[Cites 78, Cited by 0]
Calcutta High Court
Y D Transport Company And Another vs Srei Equipment Finance Limited on 2 December, 2025
Author: Shampa Sarkar
Bench: Shampa Sarkar
2025:CHC-OS:236
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
PRESENT : THE HON'BLE JUSTICE SHAMPA SARKAR
A.P. No. 430 of 2019
Y D TRANSPORT COMPANY AND ANOTHER ... PETITIONERS
VS.
SREI EQUIPMENT FINANCE LIMITED ... RESPONDENT
For the Petitioners : Mr. Jishnu Chowdhury, Sr. Adv
Mr. Ritoban Sarkar, Adv.
Mr. Soham Sur, Adv.
Mr. Syamantak Banerjee, Adv.
For the Respondents : Mr. Swatarup Banerjee, Adv.
Mr. Sariful Haque, Adv.
Ms. Archana Chowdhury, Adv.
Ms. Priyanka Ghosh, Adv.
Hearing reserved on : 27.11.2025
Judgment delivered on : 02.12.2025
SHAMPA SARKAR, J.
1. This is an application under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the said Act),
challenging an award dated December 28, 2017 passed by the learned
Arbitrator.
2. The dispute emanated from a loan agreement executed between
the parties. The loan was obtained for purchase of heavy vehicles for
mining related works and excavation. The petitioners contended to have
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made certain payments from time to time between2012-2014.
According to the petitioners, an amount of Rs. 7.27 crores remained
due and payable. Disputes arose over non-payments, inflated
calculations and alleged breach of the loan agreement.
3. The respondent invoked the arbitration clause contained in the
loan agreement and initiated a proceeding, by unilaterally appointing
an Arbitrator.
4. The petitioners alleged that the copy of the loan agreement was
not served upon them. The notice invoking arbitration was also not
served upon them. It was further alleged that the proceedings
continued ex parte and ultimately culminated in the passing of the
award by the learned Arbitrator who was appointed at the behest of the
respondent. The specific contentions of the petitioners were that, they
came to know about the passing of the award when they received a
copy of the execution petition filed by the respondent in the court of the
District Additional Sessions Judge 1 and Special Judge at Jamshedpur
being Execution Case No. 5 of 2022. From the execution petition, the
petitioners came to know that the ex parte award was passed. The
execution application was filed on February 05, 2019 and the matter
appeared before the learned Judge of the executing court on March 06,
2019. The respondent was directed to serve a copy of the execution
petition upon the petitioners. The petitioners obtained a copy of the
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execution petition on April 09, 2019 and filed the instant application on
July 05, 2019.
5. The impugned award has been challenged on the following
grounds;
(a) Unilateral appointment of the Arbitrator, in violation of the
provisions of Section 12(5) of the Arbitration and Conciliation
Act, 1996 and contrary to the statutory mandate of equal
treatment of the parties under Section 18 of the said Act.
(b) Legal embargo in the appointment of the Arbitrator by a party
which had a substantial finance interest in the outcome of the
arbitral proceeding and in the claim made before the learned
Arbitrator. Violation of Article 14 of the Constitution of India.
Improper constitution of the arbitral tribunal.
(c) Violation of the principle of equal treatment of the parties in
an arbitral proceeding which was applicable from the very
initial stage of appointment of an Arbitrator.
(d) Absence of an express agreement in writing by the petitioners,
thereby waving the applicability of the provisions of the
Section 12(5) of the said Act.
(e) Mere participation in the arbitral proceeding would not
amount to waiver of the applicability of the provisions of
Section 12(5) of the said Act.
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(f) The petitioners did not participate in the proceeding, but
appeared before the learned Arbitrator and expressed inability
to contest the proceeding, in view of the breach of the legal
provisions.
(g) The award was silent on the issue as to whether the notice
invoking arbitration had ever been served. Service of notice
could was not proved by the respondent.
6. Reliance has been placed on the following decisions with regard
to the issue of waiver and prohibition under the law on unilateral
appointment of a learned Arbitrator:-
(i) Perkins Eastman Architects DPC and another vs.
HSCC (India) Ltd. reported in (2019) SCC Online SC
1517.
(ii) Proddatur Cable TV Digi Services vs. SITI Cable
Network Ltd. reported in (2020) SCC Online Del 350.
(iii) Bharat Broadband Network Limited Vs. United
Telecoms Ltd. reported in (2019) 5 SCC 755.
(iv) Ellora Paper Mills Limited Vs. State of Madhya
Pradesh reported in (2022) 3 SCC 1.
(v) Central Organization for Railway Electrification vs.
ECI SPIC SMO MCML (JV) a Joint Venture Company
reported in 2024 SCC Online SC 3219.
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(vi) Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited &
Ors. Vs. Ajay Sales reported in (2021) 17 SCC 248.
(vii) Sohan Minerals and Mining Company Pvt. Limited Vs.
Steel Authority of India Limited reported in
(MANU/WB/0216/2021).
(viii) Ravi Realcons Pvt. Ltd. Vs. Chief Engineers and
Another reported in (2022) SCC Online Cal 751
(ix) A.K. Builders Vs. Delhi State Industrial Infrastructure
Development Corporation Ltd. (2022) SCC Online Del
627.
7. Mr. Jishu Choudhary, learned senior advocate for the petitioners
submitted that, even if the petitioners did not pray for termination of
the mandate of the learned Arbitrator in the course of arbitral
proceeding, challenge to the independence of the learned Arbitrator and
violation of Schedule V and VII of the Act could be made after the
award was passed, in an application under Section 34 of the said Act.
8. On the issue of limitation, Mr. Choudhary submitted that the
application was not barred by limitation and the preliminary objection
raised by the respondent was baseless and without any legal
foundation. Although the award was passed in 2017, the present
application was filed on July 05, 2019, well within the period of
limitation. This application was filed within the statutory period,
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calculated from the date of receipt of the award with the application
under Section 36 of the said Act. The signed award had never been
delivered upon the petitioners. Records were called for from the learned
Arbitrator, but the same did not reflect dispatch of the award. A postal
receipt was available in the records which indicated that the date of
dispatch was sometime in December 14, 2018, but the said receipt was
neither accompanied by any envelope nor any acknowledgment due
card. No copy of the forwarding letter indicating that learned Arbitrator
had sought to serve the award upon the petitioners, on or about
February 14, 2018 was available in the records. Due proof of posting of
the award at the correct address of the petitioners, was missing in the
records. There was nothing on record which would indicate that the
postal authorities had sought to deliver any postal article which was
posted by the learned Arbitrator. As such, Section 3 of the said Act
could not be applicable for the purpose of presumption of service of the
award. The deeming fiction under The General Clauses Act, 1897,
could not be applied in this case as there was no proof of due stamping
and due dispatch of the award.
9. The decisions relied upon by the respondent on the applicability
of the deeming fiction with regard to delivery and/or service of the
award, could not be applicable in the case as the records did not reveal
that an envelope containing a forwarding letter addressed to the award
debtors with proper stamp had been posted at the particular post
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office. There was nothing on record to show that the postal authority
had returned the envelope with any endorsement at all.
10. It was further contended that the Hon'ble Apex Court time and
again had held that delivery of a signed copy of the arbitral award even
if it was not the original copy, but a true copy or a certified copy,
thereof, was the mandate of the law. Section 31(5) of the said Act was
relied upon to submit that applicability of the said section could not be
tailor made to satisfy the factum of delivery of award on a case to case
basis. The mandate of the law was clear and unambiguous and
applicable in all situations.
