (supra) and the recent decision of this Court in the case of Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited (supra). It is held that the earlier Arbitral Tribunal - Stationery Purchase Committee comprising of Additional Secretary, Department of Revenue as President and (i) Deputy Secretary, Department of Revenue, (ii) Deputy Secretary, General Administration Department, (iii) Deputy Secretary, Department of Finance, (iv) Deputy Secretary/Under Secretary, General Administration Department and (v) Senior Deputy Controller of Head Office, Printing as Members, has lost its mandate by operation of law in view of Section 12(5) read with Seventh Schedule and a fresh arbitrator has to be appointed under the provisions of the Arbitration Act, 1996. The impugned judgment and order passed by the High Court is therefore unsustainable and deserves to be quashed and set aside.
12. Hon'ble Delhi High Court in case titled 'Ram Kumar and Another Vs. Shri Ram Transport Finance Co. Ltd. FAO(Comm.) 60/2021' dated 05.12.2022 also held that unilateral appointment of Arbitrator by the OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 19 of 43 Claimant is impermissible however, it is permissible for the parties to waive the ineligibility of the Arbitrator, the proviso to the Section 12 (5) of the A & C Act makes it clear that such agreement requires to be in writing. However, in present case, there is no such express agreement. Therefore, on this ground alone, the impugned award is liable to be set- aside.
13. Hon'ble Delhi High Court in recent case titled 'Shapoorji Pallonji And Company Private Limited Vs. Union of India, ARB.P. 154/2023, dt. 20.02.2023' also held that constitution of Arbitral Tribunal like of present case clearly tainted by fundamental illegality and observed as under:
"..12. It would be apposite to recall that in Perkins the Supreme Court had an occasion to examine the validity of two distinct categories of arbitration clauses namely, those where an authority was not only named as the arbitrator and additionally conferred the power to nominate as well as those where a person who was otherwise ineligible to be considered for appointment as an arbitrator being granted the right to nominate. The Supreme Court ultimately came to conclude that in neither of those situations would the appointment procedure so contemplated sustain. This is evident from the following passages of the report which are extracted hereinbelow: -
"19. It was thus held that as the Managing Director became ineligible by operation of law to act as an arbitrator, he could not nominate another person to act as an arbitrator and that once the identity of the Managing Director as the sole arbitrator was lost, the power to nominate someone else as an arbitrator was also obliterated. The relevant clause in said case had nominated the Managing Director himself to be the sole arbitrator and also empowered said Managing Director to OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 20 of 43 nominate another person to act as an arbitrator. The Managing Director thus had two capacities under said clause, the first as an arbitrator and the second as an appointing authority. In the present case we are concerned with only one capacity of the Chairman and Managing Director and that is as an appointing authority.
20. We thus have two categories of cases. The first, similar to the one dealt with in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] 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 Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 :
(2017) 4 SCC (Civ) 72] , 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 OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 21 of 43 having interest in the dispute would be disentitled to make appointment of an arbitrator.
21. But, in our view that has to be the logical deduction from TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] Para 50 of the decision shows that this Court was concerned with the issue, "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator" The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter-balanced by equal power with the other party. But, 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. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 :
(2017) 4 SCC (Civ) 72]"
13. While on the question of impartiality and independence of an arbitrator and its inherent importance to the integrity of the OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 22 of 43 arbitral process itself, the Court also deems it apposite to refer to the following passages from the 246 th Report of the Law Commission: -
"53. It is universally accepted that any quasi- judicial process, including the arbitration process, must be in accordance with principles of natural justice. In the context of arbitration, neutrality of arbitrators, viz. their independence and impartiality, is critical to the entire process.
54. In the Act, the test for neutrality is set out in section 12(3) which provides -
"An arbitrator may be challenged only if (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality..."
55. The Act does not lay down any other conditions to identify the "circumstances" which give rise to "justifiable doubts", and it is clear that there can be many such circumstances and situations. The test is not whether, given the circumstances, there is any actual bias for that is setting the bar too high; but, whether the circumstances in question give rise to any justifiable apprehensions of bias.
