The Calcutta High Court opined that the arbitral award would be rendered unsustainable and non-est in the eyes of law if the arbitrator was appointed unilaterally.
The compliance with Section 12(5) read with Schedule VII of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “A&C Act”) is a sine qua non for any arbitral reference to be recognized and valid.
It was noted that the unilateral appointment of the Arbitrator would not survive a challenge under Section 34, however, the present petition was filed for execution under Section 36. But the Bench noted that Impartiality as a principle cannot be railroaded. If a unilateral appointment has been done by one party, it cannot hide behind procedural limitations and technicalities to protect their unlawful act.
It was unequivocally stated that even at the execution stage the Court can step in and declare such an award null and void.
Brief Facts:
The present application has been preferred for the execution of the arbitral award against the Award Debtors (Amrapali Enterprises).
Brief Background:
The parties entered into a loan cum hypothecation Agreement based on which financial assistance was given to the borrower. The said hypothecated vehicle is now in possession of the award holder as it was surrendered by the borrower.
Observations of the Court:
It was noted that the award holder had unilaterally appointed the arbitrator in the present case. Further, the award was passed ex-parte. Further, the award was challenged but it was time-barred.
Concerning the unilateral appointment of arbitrators, the Court analyzed judicial precedents and expounded that the ban under Section 12(5) read with Schedule VII of the A&C Act extends to the unilateral appointment of arbitrators as well. Such arbitrators lack inherent jurisdiction unless written approval is given by the parties after the disputes have arisen.
In the present case, the High Court ruled that the unilateral appointment was illegal and void. The next issue was to see the impact of the said illegality of the award on the present execution petition.
The Bench further held that the award would be rendered unsustainable and non-est in the eyes of law as compliance with Section 12(5) read with Schedule VII is a sine qua non for any arbitral reference to be recognized and valid.
Since, the arbitral reference in the present case was vitiated from the moment it commenced, it cannot be later validated. The Court opined that the arbitrator was dejure ineligible and hence, the award passed by such an arbitrator could not be considered valid.
It was noted that the unilateral appointment of the Arbitrator would not survive a challenge under Section 34, however, the present petition was filed for execution under Section 36. Section 36 has no scope for adverse interference by the Court. Section 47 of the Code of the Civil Procedure, 1908, on the other hand, governs the challenge to the Court decree at the execution stage. The Court observed that even though Section 47 would not directly apply, but jurisprudence cannot be ignored. The principles would have to be made applicable to awards rendered by tribunals lacking inherent jurisdiction.
Further, it was held that one way to legalise the jurisdiction is an express waiver by a written agreement. However, it does not mean that the jurisdiction is not inherently lacking before the express waiver. The interpretation of the waivers must be stringent in terms of explicitness.
In the present case, the decree did not exist in the eyes of law as it was passed by a tribunal which lacked inherent jurisdiction. Therefore, it could not be enforced. The High Court clarified that this judgement would only be relevant for arbitrations commencing post-2015 amendments.
The Calcutta High Court in addition to the above-mentioned findings observed that even at the execution stage, the Lady of Justice cannot turn a blind eye. Impartiality as a principle cannot be railroaded. If a unilateral appointment has been done by one party, it cannot hide behind procedural limitations and technicalities to protect their unlawful act.
It was unequivocally stated that even at the execution stage the Court can step in and declare such an award null and void.
The decision of the Court:
Based on the aforementioned reasons, the Calcutta High Court directed the parties to go for fresh arbitration.
Case Title: Cholamandalam Investment and Finance Company Ltd. V. Amrapali Enterprises and Anr.
Coram: Hon’ble Justice Shekhar B. Saraf
Case No.: EC 122 OF 2022
Advocates for Petitioner: Advs. Mr. Pratip Mukherjee, Mr. Ranjit Singh
Advocate for Respondents: Adv. Sk. Sariful Haque
Read Judgement @LatestLaws.com:
Picture Source :