11. Reliance had been placed on the following decisions on the issue
of limitation.
(i) P Radha Bai & Others vs. P Ashok Kumar & another
reported in (2019) 13 SCC 445.
(ii) Union of India vs Tecco Trichy Engineers &
Contractors reported in (2005) 4 SCC 239.
(iii) State of Maharashtra v ARK Builders Pvt. Ltd.
reported in (2011) 4 SCC 616.
(iv) The State of West Bengal and Another vs. M/s. Motilal
Agarwala and Another reported in AIR 2016 Cal 271.
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(v) Ashok Kumar Chaudhary and Another vs Kotak
Mahindra Bank Limited reported in (2023) SCC Online
Cal 5474
(vi) Ajibar Rahman V. Cholamandalam Investment passed
in A.P 210 of 2023.
12. It was urged that deemed service of an arbitral award had not
been accepted by Courts and reference was made to several decisions of
coordinate Benches, which held that physical delivery or actual delivery
of arbitral award was an irrefutable statutory obligation. In order to
satisfy the court as to the timeline within which the application has
been filed, the dates were pointed out to the Court. April 09, 2019 was
the date of knowledge of the award when a copy of the execution
petition containing the award was received by the petitioners and this
application was filed on July 5, 2019 i.e. within a period of 90 days
from the receipt of copy of the award.
13. Mr. Choudhary next contended that the objection of the
respondent that this Court did not have territorial jurisdiction to
entertain the application was unacceptable in law. Only because the
execution case has been filed in the Special Court at Jamshedpur prior
to filing of the application under Section 34 of the said Act, this Court
would not lose its jurisdiction to entertain the application. The cause of
action arose within the jurisdiction of this Court. The respondent's
address was within the jurisdiction of this Court. The seat of
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arbitration was Hastings Chambers, Ground Floor Room No. GG 7C,
Kiran Shankar Roy Road. At the relevant point of time the respondent
also functioned from its office at Kiran Shankar Roy Road.
14. It was urged that, the decision in State of West Bengal and
others vs. Associated contractors reported in (2015) 1 SCC 32,
would not be applicable. In the decision of Sundaram Finance
Limited vs. Abdul Samad and another reported in (2018) 3 SCC
622, the Apex Court laid down that, upon publication of the award the
arbitral proceedings stood terminated, and as such, an application for
execution could be filed anywhere. The award being a deemed decree,
was executable in terms of the provisions of the Code of Civil
Procedure. The same was filed at Jamshedpur in view of the presence
of the petitioners and their assets at Jamshedpur. An execution
proceeding was free from the shackles of Section 42 of the said Act.
15. Reliance has been placed on the following decisions;
(i) Sundaram Finance Limited vs. Abdul Samad and
another reported in (2018) 3 SCC 622
(ii) BLA projects Pvt. Ltd. vs. Asansol Durgapur
Development Authority reported in (2019) SCC Online
Cal 1868.
(iii) TIL Limited vs. Shapoorji Pallonji & Co. Private
Limited reported in 2023 (4) CHN (CAL) 346.
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(iv) Gujarat Jhm Hotels Ltd vs. Rajasthali Resorts and
Studios Limited reported in (2023) SCC Online Del 161.
16. On the objection that this application was barred the principle of
issue estoppel, Mr. Choudhary submitted that, although an application
under Section 47 of the Code of Civil Procedure was filed before the
learned executing Court alleging that the award was a nullity in view of
the unilateral appointment of the learned Arbitrator, and the executing
Court had discussed the issue and refused to exercise jurisdiction
thereby rejecting the application, learned executing Court was of the
view that an application under Section 34 was pending on all issues
and the objection could be canvassed before the appropriate court.
17. Challenging the said order, the respondent preferred a civil
revisional application before the Hon'ble High Court of Jharkhand,
Ranchi. Upon considering the matter, the Hon'ble High Court disposed
of the petition, refusing to interfere with the order passed by the
executing court and refusing to stay the execution. However, the
revisional Court was of the view that since the petitioners had already
filed an application under Section 34 of the said Act, which was
pending, immediate steps should be taken to pursue the said
application. Against such order, the petitioners preferred a Special
Leave Petition. The Hon'ble Apex Court did not interfere with the order.
Relying on observation of the High Court of Jharkhand, Ranchi, Mr.
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Choudhary submitted that the issue was not finally decided between
the parties and must be decided in this proceeding.
18. Mr. Satarup Banerjee, learned advocate for the award
holder/respondent opposed this application on various grounds i.e.,
lack of jurisdiction of this court, limitation and issue estoppel. It was
submitted that the application was not maintainable either in law or in
facts and should be rejected. Section 42 of the said Act, began with a
non obstante clause. The same had an overriding effect over all other
provisions under Part-I of the said Act. The same also had an overriding
effect over the provisions of the Code of Civil Procedure. Section 36 of
the said Act, which dealt with execution proceedings, was within Part-I
of the said Act. Section 42 imposed a mandatory jurisdictional bar in
continuation of the instant proceeding before this Court as the
execution was pending before the competent Civil Court at
Jamshedpur. The respondent had already approached the competent
executing court at Jamshedpur. The same was a prior application, and
as such, the principal Civil Court at Jamshedpur alone, would have
exclusive jurisdiction to entertain any further application under the
said Act.
19. Learned Advocate submitted that, the Execution Case No. 5 of
2019 was initiated before the learned District Additional Session Judge-
I and Special Judge at Jamshedpur, seeking enforcement of the award.
The said Court had already passed multiple orders, including orders for
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appointment of a receiver to take possession of the assets of the
petitioners. The petitioners have actively participated in the execution
proceeding from the outset and had not challenged any of those orders.
Thus, the Special Court at Jamshedpur would be the competent court
in respect of all proceedings under Part-I of the said Act, as a
consequence to the applicability of Section 42 of the said Act.
20. The provision of Section 36(1) made an award enforceable "as if it
were a decree". However, the proceeding was not one under the Code of
Civil Procedure because the award was not a decree. The proceeding for
execution was rooted in and emanated from the said Act. Right to
enforce the award had also been provided for under the said Act.
Enforcement of an award under Section 36 of the said Act, was not a
civil proceeding as contemplated under the Code of Civil Procedure, but
a proceeding under Part-I of the said Act and was subject to the
exclusive jurisdiction of the principal Civil Court within whose
jurisdiction the prior proceeding had been instituted.
21. Reliance has been placed on the following decision;
(i) Indian Media Services Pvt. Ltd. vs. SBPL Infrastructure
Ltd. reported in (2022) SCC OnLine TS 3422.
(ii) Pipeline Infrastructure vs. Nagarjuna Fertilizers
reported in (2024) SCC OnLine TS 4026.
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(iii) State of West Bengal and others vs. Associated
Contractors reported in (2015) 1 SCC 32.
22. Mr. Banerjee further submitted that the decision in Sundaram
Finance Limited (supra) was distinguishable on facts, inasmuch as,
the issue before the Apex Court was, whether an arbitral award could
be enforced anywhere in the country under Section 36 of the said Act,
without the need to first obtain a transfer of the decree from the Court
having jurisdiction over the arbitral proceeding. The Apex Court
clarified that no such requirement existed either under the said Act or
under the Code of Civil Procedure. The said decision did not consider
the effect of institution of a prior proceeding under any of the
provisions of Part-I of the said Act before another Court. In the said
case, the award had become final and enforcement was sought
straightway under Section 36 of the said Act, before the court having
jurisdiction over the assets.