56. The limits of this provision has been tested in the Indian Supreme Court in the context of contracts with State entities naming particular persons/designations (associated with that entity) as a potential arbitrator. It appears to be settled by a series of decisions of the Supreme Court (See Executive Engineer, Irrigation Division, Puri v. Gangaram Chhapolia, 1984 (3) SCC 627; Secretary to Government Transport Department, Madras v. Munusamy Mudaliar, 1988 (Supp) SCC 651;
International Authority of India v. K.D. Bali and Anr, 1988 (2) SCC 360; S.Rajan v. State of Kerala, 1992 (3) SCC 608; M/s. Indian Drugs & Pharmaceuticals v. M/s. Indo-Swiss Synthetics Germ Manufacturing Co.Ltd., 1996 (1) SCC 54; Union of India v. M.P. Gupta, (2004) 10 SCC 504; Ace Pipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation Ltd., 2007 (5) SCC 304) that OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 23 of 43 arbitration agreements in government contracts which provide for arbitration by a serving employee of the department, are valid and enforceable. While the Supreme Court, in Indian Oil Corp. Ltd. v. Raja Transport (P) Ltd., 2009 8 SCC 520 carved out a minor exception in situations when the arbitrator "was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate (as contrasted from an officer of an inferior rank in some other department) to the officer whose decision is the subject matter of the dispute", and this exception was used by the Supreme Court in Denel Propreitory Ltd. v. Govt. of India, Ministry of Defence, AIR 2012 SC 817 and Bipromasz Bipron Trading SA v. Bharat Electronics Ltd., (2012) 6 SCC 384, to appoint an independent arbitrator under section 11, this is not enough.
57. The balance between procedural fairness and binding nature of these contracts, appears to have been tilted in favour of the latter by the Supreme Court, and the Commission believes the present position of law is far from satisfactory. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the arbitral tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles - even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties‟ apparent agreement. A sensible law cannot, for instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the parties agreed. The Commission hastens to add that Mr. PK Malhotra, the ex officio member of the Law Commission suggested having an exception for the State, and OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 24 of 43 allow State parties to appoint employee arbitrators. The Commission is of the opinion that, on this issue, there cannot be any distinction between State and non- State parties. The concept of party autonomy cannot be stretched to a point where it negates the very basis of having impartial and independent adjudicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator is that much more onerous - and the right to natural justice cannot be said to have been waived only on the basis of a "prior" agreement between the parties at the time of the contract and before arising of the disputes."
14. Voestalpine, as well, had underlined the importance of neutrality of arbitrators and its significant bearing upon the sanctity of the arbitral proceedings in the following terms:
"20. Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi-judicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstanding the same non-independence and non-impartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 25 of 43 independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Hashwani v. Jivraj [Hashwani v. Jivraj, (2011) 1 WLR 1872 : 2011 UKSC 40] in the following words: (WLR p. 1889, para 45) "45. ... the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties."
21. Similarly, Cour de Cassation, France, in a judgment delivered in 1972 in Consorts Ury [Fouchard, Gaillard, Goldman on International Commercial Arbitration 562 (Emmanuel Gaillard & John Savage eds., 1999) {quoting Cour de cassation [Cass.] [Supreme Court for judicial matters] Consorts Ury v. S.A. des Galeries Lafayette, Cass. 2e civ., 13-4-1972, JCP, Pt. II, No. 17189 (1972) (France)}.] , underlined that:
"an independent mind is indispensable in the exercise of judicial power, whatever the source of that power may be, and it is one of the essential qualities of an arbitrator."
22. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration proceedings."
15. The Court further finds that the aforenoted decision had also entered the following noteworthy observations on the issue OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 26 of 43 of a panel of arbitrators that may be offered to a party for the purposes of nomination:-
"28. Before we part with, we deem it necessary to make certain comments on the procedure contained in the arbitration agreement for constituting the Arbitral Tribunal. Even when there are a number of persons empanelled, discretion is with DMRC to pick five persons therefrom and forward their names to the other side which is to select one of these five persons as its nominee (though in this case, it is now done away with). Not only this, DMRC is also to nominate its arbitrator from the said list. Above all, the two arbitrators have also limited choice of picking upon the third arbitrator from the very same list i.e. from remaining three persons. This procedure has two adverse consequences. In the first place, the choice given to the opposite party is limited as it has to choose one out of the five names that are forwarded by the other side. There is no free choice to nominate a person out of the entire panel prepared by DMRC. Secondly, with the discretion given to DMRC to choose five persons, a room for suspicion is created in the mind of the other side that DMRC may have picked up its own favourites. Such a situation has to be countenanced. We are, therefore, of the opinion that sub-clauses (b) & (c) of Clause 9.2 of SCC need to be deleted and instead choice should be given to the parties to nominate any person from the entire panel of arbitrators. Likewise, the two arbitrators nominated by the parties should be given full freedom to choose the third arbitrator from the whole panel."
