Calcutta High Court
Poonawalla Fincorp Limited vs Parasnath Distributors And Ors on 25 August, 2023
ODC 2
ORDER SHEET
IA NO:GA/1/2022
In
EC/311/2021
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL DIVISION
POONAWALLA FINCORP LIMITED
VS
PARASNATH DISTRIBUTORS AND ORS.
BEFORE:
The Hon'ble JUSTICE SHEKHAR B. SARAF
Date: 25th August, 2023.
Appearance:
Mr. Paritosh Sinha, Adv.
Mr. Priyankar Saha, Adv.
Mr. K.K. Pandey, Adv.
Ms. Enakshi Saha, Adv.
...for the petitioner
Mr. Rohit Banerjee, Adv.
Mr. Altamash Alin, Adv.
Mr. Aditya Mondal, Adv.
...for the respondent
The Court: Heard counsel appearing on behalf of the parties.
Mr. Priyankar Saha, counsel appearing on behalf of the petitioner in the
execution application has conceded the fact that the award though sent to the
award-debtor, proof of actual service upon the respondent award-debtor is not
available. It appears from the records that in spite of non-service of award, the
execution application was filed and an order of attachment was also obtained by
the petitioner. Such order of attachment continues till date and the petitioner is
suffering for almost six months with such an attachment order. Mr. Priyankar
Saha has fairly submitted that the execution application was wrongly filed and
wishes to now withdraw the same.
This Court has also observed that the appointment of the Arbitrator was a
unilateral appointment and any award that may have been passed by such an
Arbitrator who is unilaterally appointed is clearly a nullity and cannot be
enforced. This issue has been dealt by me in detail in the judgment delivered in
Cholamandalam Investment and Finance Company Ltd. vs. Amrapali
Enterprises and Another reported in 2023 SCC Online Cal 605. Upon
examination of various judgments of the Supreme Court, this Court has laid
down the principles that emanated from the same. Paragraph 24 of the said
judgment is delineated below:
"24. From the analysis undertaken above, the principles that
emanated and extracted below:
a) As held in HRD Corp (supra), arbitrators falling under Schedule VII
of the Act are ineligible as they lack inherent jurisdiction. Such
ineligibility was extended to persons appointed by persons falling
under Schedule VII of the Act in TRF Limited (supra). This
ineligibility was ultimately extended to persons who are
unilaterally appointed by one of the parties to the arbitration in
Perkins (supra).
b) The Apex court has judicially expanded the Schedule VII of the Act
to include persons unilaterally appointed by one of the parties vide
its judgment in Perkins (supra) and/or persons appointed by
persons falling under Schedule VII of the Act vide its judgment in
TRF Limited (supra).
c) 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.
d) 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.
e) The judgment is applicable to awards wherein the arbitral
proceeding commenced post the 2015 amendment to the Act. It
does not deal with proceedings having been initiated pre the 2015
amendment and concluding post the 2015 amendment."
It may be further pointed out that this Court in the said judgment had
penned an epilogue that is relevant to the law of arbitration and specifically to
the reasoning behind the judgment in Perkins Eastman Architects DPC v.
HSCC (India) Ltd. reported in (2019) 17 SCR 275 passed by the said Supreme
Court. The said epilogue is delineated below:
"25. The law of arbitration is an alternative dispute resolution
mechanism that was brought into the statute books in order to
facilitate a quick and efficient method of dispute resolution. The
raison d'étre of arbitration is to provide liberty to parties wherein
they can decide upon various facets of dispute resolution. Ergo,
party autonomy is sine qua non of the law of arbitration.
However, a virus had emerged wherein finance companies and
banks were facilitating appointment of a small cable of arbitrators
in hundreds of cases for themselves. The awards passed were
soiled and tainted with bias. It was clear that the borrower was
the underdog as he had no choice in the matter of appointment of
arbitrator and the very concept of impartiality was given a go bye.
In order to overcome this issue, the legislative amendments of
2015 and the judicial pronouncements on such amendments by
the Apex Court have brought in a level playing field so that no
party could have a higher bargaining power in the decision
making process for appointment of an arbitrator. Such
interpretation, as discussed above, has ensured complete
impartiality in such appointments and served the intended
purpose of saving the 'small guy' while counter-balancing party
autonomy. In conclusion, one may say that the apparent
impartiality that existed providing power to one of the parties to
choose the arbitrator unilaterally has been taken away as the
same was fraught with inequalities at the very threshold of the
initiation of the arbitration proceedings. However, the proviso to
Section 12(5) of the Act allows for waiver but clarifies that the
same has to be explicit and in writing.
26. Impartiality as discussed is the paramount principle of arbitral
proceedings and something which the Courts have to safeguard
at every stage of such proceedings. Even at the stage of
execution, the lady of justice cannot turn a blind eye and let one
party run over the other. The people vest faith in the Court to
safeguard their rights and uphold the principles of natural justice,
irrespective of procedural hurdles. Whatever the case may be,
including an execution case where Courts are expected to simply
enforce the award without further probing, impartiality as a
principle cannot be railroaded. Shackles of procedural limitation
in such cases will not prevent parties from seeking the immunity
of the Court. Parties making such unilateral appointments couch
behind procedural technicalities to shield their unlawful act and
reap the fruit of their own mischief. Accordingly, even if an
award is not set side under the procedure established in section
34 of the Act, the court. at the stage of execution can step in and
declare a 'unilateral appointment award' as non-est in law,
declare the same as a nullity and direct parties to re-agitate their
issues before a new arbitral tribunal constituted in accordance
with law."
In any event, since the petitioner does not wish to proceed with this
execution application, the same is dismissed for non-prosecution. However,
since the petitioner has wrongfully filed the execution application prematurely
and obtained an attachment order against the respondent no.2, this Court is of
the view that cost should be imposed upon the petitioner. Accordingly, a cost of
Rs.20,000/- is imposed on the petitioner which should be paid to the respondent
no.2 within two weeks from date.
Affidavit of compliance to be filed in this Court within three weeks from
date.
In light of the above, IA No.GA/1/2022 is treated as disposed of.
(SHEKHAR B. SARAF, J.)
B.Pal