23. On the issue of limitation it was submitted that this application
was barred under the provisions of Section 34 (3) of the said Act. The
period of limitation was three months, extendable by another thirty
days from the date of receipt of the award. The award was passed on
December 28, 2017 and duly communicated to the petitioners. The
postal receipt stood testimony to such fact. Even if there is no service
return or signature of the addressee in the acknowledgment due card,
the records of the arbitral tribunal clearly demonstrated that the
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petitioners were not only aware of the arbitral proceeding, but they also
participated in the same. Moreover, the arbitral award was dispatched
by registered post to the same address of the petitioners in which the
application for execution has been received. The postal receipt
evidencing such dispatch was a part of the records and the same had
gone unconverted.
24. Under Section 3(1)(b) of the said Act, even in the absence of
actual refusal or return of the AD card with an endorsement
undelivered, service shall be deemed to be effected, upon dispatch to
the correct address, with proper postage.
25. Reliance had been placed on the following decisions;
(i) Logic Eastern India Pvt vs. KEC International Limited
reported in (2018) SCC OnLine Bom 916.
(ii) Magma Fincrop Limited vs. Ashok Kumar and other
reported in (2017) SCC OnLine Cal 13129.
(iii) Santanu Sarkar -vs- SREI Equipment Finance Ltd
passed in A.P. No. 321 of 2019.
(iv) New Globe Transport Corp -Vs- Magma reported in
(2011) 2 CHN 287.
(v) Jindal Dyechem Industries PVT -Vs. Pahwa
International reported in (MANU/ DE/ 2280/2009).
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(vi) A.G. Aerovision Electronics -Vs- TATA Capital Finance
reported in (2018) SCC ONLINE DEL 10825
(vii) Krishnabhagwan Rajaram Sharma -vs Tata Motors
reported in (MANU/ MH/ 034/2015)
(viii) Ranjeet Bafna -Vs- Kotak Mahendra Bank reported in
(2015) 3 ARBLR 82 MANU/RH/0396/2014.
26. The decision in Cholamandalam Investment vs. Ajibar
Rahaman passed in A.P. No. 248 of 2023 was distinguished, inter
alia, on the ground that the letter containing the award returned
undelivered with the endorsement that the addressee could not be
located.
27. The decision in Union of India and others vs. TECCO Trichy
Engineers reported in (2005) 4 SCC 241, was also distinguished on
facts, inasmuch as, the matter related to the need for service of an
award upon an officer of the department who was acquainted with the
arbitral proceeding and not on any other office or receiving section.
28. State of Maharashtra vs. ARK Builders Private Limited
reported in (2011) 4 SCC 616 was distinguished on facts. Ashok
Kumar Chaudhury vs. Kotak Mahindra Bank reported in (2023)
SCC OnLine Cal 5474 was also distinguished on the ground that the
dispatch of the award to an incomplete and insufficient address, was
not treated as sufficient compliance of the law.
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29. Mr. Banerjee also submitted that the petitioner had made
incorrect and false statements with regard to prior proceedings having
been filed before this Court, inasmuch as, those proceedings were
between the other parties and the respondents. The petitioners were
not parties to those proceedings. The present proceeding arose out of
the loan agreement entered into between the petitioners and the
respondent and not the parties who were before this court on earlier
occasions.
30. On the doctrine of issue estoppel, it was submitted that the
petitioners were trying to re-agitate the same issues which were raised
before the learned executing court at Jamshedpur with regard to
prohibition of law on unilateral appointment of the arbitrator. The said
issue was decided by the executing court and the objection was not
accepted on the ground that the petitioners had already participated in
the proceeding, but did not raise such objection before the learned
Arbitrator. The petitioner had missed the bus. The same issue could
not be reopened in the present proceeding. The revisional court also did
not interfere with the order of the executing court.
31. The contentions of the parties have been duly considered. With
regard to the objection as to this application being barred by limitation,
this court holds that the application has been filed within time. Section
34(3) of the said Act, is quoted below.
32. "34(3) An application for setting aside may not be made after three
months have elapsed from the date on which the party making that
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application had received the arbitral award or, if a request had been
made under section 33, from the date on which that request had been
disposed of by the arbitral tribunal:
33. Provided that if the Court is satisfied that the applicant was
prevented by sufficient cause from making the application within the
said period of three months it may entertain the application within a
further period of thirty days, but not thereafter."
34. It is the specific case of the petitioner that, the award was
received on April 09, 2019, when the execution application containing a
copy of the award was served upon the petitioners. The petitioners filed
the application challenging the said award, on July 5, 2019 i.e. within
the time prescribed under Section 34(3) of the said Act.
35. With regard to the contention of Mr. Banerjee as to deemed
service of the award and applicability of section 3(1)(b) of the said Act,
this Court holds that the provisions of deemed service of the award is
not applicable in this case. The original records of the learned
Arbitrator had been called for. It appears that notices with regard to the
arbitral proceedings were issued. The postal envelopes containing those
notices were sent back to the learned arbitrator and the copies of those
notices have also been maintained by the learned arbitrator in the
records. The fact that the notices were sent to the petitioners by the
learned arbitrator at the time of commencement of the proceeding is
not in doubt. Deemed service of those notices can be gathered from the
envelopes and A/D cards which returned to the Arbitrator. It is also
available that the petitioners were represented before the learned
arbitrator at least on three occasions. Submission was made on behalf
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of the petitioners that, another agreement had been entered into
between the parties after March 27, 2016 and until and unless a copy
of the same was served upon the petitioners, they were not in a position
to take steps before the learned Arbitrator by filing their written
statement of defence.
36. The question is whether the award was received by the award
debtors as per law, and what will be the computation of the period of
limitation under Section 34(3) of the said Act. The original records
reveal that, a communication to the respondents on the letter head of
the learned Arbitrator dated December 28, 2017, bearing the original
signature of the learned Arbitrator along with the original award on a
stamp paper of Rs.150/- duly signed by the learned Arbitrator was still
retained with the records. The contents of the letter is reproduced
below:
Partha Sarathi Ghosh CHAMBER
Advocate, High Court Calcutta P. G. & Associates,
Advocates,
NPS Business Centre, 2"d
Floor,
A, Kiran Shankar Roy
Road, Kolkata - 700 001,
Date: 28/12.2017
Ref: A.C/ 25/2016
1. M/S SREI EQUIPMENT FINANCE LIMITED
At "VISWAKARMA" 86C, Topsia Road(South), Kolkata - 700 046,
Legal Office:6A, Kiran Sankar Roy Road, Kolkata - 700 001. West Bengal.
2. BISHNU CHANDRA CHOUDHARY
Y. D. TRANSPORT CO.
Ashiana Garden, Sonari, Jhamshedpur,
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PIN - 831011, Jharkhand, India.
3. BISHNU CHANDRA CHOUDHARY
S/O Omkar Nath Choudhary,
B-31, Lotus Building, Ashiana Gardens,
Sonari, East Singhbhum, Jhamshedpur,
PIN - 831011, Jharkhand
Dear Sir(s)
Re: Arbitration Case No. 25 of 2016
In the Matter of :
ARBITRATION
- Between -
Srei Equipment Finance Limited
- AND -
Bishnu Chandra Choudhary & Another
Enclosed herewith please find a copy of the award dated .... passed by me under the captioned
arbitration proceeding.