16. The Court notes that clause 25 not only fails to enable the petitioner to choose from out of a panel of seven names, the composition of that panel itself is left to the sole discretion of the Chief Project Manager. Thus, the Court comes to conclude that the constitution of a Tribunal in accordance with the procedure prescribed in clause 25 would clearly be tainted by fundamental illegality. It neither permits a party to independently choose or nominate an arbitrator, it also vests OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 27 of 43 the power of constitution exclusively in the hands of the Chief Project Manager. Since the Chief Project Manager would itself be disqualified in law to arbitrate upon the dispute, the said authority cannot possibly be countenanced in law to have the power to constitute the Tribunal..."
14. Hon'ble Delhi High Court in case title 'Mohd Tariq Usmani Vs. Jeetender Pal & Anr., OMP (T) (COMM) 113/2023, dt. 11.03.2022' held as under :
"....20.The question, whether this Court can interfere when a challenge is raised on the ground of ineligibility of an arbitrator under Section 12(5) of the A&C Act, is no longer res integra. In HRD Corporation (Marcus Oil & Chemical Division) v. GAIL (India)Limited:2017 SCC OnLine Del 8034, this Court held that in respect of a challenge to the appointment of an arbitrator under Section 12(1)of the A&C Act, the party so challenging the arbitrator has to follow the discipline of Section 13 of the A&C Act. However, in respect of a challenge on the ground of ineligibility of an arbitrator under Section 12(5) of the A&C Act, a petition under Section 14 of the A&C Act is maintainable. This view was upheld by the Supreme Court in HRD Corporation (Marcus Oil & Chemical Division) v. GAIL (India Ltd.):(2018) 12 SCC 471, wherein the Supreme Court observed as under:-
"12. After the 2016 Amendment Act, a dichotomy is made by the Act between persons who become "ineligible" to be appointed as arbitrators, and persons about whom justifiable doubts exist as to their independence or impartiality. Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as "ineligible". In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 28 of 43 a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground. As opposed to this, in a challenge where grounds stated in the Fifth Schedule are disclosed, which give rise to justifiable doubts as to the arbitrator's independence or impartiality, such doubts as to independence or impartiality have to be determined as a matter of fact in the facts of the particular challenge by the Arbitral Tribunal under Section 13. If a challenge is not successful, and the Arbitral Tribunal decides that there are no justifiable doubts as to the independence or impartiality of the arbitrator/arbitrators, the Tribunal must then continue the arbitral proceedings under Section 13(4) and make an award. It is only after such award is made, that the party challenging the arbitrator's appointment on grounds contained in the Fifth Schedule may make an application for setting aside the arbitral in accordance with Section 34 on the aforesaid grounds. It is clear, therefore, that any challenge contained in the Fifth Schedule against the appointment of Justice Doabia and Justice Lahoti cannot be gone into at this stage, but will be gone into only after the Arbitral Tribunal has given an award. Therefore, we express no opinion on items contained in the Fifth Schedule under which the appellant may challenge the appointment of either arbitrator. They will be free to do so only after an award is rendered by the Tribunal."
15. Ld. Counsel for the respondent/claimant also raised the contention that any plea regarding the jurisdiction of the Arbitrator is to be raised during arbitration proceedings and not under section 34 of Arbitration and Conciliation Act. Hon'ble Delhi High Court in case title 'West Haryana Highways Projects Pvt. Ltd. vs. National Highways Authority of India OMP T (COMM) NO.28/2017 dated 15.05.2017' held as under:-
OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 29 of 43 " if an arbitrator is appointed contrary to Section 12(5) read with the Seventh Schedule, he is dejure ineligible to perform his functions and the mandate of such an arbitration can be terminated by the court under section 14 (2) of the Act, section 13(3) and 13(5) would have no application in such circumstances.
25. Reliance of the learned counsel for the respondent on the judgment of the division bench of this court in the case of progressive career Academy Pvt. Ltd. vs. FIIT JEE Ltd.
(Supra) is misplaced. That was a decision made prior to coming into force of the arbitrator and conciliation (Amendment), Act 2015.
