Sole arbitrator cannot be appointed by one party without explicit waiver from the other party

Cause Title : Cholamandalam Investment And Finance Company Ltd. Vs Amrapali Enterprises And Anr, EC 122 of 2022, Calcutta High Court

Date of Judgment/Order : 14/03/2023

Corum : Shekhar B. Saraf, J

Citied: 

1. HRD Corporation vs GAIL 12 SCC 471, 2018
2. TRF Limited vs Energo Engineering Projects Limited, 7 S.C.R. 409, 2017
3. Perkins Eastman Architects DPC vs HSCC (India) Ltd.,17 S.C.R. 275, 2019
4. Bharat Broadband Network Limited vs United Telecoms Limited reported 6 S.C.R. 97, 2019
5. Yashovardhan Sinha and Ors. vs Satyatej Vyapaar Pvt. Ltd. CHN (CAL) 305, 2022(3)
6. B.K. Consortium Engineers Private Limited vs Indian Institute of Management, Calcutta, (2023 SCC OnLine Cal 124)
7. Ram Kumar and Ors. vs Shriram Transport Finance Co. Limited, MANU/DE/4941/2022
8. JV Engineering Associate, Civil Engineering Contractors vs General Manager, CORE, 2020 SCC OnLine Mad 4829
9. Naresh Kanyalal Rajwani vs Kotak Mahindra Bank,2022 SCC OnLine Bom 6204
10. Sunder Dass vs Ram Prakash, 1977 AIR 1201
11. Hiralal Moolchand Doshi vs Barot Raman Lal Ranchhoddas,(1993) 2 SCC 458
12. Sushil Kumar Mehta vs Gobind Ram Bohra, (1990) 1 SCC 193

Background

This application was filed by the applicant/lender seeking execution of an arbitral award passed by a sole arbitrator against the respondent/borrower.

The question before the court was whether an award passed ex-parte by a sole arbitrator appointed unilaterally by the lender is legally valid or not.

Judgment

The court looking into a catena judgements concluded that the appointment of the arbitrator, the entire arbitration process and consequently the award are bad in the eye of the law. 

The court declared 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 waiver and therefore the impugned award is unsustainable and non-est in the eyes of law and 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 court further went on to highlight some basic point relating to the arbitrator’s relationship with the parties or counsel :-

• arbitrators falling under Schedule VII of the The Arbitration and Conciliation Act, 1996 are ineligible as they lack inherent jurisdiction. 
• Similarly, persons appointed by persons falling under Schedule VII of the Act are ineligible
• Finally, persons who are unilaterally appointed by one of the parties to the arbitration are also ineligible
• It is a settled principle of law that compliance with Section 12(5) read with Schedule VII is sine qua non for any arbitral reference to gain recognition and validity before the Courts. An arbitral reference which begins with an illegal act vitiates the entire arbitral proceedings from its inception and the same cannot be validated at any later stage. Thus, it would be a logical inference to consider such arbitral proceedings as void ab initio.
• Awards passed by a unilaterally appointed arbitrator are non- est in the eyes of law. While Section 47 of the CPC is not directly applicable, guidance has to be sought from the jurisprudence of the Apex Court vis-à-vis decrees passed while lacking inherent jurisdiction. Such decrees do not exist in the eyes of law and similarly awards passed while lacking inherent jurisdiction can be said to have never existed. Therefore, the parties would be free to re-agitate the matter.