Yours faithfully
(Partha Sarathi Ghosh)
Arbitrator
37. Two postal receipts both addressed to Shri Bishnu Choudhury,
i.e, the petitioner No.2 are available, but the date of dispatch of those
receipts is February 14, 2018. Whereas, the forwarding letter of the
learned arbitrator dated December 28, 2017 along with the original
award duly signed and printed on a non judicial stamp paper of Rs.
150 was still retained with the records. Thus, there cannot be any
presumption in this case that, the award, duly signed in original by the
learned arbitrator, had actually been dispatched on February 14, 2018
to Mr. Bishnu Choudhury, who is the award debtor no.2 What was
forwarded on February 14, 2018, is not available. Neither any postal
envelope nor the acknowledgement due card is available to show that
the postal article dispatched on February 14, 2018 was either delivered
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or sought to be delivered at the last known address of the respondents.
The envelopes has not returned undelivered. Thus, the presumptions
under Section 3 of the said Act and The General Clauses Act are not
available. Had the award been sought to be served upon the award
debtors at a later date, in that event a further forwarding letter would
have been available with the records.
38. This Bench is unable to accept that the same letter dated
December 28, 2017 containing the original award was the duplicate/
second copy maintained by the learned arbitrator in his records and
the originals were dispatched on February 14, 2018. The mandate of
Section 31(5) of the said Act, had not been complied with. There must
be substantial compliance of the said provision and presumption of
service cannot be imported in this case by giving a complete go by to
the statutory provision and holding that the award was actually
delivered. The petitioners cannot be deprived of their right to challenge.
39. There is no evidence that the postal authority, after making
adequate attempts, had failed to deliver the award. As such, in the
absence of any other supporting document from the postal
authorities, the court is unable to accept compliance of mandatory
provision of section 31(5) of the said Act. The application has been filed
within 90 days from the receipt of the award and the period of
limitation shall be reckoned from April 09, 2019. This application has
been filed within the period of limitation.
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40. The decision in Magma Fincrop Limited (supra) is
distinguishable on facts, inasmuch as, in the said case, the Hon'ble
Division Bench recorded that the records revealed that the envelope
containing forwarding letter dated 13th August, 2014 and the arbitral
award dated August 13, 2014 were properly addressed to the
respondents at the addresses mentioned in the arbitration agreement
and proper stamps were affixed thereon and the envelopes were posted
from Princep Street post office on August 21, 2014. Due postage was
paid by affixing pre-paid addressee postal stamp and the postal articles
were duly put in course of transmission by registered post in the
manner provided in Chapter VI of the Indian Post Act, 1898. Thus, due
effect to the fiction contained in section 3 of the said Act should be
given. In the instant case, apart from a postal receipt dated February
14, 2018 addressed to the award debtor no.2, no other document is
available, which would indicate that, the procedure envisaged under
Chapter VI of the Indian Post Act had been followed. Moreover, the
existence of the original letter enclosing the award on the stamp paper
bearing the original signature of the learned arbitrator in the records,
raises a doubt as to what was actually sought to be dispatched to the
award debtor no.2 on February 14, 2018. Why, the forwarding letter
bearing the date December 28, 2018 along with the original/award
bearing the signature of the learned Arbitrator would be posted at a
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much later date, remains a mystery. Thus, it cannot be concluded that
the communication of February 14, 2018 was a service of the award.
41. Section 31(5) of the Arbitrator and Conciliation Act which has
been held to be mandatory in nature, is quoted below:
42. "31(5) After the arbitral award is made, a signed copy shall be
delivered to each party."
43. Reference is made to the following decisions with regard to the
computation of period of limitation in case of non-delivery of the
award:-
(i) P Radha Bai & Others Vs. Ashok Kumar & another reported in
(2019) 13 SCC 445. Paragraphs are quoted below:-
"
43. The fraudulent conduct where Section 17 of the Limitation Act
would have helped the objecting party is where there was a fraud
in the delivery of the award. However, in such a scenario, resort to
Section 17 is not necessary. If there is any fraud in the delivery of
award, the requirement of receipt of award under Section 34(3)
itself is not satisfied. Any receipt of award must be effective
receipt. This Court in Union of India v. Tecco Trichy Engineers &
Contractors [Union of India v. Tecco Trichy Engineers & Contractors,
(2005) 4 SCC 239] held that: (SCC pp. 243-44, paras 8-9)
"8. The delivery of an arbitral award under sub-section (5) of Section
31 is not a matter of mere formality. It is a matter of substance. It is
only after the stage under Section 31 has passed that the stage of
termination of arbitral proceedings within the meaning of Section
32 of the Act arises. The delivery of arbitral award to the party, to
be effective, has to be "received" by the party. This delivery by the
Arbitral Tribunal and receipt by the party of the award sets in
motion several periods of limitation such as an application for
correction and interpretation of an award within 30 days under
Section 33(1), an application for making an additional award
under Section 33(4) and an application for setting aside an award
under Section 34(3) and so on. As this delivery of the copy of
award has the effect of conferring certain rights on the party as
also bringing to an end the right to exercise those rights on expiry
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of the prescribed period of limitation which would be calculated
from that date, the delivery of the copy of award by the Tribunal
and the receipt thereof by each party constitutes an important
stage in the arbitral proceedings.
9. In the context of a huge organisation like the Railways, the copy
of the award has to be received by the person who has knowledge
of the proceedings and who would be the best person to
understand and appreciate the arbitral award and also to take a
decision in the matter of moving an application under sub-section
(1) or (5) of Section 33 or under sub-section (1) of Section 34."
(emphasis supplied)
44. In view of the above, we hold that once the party has received
the award, the limitation period under Section 34(3) of the
Arbitration Act commences. Section 17 of the Limitation Act would
not come to the rescue of such objecting party."
(ii) Union of India Vs. Tecco Trichy Engineers & Contractors
reported in (2005) 4 SCC 239. Paragraphs are quoted below:-
"8. The delivery of an arbitral award under sub-section (5) of
Section 31 is not a matter of mere formality. It is a matter of
substance. It is only after the stage under Section 31 has passed
that the stage of termination of arbitral proceedings within the
meaning of Section 32 of the Act arises. The delivery of arbitral
award to the party, to be effective, has to be "received" by the
party. This delivery by the Arbitral Tribunal and receipt by the
party of the award sets in motion several periods of limitation
such as an application for correction and interpretation of an
award within 30 days under Section 33(1), an application for
making an additional award under Section 33(4) and an
application for setting aside an award under Section 34(3) and so
on. As this delivery of the copy of award has the effect of
conferring certain rights on the party as also bringing to an end
the right to exercise those rights on expiry of the prescribed
period of limitation which would be calculated from that date, the
delivery of the copy of award by the Tribunal and the receipt
thereof by each party constitutes an important stage in the
arbitral proceedings."
(iii) State of Maharashtra v AKA Builders Pvt. Ltd. reported in
(2011) 4 SCC 616. Paragraphs are quoted below:-
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"12. The appellants are now before this Court by grant of special
leave. The two provisions of the Arbitration and Conciliation Act,
1996, relevant to answer the question raised in the case are
Sections 31 and 34. Section 31 deals with form and contents of
arbitral award; and insofar as relevant for the present provides as
follows:
"31.Form and contents of arbitral award.--(1) An arbitral
award shall be made in writing and shall be signed by the
members of the Arbitral Tribunal.