16. The Hon'ble Madras High Court in case title 'Hina Suneet Sharma Vs. M/s Nissan Renault Finance, Arb. O.P (Com. Div.) No.159 of 2022 dated 15.02.2023' held that even if the party has failed to challenge the unilateral appointment of the Arbitrator under section 13 of Arbitration and Conciliation Act before the Arbitrator, it would not take away the right to challenge the award under section 34 of the Arbitration and Conciliation Act. The relevant para is reproduced as under:
"....15. Now the question that arise for consideration is if the petitioners are participated in the arbitral proceedings or after having the knowledge of the appointment of the sole Arbitrator failed to challenge the said appointment in terms of Section 13 of the Act, would the same deprive the rights of the petitioners to challenge the said appointment of the Arbitrator in terms of the provisions of Section 34 of the Act for the violations of provisions of Section 12(5) of the Act?
16. In my considered view, the answer is no. The petitioners can certainly entitled to challenge under Section 34 of the Act, if there is any violation of the provisions of the Act. Even though, the petitioners have not challenged the unilateral appointment of the sole Arbitrator under Section 13 of the Act, OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 30 of 43 it would not take away the rights of the petitioners to challenge under Section 34 of the Act. Even if there is any participation by the petitioners in the arbitral proceedings, the petitioners still have the right to challenge about the violations of the provisions of Section 12(5) of the Act under Section 34 of the Act. Any violation of provisions of the Act, is amount to against the public policy of India. The Hon'ble Supreme Court has also held at paragraph No.27 in the case of "Associate Builders vs. Delhi Development Authorities" reported in 2015 3 SCC 49, which reads as follows:
"Fundamental Policy of Indian Law
27. Coming to each of the heads contained in the Saw Pipes judgement, we will first deal with the head "fundamental policy of Indian Law". It has already been seen from the Renusagar judgement that violation of the Foreign Exchange Act and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. To this it could be added that the binding effect of the judgement of a superior court being disregarded would be equally violative of the fundamental policy of Indian law." A perusal of the above judgment makes it clear that if any award passed in violation of the provisions of the Act, the same would be against the public policy of India..."
17. Hon'ble High Court of Calcutta in case titled 'Cholamandalam Investment and Finance Company Ltd. Vs. Amrapali Enterprises and Anr., EC 122 of 2022, dt. 14.03.2023', reinforced the said proposition and held as under :
"....5. The position of law on unilateral appointment of an arbitrator is no more res integra and has been settled by the Supreme Court through various judicial pronouncements.
6. Firstly, in the case of HRD Corporation -vs- GAIL reported in (2018) 12 SCC 471 [Coram: R.F.Nariman and S.K. Kaul, JJ.], the Apex Court ruled that when a person directly falls under Schedule VII, ineligibility goes to the root of the appointment as per prohibition under Section 12(5) read OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 31 of 43 with Schedule VII. Such person lacks inherent jurisdiction. Thereafter, in TRF Limited -vs- Energo Engineering Projects Limited reported in [2017] 7 S.C.R. 409 [Coram: Dipak Misra and A.M. Khanwilkar, JJ.], the Apex Court expanded the approach in HRD Corporation (supra) and held that an individual who himself is ineligible under the provisions of the Act to be appointed as an arbitrator, cannot nominate a sole arbitrator. The ineligibility goes to the root of the matter and arises out of lack of inherent jurisdiction. The relevant paragraph penned down by J. Nariman in HRD Corporation (supra) is enumerated below for reference :-
"57. 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."
7. Subsequently, in Perkins Eastman Architects DPC & Anr. - vs- HSCC (India) Ltd. reported in [2019] 17 S.C.R. 275 [U.U. Lalit and Indu Malhotra, JJ.] the Supreme Court extended the approach taken in TRF Limited (supra) and held that a party who has an interest in the outcome of a dispute also cannot OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 32 of 43 nominate a sole arbitrator. The relevant portion of eloquent exposition penned by U.U. Lalit, J. is extracted below :-
"15. ....... We thus have two categories of cases. The first, similar to the one dealt with in TRF Ltd. 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 Ltd., 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."
16. But, in our view that has to be the logical deduction from TRF Limited. Paragraph 50 of the decision shows that this Court was concerned with the issue, "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator" The ineligibility referred to therein, was as a result of OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 33 of 43 operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. But, 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. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited."
Emphasis Added Therefore, the proscription under Section 12(5) read with Schedule VII of the Act was extended to persons unilaterally appointed to act as an arbitrator. Such persons who are unilaterally appointed lack inherent jurisdiction unless an express written approval is given by the parties subsequent to disputes having arisen.
