In a recent judgment delivered on November 8, 2023, the Delhi High Court, in the case of Babu Lal and Anr. vs. Cholamandalam Investment and Finance Company Ltd. and Anr. reiterated that a party involved in a dispute cannot unilaterally appoint an arbitrator. The Division Bench, comprising Justices Sanjeev Sachdeva and Manoj Jain, emphasized that an award resulting from such a unilateral appointment would be considered a nullity.
Brief Facts of the Case:
The dispute before the Delhi High Court stemmed from a loan transaction between the appellants, Babu Lal and another, and the respondent company, Cholamandalam Investment and Finance Company Ltd. The appellants had obtained a loan from the respondent for the purchase of a Celerio Car. Initially, the appellants maintained regular payments of EMIs. However, disruptions arose during the Covid-19 pandemic, leading to certain defaults. In response, the appellants sought the deferment of EMI payments in accordance with a Reserve Bank of India circular. Despite their request, the respondents did not accede to the deferral.
The crux of the legal dispute revolved around the appointment of an arbitrator. The relevant arbitral clause in the agreement stipulated that all disputes would be settled through arbitration, with the sole arbitrator nominated by the company. The respondents, without seeking concurrence from the appellants or involving the court, unilaterally appointed the arbitrator. This unilateral appointment became a focal point of contention between the parties.
Contentions of the Parties:
The appellants, dissatisfied with the arbitration proceedings, challenged the ensuing award by filing objections under Section 34 of the Arbitration & Conciliation Act. Their primary contention rested on the argument that the unilateral appointment of the arbitrator by the respondents was in direct contravention of the Supreme Court's ruling in Perkins Eastman Architect DPC and Anr. vs. HSCC (India) Ltd.: (2020) 20 SCC 760. According to the appellants, such a unilateral appointment rendered the entire arbitral process null and void.
In response, the respondents contended that a notice of the arbitrator's appointment had been sent to the appellants prior to the formal nomination. They argued that this notice fulfilled the requirement of informing the appellants about the appointment, even though the appointment itself was unilateral. The respondents maintained that the arbitration proceedings and subsequent award were valid.
The decision of the Court:
The court noted that the nomination was done without reference to the court, as required by Section 11 of the Arbitration & Conciliation Act, 1996. The appellants were merely intimated about the appointment without their agreement.
Referring to the precedent set in Perkins Eastman Architects DPC and Anr. v. HSCC (India) Ltd., the Bench emphasized the importance of referring an arbitral dispute to an independent person, stating that an award by an ineligible arbitrator is a nullity, as previously held in Kotak Mahindra Bank Ltd. vs. Narendra Kumar Prajapat: 2023 SCC Online Del 3148.
In light of these considerations, the court set aside the impugned judgment and the award dated February 18, 2022, highlighting that the trial court erred in not recognizing the unilateral nature of the arbitrator's appointment.
The decision of the Court:
The appellants' objections were upheld, and the award was declared void.
Case Name: Babu Lal and Anr. v. Cholamandalam Investment and Finance Company Ltd. and Anr.
Coram: Justices Sanjeev Sachdeva and Manoj Jain
Case No.: FAO (COMM) 135/2023 & CM APPL. 33871/2023 & CM APPL. 33873/2023
Advocates of the Appellant: Neha Rai
Advocates of the Respondent: Puneet Raj
Read Judgment @LatestLaws.com
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