(2)-(4)***
(5) After the arbitral award is made, a signed copy shall be
delivered to each party.
(6)-(8)***"
(emphasis added)
Section 31(1) obliges the members of the Arbitral
Tribunal/arbitrator to make the award in writing and to sign
it and sub-section (5) then mandates that a signed copy of the
award would be delivered to each party. A signed copy of the
award would normally be delivered to the party by the arbitrator
himself. The High Court clearly overlooked that what was
required by law was the delivery of a copy of the award signed by
the members of the Arbitral Tribunal/arbitrator and not any copy
of the award.
***
***
15. The highlighted portion of the judgment extracted above,
leaves no room for doubt that the period of limitation prescribed
under Section 34(3) of the Act would start running only from the
date a signed copy of the award is delivered to/received by the
party making the application for setting it aside under Section
34(1) of the Act. The legal position on the issue may be stated
thus. If the law prescribes that a copy of the order/award is to be
communicated, delivered, dispatched, forwarded, rendered or
sent to the parties concerned in a particular way and in case the
law also sets a period of limitation for challenging the
order/award in question by the aggrieved party, then the period
of limitation can only commence from the date on which the
order/award was received by the party concerned in the manner
prescribed by the law."
(iv)The State of West Bengal and Another vs. M/s. Motilal
Agarwala and Another reported in AIR 2016 Cal 271. Paragraphs
are quoted below:-
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"26. In our view, limitation under Section 34(3) would start
running from the date on which the party applying for setting
aside of the arbitral award received a signed copy of the award
from the Arbitral Tribunal. Such copy need not necessarily be
signed in original by the Arbitrator/majority of the Arbitrators.
An authentic photo copy along with signatures would suffice.
This issue is covered by a judgment dated 28th August, 2015 of
this Bench in APOT 337 of 2015 (National Agricultural
Cooperative Marketing Federation of India Ltd. v. R. Piyarelall
Import & Export Ltd.).
27. The award made over by the learned Arbitrator to Sri. Pradip
Saha, Assistant Engineer was a signed copy. However, the
question is whether the period of limitation for making an
application under Section 34 of the 1996 Act, would start
running from the date on which the signed copy was received by
Mr. Pradip Saha, Assistant Engineer.
28. In State of Maharashtra v. ARK Builders reported in (2011) 4
SCC 616, cited by Mr. Sen, the issue was, whether the period of
limitation for making an application under Section 34 of the 1996
Act, for setting aside an arbitral award, was to be reckoned from
the date on which a copy of the award was received by the
applicant by any means or source, or whether it was to start
running from the date a signed copy of the award was delivered
to the applicant by the Arbitrator.
29. The Supreme Court held that the period of limitation
prescribed under Section 34(3) of the 1996 Act, could only
commence from the date on which the award was received by the
applicant in the manner prescribed by law and/or in other words,
in the manner for service of the award prescribed in Section 31(5)
of the 1996 Act.
30. In ARK Builders (supra) the Arbitrators had not supplied a
copy of the award to the appellants. The award holder had,
however, forwarded a photocopy of the award to the appellant
and claimed payment in terms of the award. The Supreme Court
held that limitation would run from the time the award duly
signed, was received by the appellant, from the Arbitrator.
31. In ARK Builders (supra) the Supreme Court did not consider
the question of whether the copies served by the Arbitrators to
the parties concerned, would all have to actually and separately
be signed by the Arbitrators themselves. However, the Supreme
Court clearly held that limitation would start running from the
date on which a copy of the award was received by the applicant
from the Arbitral Tribunal.
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32. In Benarsi Krishna Committee v. Karmyogi Shelters Private
Limited reported in (2012) 9 SCC 496 the Supreme Court held
that the expression 'party' as defined in Section 2(i)(h) of the 1996
Act clearly indicates a person who is a party to an arbitration
agreement. The said definition is not clarified in any way so as to
include the agent of the party to such agreement. Any reference,
therefore, made in Section 31(5) and Section 34(2) of the 1996
Act could only mean the party himself and not his or her agent or
advocate empowered to act on the basis of a vakalatnama. In the
aforesaid case, the award had been served on the advocate."
(v) Ashok Kumar Chaudhary and Another Vs. Kotak Mahindra
Bank Limited reported in (2023) SCC Online Cal 5471. Paragraphs
are quoted below:-
"13. The statutory position is clear. Delivery of a signed copy of
the arbitral award to a party is the only mechanism known to law
for effecting service of an award. The mandate of section 31(5)
cannot be tailored to suit the particular facts of each case. If this
is done, the award-holder can always get away by showing
deemed service of an award to the award-debtor and proceed to
execute the award on the plea of a time-barred section 34
application.
14. The Supreme Court in State Maharashtra v. Ark Builders
Private Limited, (2011) 4 SCC 616 held that the legal position
would not change even if a party derives undue advantage from
the omission of the arbitrator to deliver a signed copy of the
award since individual facts of a case cannot change the law. A
Single Bench of the Bombay High Court in Ritz
Fashions v. Bhagyashri Textiles Pvt. Ltd.; Arbitration Petition No.
803 of 2017 relied on Ark Builders and held that observance of
section 31(5) is not a matter of mere formality and has to be
given due weightage. A.G. Aerovision Electronics Pvt. Ltd. v. Tata
Capital Finance Services Ltd., 2018 SCC OnLine Del 10825 dwelt
on the conduct of the appellants before the Court who had
adopted dilatory and devious tactics to avoid service in the
arbitral proceedings and continued to evade receipt of the
award. SRS Entertainment Limited v. Home Stores (India)
Limited, (2009) 112 DRJ 555 took into account practical realities
and the presumption that a party may avoid delivery/receipt of
an award and that such a party cannot be permitted to hold the
enforcement in abeyance. The Single Bench of the Delhi High
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Court specifically found in the facts of that case that the award
had been delivered to the concerned party.
15. In the absence of any compelling material before the Court to
prove delivery of a signed copy of the impugned award to the
petitioner, the Court is constrained to reject the preliminary
objection taken on behalf of the respondent. The balance of
convenience is also in favour of such a view since the petitioner,
having suffered an award, would also be deprived of the
opportunity to argue in favour of setting aside of the award for all
times to come. The respondent, at best, would have to defend the
award and will have an equal opportunity of doing so by taking
the Court to the merits/legality of the award. It is made clear that
the respondent will get the opportunity to continue with the
enforcement proceedings until the petitioner takes appropriate
measures under the 1996 Act to stay of the award."
(vi) Ajibar Rahaman Vs. Cholamandalam Investment passed in A.P
210 of 2023, the relevant portion is quoted below:-
"18. Needless to say, delivery of an arbitral award in the manner
contemplated in Section 31(5) entails important consequences.
The delivery must be effective inasmuch as the party must
"receive" a signed copy of the award. Delivery of a signed copy of
the award to a party under Section 31(5) sets in motion
important rights of the party at several levels including for
correction and application for an additional award. The rights
conferred would also include the right to apply for setting aside of
the award within the prescribed time limits under Section 34(3)
read with the proviso. Therefore, it is of utmost importance that
any contention with regard to deemed service of the award on a
party to an arbitration agreement be guided by all the attending
circumstances. The Court must ascertain the existence of all
facts on whch the deeming fiction rests. A mistaken presumption
as to a party having received the award may lead to an
irrevocable loss of valuable statutory rights in respect to the
award. As much as the presumption is one of necessity to keep
the proceedings moving, the real consequences of that fiction
must also not lead to miscarriage of justice.