8. Finally, the Supreme Court in Bharat Broadband Network Limited -vs- United Telecoms Limited reported in [2019] 6 S.C.R. 97 [Coram: R. F. Nariman and Vineet Saran, JJ.] held that a unilaterally appointed arbitrator is de jure ineligible to perform his functions and that his mandate is automatically terminated under Section 14(1)(a) of the Act.
OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 34 of 43 Further, any prior agreement to do away with this ineligibility would be wiped out by the non-obstante clause contained in Section 12(5), and the same can be cured only through an express waiver. I have delineated the relevant paragraphs herein below :-
"15. 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 nonobstante 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 Seventh Schedule. The sub- section then declares that such person shall be "ineligible" to be appointed as arbitrator. The only way in which this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the Seventh 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 have arisen between them, waive the applicability of this sub-section by an "express agreement in writing". Obviously, the "express agreement in writing" has reference to a person who is interdicted by the Seventh 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 Seventh Schedule."
* * *
17. The scheme of Sections 12, 13 and 14, therefore, is that where an arbitrator makes a OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 35 of 43 disclosure in writing which is likely to give justifiable doubts as to his independence or impartiality, the appointment of such arbitrator may be challenged under Sections 12(1) to 12(4) read with Section 13. However, where such person becomes "ineligible" to be appointed as an arbitrator, there is no question of challenge to such arbitrator, before such arbitrator. In such a case i.e., a case which falls under Section 12(5), Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator. This being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator under Section 14(1) itself. It is only if a controversy occurs concerning whether he has become de jure unable to perform his functions as such, that a party has to apply to the Court to decide on the termination of the mandate, unless otherwise agreed by the parties. Thus, in all Section 12(5) cases, there is no challenge procedure to be availed of. If an arbitrator continues as such, being de jure unable to perform his functions, as he falls within any of the categories mentioned in Section 12(5), read with the Seventh Schedule, a party may apply to the Court, which will then decide on whether his mandate has terminated......."
9. In Yashovardhan Sinha and Ors. -vs- Satyatej Vyapaar Pvt. Ltd. reported in 2022(3) CHN (CAL) 305, while analyzing the judicial pronouncements in TRF Limited (supra) and Perkins (supra), I had outlined the following ratio -
"8.......Therefore, the dicta laid down in these judgments makes it crystal clear that there cannot be unilateral appointment of a sole arbitrator by the respondent as per Clause 19 of the loan agreement as the same is illegal and defeats the very purpose of unbiased and impartial OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 36 of 43 adjudication of the dispute between the parties. The guiding principle is transparency, fairness, neutrality and independence in the selection process and hence, appointment of a sole arbitrator can either be with mutual consent of parties or by an order of the competent court. There can be no third way."
10. Similarly in B.K. Consortium Engineers Private Limited - vs- Indian Institute of Management, Calcutta reported in (2023 SCC OnLine Cal 124), I had the occasion to examine the importance of independence and neutrality of the arbitral tribunal wherein I had expressed the following observations -
"8. In the light of the apex court's pronouncements in Perkins Eastman Architects DPC & Another v. HSCC (India) Ltd. reported in [2019] 17 S.C.R. 275 and TRF Ltd. v. Energo Engineering Projects Ltd. reported in [2017] 7 S.C.R. 409, it is crystal clear that unilateral appointment of an arbitrator by a party who has some sort of interest in the final outcome or decision is not permissible. The cardinal importance of the independence and neutrality of the arbitral tribunal has been reiterated by the Supreme Court on multiple occasions. For arbitration to be seen as a viable dispute resolution mechanism and as an alternate recourse to litigation, the independence of arbitration process outside the purview of undue influence and favor needs to be ensured in both letter and spirit. and in case of non-adherence to such principles, the courts must step in. If one takes a careful look, the very basic essence of the principle laid down in the above-mentioned case laws is the natural justice principle of nemo judex in causa sua that is 'no one should be made a judge in his own case'. For arbitration decisions to be respected and accepted as decrees of the court, a similar level of integrity in the appointment of arbitrators must be ensured."
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11. In light of the aforementioned judicial precedents, it can be said with unambiguous certainty that the unilateral appointment of Mr. Soma Kar Ghosh by the award holder is illegal and void. However, what still remains to be determined is the impact of the aforesaid illegality on the arbitral award and the present execution petition.
