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Delhi District Court

Execution (Comm) No. 220/22 vs Sunil Kumar & Anr on 8 May, 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:
EXECUTION (COMM) NO. 220/22
INDUSIND BANK LTD
Branch Office at :
43, Community Center,
Bagheria House, New Friends Colony,
New Delhi- 110043                                              ..Decree Holder/Claimant


                                             Versus
1. SUNIL KUMAR & ANR
R/o. H. No. A-32, Block-A,
Hari Nagar, Part-2,
Jaitpur Extn, Delhi- 110044

2. MEHFOOJ ALAM
R/o. H.No. B-56, Block -B
Hari Nagar, Part-2, Jaitpur Extn,
Delhi- 110044                                            ...Judgment Debtors/Respondents

                             Date of Institution              : 13.10.2022
                             Date of Arguments                : 08.05.2023
                             Date of Judgment/Order           : 08.05.2023


                                            ORDER

1. This execution petition is filed by the Decree Holder/Petitioner for execution of award dated 20.12.2017 passed by the sole arbitrator.

Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

During the pendency, this court has raised the query over the enforceability of this award.

2. The brief facts of the case are that the judgment debtors/respondents availed a loan a sum of Rs. 8,50,000/- under the loan agreement No. DDZ00997L dated 08.10.2016 to the purchase of vehicle Swaraj Mazda Sartaj HG72, bearing no. DL1LX5179. JD no. 1 is the borrower and JD no. 2 as a co-borrower/guarantor. Therefore, JDs/respondents executed the said loan agreement and the entire loan amount along with additional finance charges and insurance deposit was to be repaid today sum Rs. 11,79,840/- in 48 monthly installments. Thereafter defaulted in repayment of the loan, claimant sent notices to the JD/respondent for payment of entire outstanding amount towards the loan account no. DDZ00997L with interest and other charges, but the JD/respondent not made outstanding payment, therefore, the arbitration proceedings were initiated. The Ld. Sole Arbitrator issued notice of the proceedings to the JD/respondent, however, none appeared on behalf of the respondent/JD, hence JD/respondent proceeded ex-parte on 27.11.2017. Pursuant to which, the claimant lead the evidence and consequently, on conclusion of the proceedings, the present award dated 20.12.2017 was passed.

3. The basis of the arbitration proceedings, there is the unilateral appointment of the arbitrator by the claimant bank, however, Ld. Counsel for the claimant/DH submitted that the DH could not produce the arbitral agreement as not available but stated that as per the EX (COMM) 220/22 dt. 08.05.2023 Page 2 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

arbitration clause the arbitrator is appointed unilaterally by the claimant bank and this is also clear from the language of the impugned award under execution.

4. The unilateral appointment of the Arbitrator by the claimant/DH without waiver in writing post the dispute is ex-facie bad and is in contravention of the provisions of the Arbitration and Conciliation Act post 2015 amendment and goes to the root of the matter, and arbitrator become de jure ineligible to act as an arbitrator by operation of law.

5. This court therefore raise the question of the maintainability of the present petition as the award is void ab nitio as the arbitration proceedings are conducted by the arbitrator, however, who is ineligible to conduct the arbitration proceedings. Ld. Counsel for the DH submits that this court in execution petition cannot set-aside the award as no petition U/s 34 of Arbitration and Conciliation Act was filed by the JD/respondent.

6. This issue non enforceability is squarely dealt by Hon'ble Kerala High Court in case title 'Hedge Finance Private Limited Vs. Bijish Joseph, OP (C) No. 1263 of 2022 dated 02.08.2022' and observed that award on such clause is non est. The Kerala High court had categorically observed that when the award is passed without jurisdiction then it goes to the roots of the matter and is nullity, hence, not enforceable. The relevant paras are reproduced as under :

Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

"....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 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 EX (COMM) 220/22 dt. 08.05.2023 Page 4 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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

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 EX (COMM) 220/22 dt. 08.05.2023 Page 5 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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 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 EX (COMM) 220/22 dt. 08.05.2023 Page 6 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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 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 EX (COMM) 220/22 dt. 08.05.2023 Page 7 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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 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 EX (COMM) 220/22 dt. 08.05.2023 Page 8 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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 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 EX (COMM) 220/22 dt. 08.05.2023 Page 9 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

"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 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 EX (COMM) 220/22 dt. 08.05.2023 Page 10 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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]".

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 EX (COMM) 220/22 dt. 08.05.2023 Page 11 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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......"

7. As per mandate of the this judgment, based upon various judgments of the Hon'ble Supreme Court, there should be neutrality not 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 EX (COMM) 220/22 dt. 08.05.2023 Page 12 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

operation of law. In present case, the arbitration clause clearly gives mandate to the bank to unilaterally appoint the arbitrator which is bad in law after 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 22 (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......."

Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

8. 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 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. The elementary principle that a decree passed by the court without jurisdiction goes to the very roots of the matter and the decrees are nullity. Therefore, the award passed by the arbitrator who was appointed in contravention of the provisions of the Act and the law laid by the Hon'ble Supreme Court as discussed above is bad in law and as a corollary, the same is unenforceable.

9. Hon'ble High Court of Calcutta in recent case title '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 with Schedule VII. Such person lacks inherent jurisdiction. Thereafter, in TRF Limited -vs- Energo Engineering Projects EX (COMM) 220/22 dt. 08.05.2023 Page 14 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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 nominate a sole arbitrator. The relevant portion of eloquent exposition penned by U.U. Lalit, J. is extracted below :-

Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

"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 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 EX (COMM) 220/22 dt. 08.05.2023 Page 16 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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. 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 EX (COMM) 220/22 dt. 08.05.2023 Page 17 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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 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) EX (COMM) 220/22 dt. 08.05.2023 Page 18 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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 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 EX (COMM) 220/22 dt. 08.05.2023 Page 19 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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."

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.

Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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 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 :-

Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

"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 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.

Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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 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."

Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

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 tribunal. However, the parties have given consent in the present matter..."

10. In view of the above discussions, the award dated 20.12.2017 passed by the Ld. Arbitrator found unenforceable as the award passed by the ineligible arbitrator which is void ab initio and not non-est in the eye of law as mandated in the above judgments. The award cannot be EX (COMM) 220/22 dt. 08.05.2023 Page 24 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.

enforced as not a legal decree, thus non executable. Hence, the present execution petition stands dismissed and disposed of accordingly.

11. Copy of this order be also sent through digital mode to JD.

File be consigned to Record Room after due compliance.

(Ajay Kumar Jain) District Judge, Comm-03 South-East, Saket Courts, Delhi EX (COMM) 220/22 dt. 08.05.2023 Page 25 of 25 Indusind Bank Ltd. Vs. Sunil Kumar & Anr.