19. The presumption of service is therefore not to be taken lightly
and the Court must be satisfied that there are sufficient factual
inconsistencies or lackings for the deeming fiction to be pressed
into service. If the facts are clear before the Court, there is no
place for presumptions."
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44. With regard to the jurisdiction of this Court, the decision of the
Sundaram Finance (supra) is applicable, and the position of law has
been clarified accordingly:-
"17. However, what has been lost sight of is Section 32 of the said Act, which
reads as under:
"32. Termination of proceedings.--(1) The arbitral proceedings shall be
terminated by the final arbitral award or by an order of the Arbitral Tribunal
under sub-section (2).
(2) The Arbitral Tribunal shall issue an order for the termination of the
arbitral proceedings where--
(a) the claimant withdraws his claim, unless the respondent objects to the
order and the Arbitral Tribunal recognises a legitimate interest on his part
in obtaining a final settlement of the dispute;
(b) the parties agree on the termination of the proceedings; or
(c) the Arbitral Tribunal finds that the continuation of the proceedings has
for any other reason become unnecessary or impossible.
(3) Subject to Section 33 and sub-section (4) of Section 34, the mandate of
the Arbitral Tribunal shall terminate with the termination of the arbitral
proceedings."
The aforesaid provision provides for arbitral proceedings to be terminated by
the final arbitral award. Thus, when an award is already made, of which
execution is sought, the arbitral proceedings already stand terminated on the
making of the final award. Thus, it is not appreciated how Section 42 of the said
Act, which deals with the jurisdiction issue in respect of arbitral proceedings,
would have any relevance. It does appear that the provisions of the said Code
and the said Act have been mixed up.
45. Once the award is passed, the arbitral proceeding is terminated.
Once the proceeding is terminated, the proceeding under section 36 of
the said Act, seeking execution of the award as a deemed decree under
the provisions of Order 21 of the Code of Civil Procedure, is free from
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the clutches of section 42 of the said Act. It is no longer a proceeding
under Part-I unlike, an application under Section 34 of the said Act.
For executing the award no application under part 1 has to be filed.
46. The relevant paragraphs in the decision of BLA projects Pvt.
Ltd. (supra) are quoted below:-
"35. However, Section 36 merely provides for enforcement of an
arbitral award and acts as a bridge enabling the provisions of the
Code of Civil Procedure to be applied to the enforcement of an
arbitral award, in the same manner as if it were a decree of the
court. No application is envisaged under the said section for the
enforcement of an award.
36. Hence, it cannot be said that an application for enforcement
of an arbitral award is made under Section 36, sufficient to bring
it within the fold of Section 42 of the 1996 Act. An application for
execution, as provided in Section 36, would have to be made "in
accordance with the provisions of the Code of Civil Procedure,
1908", thereby enabling full application of Order XXI of the Code
of Civil Procedure and other connected provisions as regards the
mode and manner of application as well as the form of such
application.
***
***
39. It is evident that the logic, that Section 42 was not applicable
to a proceeding for enforcement of the award since the same
arose after termination of the proceedings, was contrary to the
three-Judge bench decision of Associated Contractors (supra). In
the said case, it was decided that the expression "with respect to
an arbitration agreement" in Section 42 of the 1996 Act are
words of wide import and would take in all applications made
before, during or after the arbitral proceedings are over. On such
premise, the Supreme Court went on to observe that Section 42
would apply to applications made after the arbitral proceedings
have come to an end, provided they are made under Part I.
40. The Supreme Court, in its conclusive paragraph (paragraph
25) took into consideration applications under Sections 9 and 34
of the 1996 Act.
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41. However, it is notable to mention that Section 36 of the 1996
Act did not find place in the said consideration.
42. In fact, in the opening paragraph of Associated
Contractors (supra), it was indicated that the reference in that
case was on the question, which court will have the jurisdiction
to entertain and decide an application under Section 34 of the
1996 Act. The entire judgment was rendered in such context.
43. Nowhere in Associated Contractors (supra) did the Supreme
Court consider the context of Section 36 of the 1996 Act.
44. As such, although one could arguably be justified in
observing that Sundaram Finance (supra) (rendered by a two-
Judge bench) went contrary to the logic of Associated
Contractors (three-Judge bench decision) inasmuch as the effect
of Section 42 on post-arbitral proceeding termination
applications was concerned, Associated Contractors was not
rendered in the context of the of Section 36 of the 1996 Act and
did not consider the legal effect thereof.
45. Thus, Sundaram Finance can at best be seen as an authority
on the proposition that an award was enforceable as a decree
under Section 36 of the 1996 Act and thus, could be filed
anywhere in the country where such decree could be executed,
without obtaining a transfer of the decree from the court, which
would have jurisdiction over the arbitral proceedings. However,
the same ought not to be deemed as an authority on the
proposition that Section 42 is inapplicable to applications within
part I of the 1996 Act initiated after termination of arbitral
proceedings, in view of being contrary to Associated Contractors.
46. Even if we see the conclusions arrived at in Associated
Contractors, in paragraph 25 thereof, it is abundantly clear that
the Supreme Court held that Section 42 would apply to
'applications' made under part I.
47. A close examination of Section 36 of the 1996 Act, which
never fell for consideration in Associated Contractors (supra),
shows that no application for enforcement of an arbitral award is
envisaged in the said provision.
48. Section 36 at best creates a fiction that an arbitral award
would operate as a decree of a civil court for the limited purpose
of being executed. The section provides that an arbitral award
shall be enforced in accordance with the provisions of the Code of
Civil Procedure, 1908, in the same manner as if it were a decree
of the court.
49. It is noteworthy that Section 36(1) does not make any
distinction as to modalities and forum while making the
provisions of the Code of Civil Procedure applicable to an arbitral
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award. Hence, nothing in the Arbitration Act, in particular
Section 36 thereof, provides that an application for execution of
an arbitral award has to be filed before the district court, as
provided in Section 2(1)(e) of the 1996 Act. In fact, the application
for enforcement/execution of an arbitral award is not an
application under Section 36 of the 1996 Act at all but under
Order XXI of the Code of Civil Procedure, as provided in Section
36 itself.
50. Thus, such an application is not an "application under part I"
of the 1996 Act, which takes it outside the purview and rigours of
Section 42 of the 1996 Act.
51. Associated Contractors (supra) contemplated only
'applications' under part I to be governed by Section 42.
52. In view of the discussion above, an application for
enforcement of an arbitral award is not covered by Section 42 of
the 1996 Act."
47. The relevant paragraphs of TIL Limited (supra) are quoted
below:-
"17. Having considered the rival contentions of the parties, this
Court is of the view that the learned court below had not
committed any error in directing the award debtor to secure the
arbitral award by furnishing a bank guarantee of the full
amount with interest. Although, it was an application made by
the award holder, the law is clear that unless the amount was
secured, the execution would proceed. Either way, if the award
debtor wants to press his application under Section 34 of the
said Act and desires that the proceeding under Section 36 be
stayed till the rights are decided, entire arbitral award would
have to be furnished or else the execution will proceed.