12. In Ram Kumar and Ors. -vs- Shriram Transport Finance Co. Limited reported in MANU/DE/4941/2022 [Coram: Vibhu Bakhruand Amit Mahajan, JJ.] a division bench of the Delhi High Court, while adjudicating a Section 34 challenge to an arbitral award passed by a unilaterally appointed arbitrator, held that an arbitral award passed by a person ineligible to act as an arbitrator cannot be considered as an arbitral award under the provisions of the Act. The relevant portion has been reproduced below -
"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. In a similar fashion, in JV Engineering Associate, Civil Engineering Contractors -vs- General Manager, CORE reported in 2020 SCC OnLine Mad 4829, the Madras High Court dealt with the validity of an arbitral award passed by an ineligible arbitrator. P.T. Asha, J., concluded as follows :-
"31. In the above circumstances the Award in question having been passed by an Arbitrator who is ineligible to be an Arbitrator deserves to be set aside more particularly since there is no express OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 38 of 43 waiver in writing as contemplated under the proviso to Section 12(5)."
14. Likewise, the Bombay High Court in Naresh Kanyalal Rajwani - vs- Kotak Mahindra Bank reported in 2022 SCC OnLine Bom 6204, was dealing with effect of unilateral appointments on an arbitral award. Manish Pitale, J., remarked the following :-
"23. Therefore, it becomes evident that in the present case, from the very inception, i.e. from the stage of appointment of the Arbitrator, the proceedings were vitiated and the arbitral award was therefore, rendered unsustainable. This Court is inclined to allow the petition only on the aforesaid ground."
15. I find myself in complete concurrence with the aforesaid judgments, and in my view, the impugned award is unsustainable and non-est in the eyes of law. 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. In the present facts in hand, an arbitral reference which itself began with an illegal act has vitiated 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 the aforesaid arbitral proceedings as void ab initio.
16. In my view, the impugned award, which was passed by a dejure ineligible arbitrator, suffers from a permanent and indelible mark of bias and prejudice which cannot be washed away at any stage including the execution proceedings. Infact, as the arbitrator was dejure ineligible to perform his functions and therefore lacked inherent jurisdiction or competence to adjudicate the disputes in hand, the impugned award cannot be accorded the privileged status of an award.
17. In light of the above findings, it is palpably clear that an arbitral award passed by a unilaterally appointed arbitrator will not survive the Section 34 challenge. However, the arbitration application before me is not under Section 34 but rather an execution petition under Section 36. There is no denying the fact that the Act is a complete code in itself and at the same time, it is equally true that Section 36 provides no OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 39 of 43 scope of adverse interference with an arbitral award except executing it as a decree of the court. While Section 47 of the Code of Civil Procedure, 1908 (hereinafter referred to as the 'CPC') governs the challenge to a court decree at the execution stage, there is no such similar provision provided in the Act. However, at this juncture it would be relevant to examine the jurisprudence with respect to decrees passed by bodies lacking inherent jurisdiction.
18. The Apex Court in Sunder Dass -vs- Ram Prakash reported in 1977 AIR 1201 had stated that decrees passed by bodies lacking inherent jurisdiction are unenforceable and it would be as if no decree existed at all. P.N. Bhagwati, J., in his inimitable style had examined and penned down the following:
"3. Now, the law is well settled that an executing court cannot go behind the decree nor can it question its legality or correctness. But there is one exception to this general rule and that is that where the decree sought to be executed is a nullity for lack of inherent jurisdiction in the court passing it, its invalidity can be set up in an execution proceeding. Where there is lack of inherent jurisdiction, it goes to the root of the competence of the court to try the case and a decree which is a nullity is void and can be declared to be void by any court in which it is presented. Its nullity can be set up whenever and wherever it is sought to be enforced or relied upon and even at the stage of execution or even in collateral proceedings. The executing court can, therefore, entertain an objection that the decree is a nullity and can refuse to execute the decree. By doing so, the executing court would not incur the reproach that it is going behind the decree, because the decree being null and void, there would really be no decree at all. Vide Kiran Singh v. Chaman Paswan [AIR 1954 SC 340 : (1955) 1 SCR 117] and Seth Hiralal Patni v. Sri Kali Nath [AIR 1962 SC 199 : (1962) 2 SCR 747]. It is, therefore, obvious that in the present case, it was OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 40 of 43 competent to the executing court to examine whether the decree for eviction was a nullity on the ground that the civil court had no inherent jurisdiction to entertain the suit in which the decree for eviction was passed. If the decree for eviction was a nullity, the executing court could declare it to be such and decline to execute it against the respondent."
