The author, Ms. Surbhi Gupta, is an Associate Professor at a Private University.
In M/s Hedge Finance Pvt. Ltd. v. Bijish Joseph, the Hon’ble High Court of Kerala held that a sole arbitrator can only be appointed either by a High Court or by an express agreement in writing between the parties to a dispute renouncing the applicability of Section 12 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the “A & C Act”) .
Facts
The Petitioner is a public limited non-banking finance company engaged in providing loans on hypothecation (when you agree to give a certain asset in exchange for a loan) and guarantee basis. The Respondent entered into a hypothecation agreement with the Petitioner to purchase a motor car. It was agreed by the parties that in case of any dispute between them, the same would be settled through Arbitration.
Subsequently, the Respondent committed a breach of the agreement. The Petitioner invoked Arbitration proceedings by singularly appointing a sole arbitrator. The Arbitrator passed an interim award permitting the Petitioner to repossess the vehicle.
Petitioner's Contentions
The Petitioner submitted that the Respondent had committed a breach of the agreement by not repaying the loan amount within the agreed time, compelling the Petitioner to invoke Arbitration proceedings by issuing a notice under Section 21 of the A&C Act and suggesting the name of an Arbitrator. Since the Respondent did not reply to the notice, the Petitioner had assumed that the Respondent has accepted the authority of the person suggested by the Petitioner to act as the Arbitrator. Accordingly, the Petitioner had appointed the Arbitrator and filed the claim petition and an application for interim relief before him, which was sought to be enforced by the Petitioner.
Respondent's Contentions:
Respondent disputed the appointment, competence, or eligibility of the Arbitrator citing several precedents, that singularly appointing an Arbitrator by an Authority which is interested in the outcome of the decision of the dispute is not permissible by law.
Observations of the Court:
The Kerala High Court stated that the Arbitration and Conciliation Act is a self-contained enactment emphasizing party autonomy, post the 2015 amendment to the Act, a unilateral appointment of an Arbitrator by an Authority which is interested in the outcome of the decision of the dispute is not permissible in law. Such an Arbitrator becomes de jure incapacitated to perform his functions as it is profusely comprehensible that the law mandates neutrality not only of arbitrators but also in their appointment process.
The High Court on the issue of appointment of an Arbitrator ruled that a sole arbitrator can only be appointed either by:
- A High Court under Section 11 of the Act, or
- An express agreement in writing between the parties in dispute renouncing the applicability of section 12 of the Act.
In addition, the High Court also observed that any other mode of appointment of a sole arbitrator will be in contravention of the A&C Act. The reason is 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.
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 A&C Act?
The Court held 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 the law.
Justice C. S. Dias ruled that an interim award passed by an arbitrator who was appointed in contravention of the provisions of the A& C Act, is bad in law, and as a corollary to the same, the award is unenforceable.
Case Title: M/s Hedge Finance Pvt. Ltd. v. Bijish Joseph
Bench: Justice C. S. Dias
Date: 2nd August 2022
Read the Judgement:
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