18. The issue of jurisdiction and bar under Section 42 has been
answered by the Hon'ble Apex Court in Sundaram Finance
Limited (supra). Application for execution of an award is not an
application within Part-1 of the Arbitration and Conciliation Act.
According to the Hon'ble Apex Court, Section 42 applied to
those applications arising from the arbitration agreement and
the arbitration proceedings, but not to a proceeding which stood
terminated upon making of the final award. Section 32 of the
said Act was discussed and it was held that an arbitral award
passed by an Arbitral Tribunal was deemed to be a decree under
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Section 36 of the Act and there was no deeming provision
anywhere to hold that the Court within whose jurisdiction the
arbitral award was passed, should be taken to be the court
which passed the decree. For enforcement of an award the
execution case could be filed anywhere in the country, where
such decree could be executed, and there was no requirement to
obtain a transfer of the decree from the court which would have
the jurisdiction over the arbitral proceedings.
19. In the case in hand, the jurisdiction of the commercial court
has been invoked on the basis of the subject mater of the
dispute, the quantum of the arbitral award, the territorial
jurisdiction of the court over assets of the award debtor.
20. Under such circumstances, the point raised by Mr. Rajarshi
Dutta is not entertained by this Court. The Court also does not
find that the issue of incorrect verification of the application
goes to the very root of maintainability of the execution case.
21. Accordingly, the revisional application is dismissed"
48. The above decision clarified that there was no conflict with the
proposition of law laid down in Associated Contractors (supra) and
Sundaram Finance (supra).
49. Paragraph 47 and 48 of Gujarat JHM Hotels Ltd. (supra). are
quoted below:-
"47. As was eloquently observed by the Bombay High Court
in Global Asia, Sundaram Finance is to be understood as
holding that the Act transcends territorial barriers and conferring
a choice on the party in favour of which the Award may have
been rendered to institute proceedings for enforcement in
accordance with the choice which was recognized to exist
in Sundaram Finance. The learned Judge also held that such a
party cannot be compelled to first approach the "2(1)(e) Court"
and thereafter be forced to approach the local court for execution
of the award. In summation, it may thus be held that the party
which seeks to initiate enforcement action could institute
proceedings either before the seat court or to proceed further and
directly to the court within the territorial limit of which the assets
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of the judgment debtor may be located. It essentially frees the
decree holder from being compelled to first approach the seat
court, obtain a certificate of transfer and then initiate
proceedings before the court which may by virtue of its
geographical location be entitled to take appropriate action
against the properties of the judgment debtor.
48. The Court further finds that the decision of the Supreme
Court in Associated Contractors cannot be read or
understood de hors the context in which it came to be rendered.
As was noticed hereinabove, the question which stood raised was
itself relating to the correctness of petitions under Section 34 of
the Act being preferred and instituted before a particular court.
The Supreme Court had found that undisputedly prior to the
award coming to be delivered, proceedings under Section 9 of the
Act had been instituted before the Calcutta High Court. It was in
the aforesaid context that it was held that Section 42 of the Act
would apply and consequently the Calcutta High Court would
have the requisite jurisdiction and authority to entertain the
petition under Section 34 of the Act. As was noted hereinabove, a
petition under Section 9 of the Act as also certain others which
fall in Part I are those which are made before a court. It is in that
backdrop that Section 42 assumes significance and was so
recognized to be an answer to the question which stood posited.
The Supreme Court then went on to observe that the
phrase "with respect to arbitration agreement" widens the scope of
Section 42 of the Act to bring within its ambit all matters directly
or indirectly relating to an arbitration agreement. It was thus
held that all applications which are made to a Court either
before, during or after arbitral proceedings and referable to Part I
of the Act would stand covered by Section 42 of the Act."
50. In this case, the respondent is situated in Kolkata. Arbitration
was held within the jurisdiction of this Court the award passed within
the jurisdiction of this court. The proceeding stood terminated with the
passing of the award, thereby setting the award holder free to approach
the court within whose territorial limits the assets were situated,
seeking enforcement of the award under the provisions of Order 21 of
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the CPC. Thus, this Court has the jurisdiction to entertain this
application under Section 34 of the said Act.
51. The Dispute Resolution Clause 9.11 of the loan agreement dated
March 22, 2016 is quoted below.
"9.11 Dispute Resolution Arbitration
"Any disputes and/or differences arising out of or in connection
with the Agreement during its subsistence or thereafter between
the parties including any disputes and differences relating to
the interpretation of the agreement or may clause thereof shall
be adjudicated by arbitration in accordance with the provisions
of the Arbitration and Conciliation Act, 1996 and rules framed
there under and any amendment, modification, statutory
enactment thereto from time to time and shall be referred to the
Arbitration of a sole Arbitrator appointed by the Company upon
intimation to all parties to this Agreement. The proceedings
shall be held at Kolkata. The cost of the proceedings shall be
borne by the parties to this Agreement. The award of the
arbitrator shall be final, conclusive and binding on all the
parties."
52. According to the agreement, the proceeding was to held at
Kolkata and the proceeding was held within the jurisdiction of this
Court. Thus, the seat was agreed to be Kolkata. When seat is
prescribed, all proceedings emanating from the award will be at seat.
Only execution can be sought for at the place where the award debtors
or their assets are located.
53. With regard to principle of issue estoppel, this court finds that by
an order dated May 30, 2024, passed in Execution Case No.5 of 2019,
by the District Judge-III-cum- Presiding Officer, Commercial Court,
Jamshedpur, the application under section 47 of the Code of Civil
Procedure filed by the petitioner was dismissed. The executing court
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held that the execution was maintainable and the plea of unilateral
appointment was not accepted. The relevant portion of the order is
quoted below:-
" The Hon'ble Apex Court Perkins Eastmen Case (supra) has
observed that the objection with regard to appointment or
proceeding should have been raised at the proper time, however,
the Judgment Debtor has failed to raise objection even after
entering into Arbitration proceeding as well as during proceeding
filed u/s 34 of the Arbitration Act, hence the ploy of Judgment
Debtor challenging the Arbitral Award at this stage is not proper
and can be considered only as a ploy to linger the proceeding of
Executing application.
Thus on the basis of aforesaid observation and discussion, I find
that the contention so made by Judgment Debtor with regard to
this part of objection questioning the jurisdiction of the Arbitrator
is not maintainable, on the basis law as well as factual Matrix.
(3) LEGALITY OF ARBITRAL AWARD U/S 47 CPC:- In the light of
observation made by this court with regard to objection as to
jurisdiction of learned Arbitrator, this part of objection is not to
be discussed in detail in as much as the same is not so relevant.
Accordingly I find and hold that the petition bearing MCA no. 61
of 2023 does not holds merit accordingly the same stands
disposed of as rejected. Let a report be called for from Nazir, Civil
Court, Dumka with regard to attachment of the movable
properties belonging to Judgement Debtor. Put up on 07-06-2024
for awaiting report."
54. The executing court held that notice of arbitration proceeding
was duly served upon the petitioners, who appeared through counsel
before the learned arbitrator and willfully decided to abstain from
participating in the proceeding. Such willful absence of the petitioners
would not render the arbitral award to be an exparte award. It was held
that if the petitioners had an objection with regard to the jurisdiction of
the arbitrator, an application under section 16 of the Arbitration and
Conciliation Act should have been filed, instead the petitioners sat idle
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and waited for the award to be passed. It was also observed that the
application challenging the maintainability of the execution case was
filed only to delay the proceeding.