Similar pronouncements were made in Hiralal Moolchand Doshi -vs- Barot Raman Lal Ranchhoddas reported in (1993) 2 SCC 458 [Coram: Yogeshwar Dayal, J.] and Sushil Kumar Mehta -vs- Gobind Ram Bohra, reported in (1990) 1 SCC 193 [Coram: K Ramaswamy, J].
19. While Section 47 of the CPC is not directly applicable, the jurisprudence referred to above cannot be ignored. Similar principles have to be applied in cases of awards passed by arbitral tribunals lacking inherent jurisdiction. This court cannot shut its eyes to the grave irregularity that will occur if it does not interfere. As outlined in various afore-stated judicial pronouncements, an arbitral award passed by a unilaterally appointed arbitrator cannot be considered as an award under the provisions of the Act and consequently, they have to be regarded as non est in the eyes of law. We have a peculiar situation. The jurisprudence and statute (Section 12[5] read with Schedule VII) ascertains selected arbitrators to inherently lack jurisdiction. But, such jurisdiction can be sanctified/legalised, if express waiver is made by a written agreement, as statutorily carved out owing to considerations of party autonomy. Possibility of waiver was granted as a concession to party autonomy in arbitration law. But that does not mean that the jurisdiction is not inherently lacking before such express waiver is made. As a flip side to this, such waivers should be very strictly construed in terms of its explicitness.
20. In view of the above, the present execution petition has no legs to stand on for the reasons that the award sought to be enforced is not a legal decree. The decree does not exist. Therefore, not merely is it non-executable, the parties would be free to re-agitate the matter before a new arbitral OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 41 of 43 tribunal. However, the parties have given consent in the present matter..."
18. In TRF v. Energo, the Supreme Court expounded on the scope of the amendment and held that if an arbitrator is de jure ineligible, they are also 'statutorily ineligible' to nominate an arbitrator in their place. Thereafter, in Perkins Eastman v. HSCC, the Court developed on TRF and identified that the ineligibility to appoint an arbitrator is separate from the ineligibility to act as one. This was so because the clause before it provided that the arbitration would be conducted by 'a sole arbitrator appointed by the CMD' of the respondent. The Court opined that "a party...would be disentitled to make any appointment...on its own," due to their interest in the outcome of the arbitration. In doing so, Perkins lays down that notwithstanding who is appointed, there is a blanket ban on all unilateral appointments to ensure neutrality and independence. Perkins has been followed by several High Courts to invalidate unilateral appointments. In fact, the Bombay High Court in 'Lite Bite v. AAI, 2019 SCC OnLine Bom 5163' went so far as to say that appointment of an arbitrator can only be made with mutual consent, and the only other way is by approaching the court under Section 11. However, Perkins does leave room for alternative interpretation. Admittedly, in the present case, no consent in writing was given by the petitioners post the dispute.
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19. Ld. Counsel for the claimant/respondent submitted that the petitioners have not challenged the unilateral appointment of the Arbitrator, therefore, this plea cannot be taken in present proceedings, however, as discussed the appointment of arbitrator by the respondent is void ab nito. Therefore, he is de jure ineligible to conduct the arbitration proceedings, hence, the impugned award passed by the Ld. Arbitrator is non-est in law.
20. Ld. counsel for the respondent also submitted that the petitioners participated in the arbitration proceedings and there is no possibility of his giving his consent in writing post dispute. In Bharat Broadband and Ellora paper mills (Supra) as discussed above, have strictly interpreted in section 12 (5) that an express agreement in writing post the dispute is mandatory requirement which is conspicuously missing in this case. Even otherwise, these contentions cannot be appreciated as award is void ab nitio, not a legal decree and deadwood.
21. In view of the above discussions, the impugned award dated 20.10.2018 passed in favour of the claimant/respondent is hereby set- aside. The present petition allowed and disposed of accordingly.
22. File be consigned to Record Room after due compliance. Announce in the open court on 08th June, 2023 (Ajay Kumar Jain) District Judge(Commercial Courts- 03), SE/Saket Courts/Delhi OMP (COMM) 13/19 M/s Kakda Rolling Mills Vs. M/s Paisalo Digital Limited dt 08.06.2023 Page 43 of 43