55. Challenging the order dated May 30, 2024, a Civil Revisional
application was filed before the High Court at Ranchi being Civil
Revision No.28 of 2024. Petitioner No.2 prayed for stay of the order
and also the execution proceeding.
56. The petitioners urged before the Revisional Court that, an illegal
proceeding was continuing and if the same was not stayed, the
petitioners would suffer injustice and prejudice. It was also urged that
the execution proceeding was contrary to the law and the same should
be stayed. Considering the prayer for interim stay and the application
as a whole, the revisional application was disposed of, upon holding
that, because a challenge to the award was pending before the Calcutta
High Court, the revisional Court was not inclined to consider the prayer
for stay of the execution at that stage. Liberty was granted to the
petitioners to move the High Court by filing a fresh application in aid of
the prayer for stay of the arbitral award. The prayer of the learned
advocate for an interim order restraining any coercive action till an
appropriate application was filed before the court was also allowed.
Thus, it appears to this Court that the High Court at Ranchi did not
stay the execution case on the ground that a challenge to the award
was pending and the same should be decided on the issues raised
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therein, which included the issue of illegality of an arbitral award
passed by a unilaterally appointed Arbitrator. Thus, it cannot be held
that the issue of unilateral appointment rendering the award to be a
nullity, was finally decided by the respective courts in the execution
case.
57. Relevant portions of the order is quoted below:-
"Having heard the learned counsel for the petitioner, this Court is
of the considered view that when already the petitioner has
challenged the Arbitral Award before the Hon'ble Kolkata Court,
which is still pending, it is not open to the petitioner to move an
application before this Court for stay of the execution case. At
this juncture, this Court is not inclined to interfere in the matter.
Liberty is reserved with the petitioner to move a fresh application
before the Hon'ble Kolkata High Court where the Arbitral Award
is under challenge."
58. With regard to waiver to the applicability of the section 12(5) of
the said Act, this Court is of the view that there was no such waiver.
There was no express agreement between the parties by which the
petitioners had agreed to waive their objections with regard to
applicability of section 12(5) of the said Act. Section 12(5) of the said
Act will apply to all arbitral proceedings commenced after October 23,
2015, even if the contract was executed earlier. Reference is made to
Bharat Broadband (supra). The relevant paragraphs is quoted below:-
"This then brings us to the applicability of the proviso to Section
12(5) on the facts of this case. Unlike Section 4 of the Act which
deals with deemed waiver of the right to object by conduct, the
proviso to Section 12(5) will only apply if subsequent to disputes
having arisen between the parties, the parties waive the
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applicability of sub-section (5) of Section 12 by an express
agreement in writing. For this reason, the argument based on the
analogy of Section 7 of the Act must also be rejected. Section 7
deals with arbitration agreements that must be in writing, and then
explains that such agreements may be contained in documents
which provide a record of such agreements. On the other hand,
Section 12(5) refers to an "express agreement in writing". The
expression "express agreement in writing" refers to an agreement
made in words as opposed to an agreement which is to be inferred
by conduct. Here, Section 9 of the Contract Act, 1872 becomes
important. It states:
"9. Promises, express and implied.--Insofar as the proposal or
acceptance of any promise is made in words, the promise is said to
be express. Insofar as such proposal or acceptance is made
otherwise than in words, the promise is said to be implied."
59. In the decision of Ellora paper Mills Ltd. (supra), the Hon'ble
Apex Court held as follows:-
"19. In the aforesaid decision in Ajay Sales & Suppliers
case [Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd. v. Ajay Sales
& Suppliers, (2021) 17 SCC 248 : 2021 SCC OnLine SC 730] , this
Court also negatived the submission that as the contractor
participated in the arbitration proceedings before the arbitrator
therefore subsequently, he ought not to have approached the High
Court for appointment of a fresh arbitrator under Section 11 of the
Arbitration Act, 1996. After referring to the decision of this Court
in Bharat Broadband Network Ltd. v. United Telecoms Ltd. [Bharat
Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755
: (2019) 3 SCC (Civ) 1] , it is observed and held in para 18 as
under : (Ajay Sales & Suppliers case [Jaipur Zila Dugdh Utpadak
Sahkari Sangh Ltd. v. Ajay Sales & Suppliers, (2021) 17 SCC 248 :
2021 SCC OnLine SC 730] )
"18. Now so far as the submission on behalf of the petitioners that
the respondents participated in the arbitration proceedings before
the sole arbitrator -- Chairman and therefore he ought not to have
approached the High Court for appointment of arbitrator under
Section 11 is concerned, the same has also no substance. As held
by this Court in Bharat Broadband Network [Bharat Broadband
Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755 : (2019) 3
SCC (Civ) 1] there must be an "express agreement" in writing to
satisfy the requirements of Section 12(5) proviso. In paras 15 & 20
it is observed and held as under : (SCC pp. 768 & 770-71)
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'15. Section 12(5), on the other hand, is a new provision which
relates to the de jure inability of an arbitrator to act as such.
Under this provision, any prior agreement to the contrary is wiped
out by the non obstante clause in Section 12(5) the moment any
person whose relationship with the parties or the counsel or the
subject-matter of the dispute falls under the Seventh Schedule.
The sub-section then declares that such person shall be
"ineligible" to be appointed as arbitrator. The only way in which
this ineligibility can be removed is by the proviso, which again is a
special provision which states that parties may, subsequent to
disputes having arisen between them, waive the applicability of
Section 12(5) by an express agreement in writing. What is clear,
therefore, is that where, under any agreement between the parties,
a person falls within any of the categories set out in the Seventh
Schedule, he is, as a matter of law, ineligible to be appointed as an
arbitrator. The only way in which this ineligibility can be removed,
again, in law, is that parties may after disputes have arisen
between them, waive the applicability of this sub-section by an
"express agreement in writing". Obviously, the "express agreement
in writing" has reference to a person who is interdicted by the
Seventh Schedule, but who is stated by parties (after the disputes
have arisen between them) to be a person in whom they have faith
notwithstanding the fact that such person is interdicted by the
Seventh Schedule.
***
20. This then brings us to the applicability of the proviso to
Section 12(5) on the facts of this case. Unlike Section 4 of the Act
which deals with deemed waiver of the right to object by conduct,
the proviso to Section 12(5) will only apply if subsequent to
disputes having arisen between the parties, the parties waive the
applicability of sub-section (5) of Section 12 by an express
agreement in writing. For this reason, the argument based on the
analogy of Section 7 of the Act must also be rejected. Section 7
deals with arbitration agreements that must be in writing, and
then explains that such agreements may be contained in
documents which provide a record of such agreements. On the
other hand, Section 12(5) refers to an "express agreement in
writing". The expression "express agreement in writing" refers to
an agreement made in words as opposed to an agreement which is
to be inferred by conduct. Here, Section 9 of the Contract Act,
1872 becomes important. It states:
"9. Promises, express and implied.--Insofar as a proposal or
acceptance of any promise is made in words, the promise is said to
be express. Insofar as such proposal or acceptance is made
otherwise than in words, the promise is said to be implied."
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It is thus necessary that there be an "express" agreement in
writing. This agreement must be an agreement by which both
parties, with full knowledge of the fact that Shri Khan is ineligible
to be appointed as an arbitrator, still go ahead and say that they
have full faith and confidence in him to continue as such. The
facts of the present case disclose no such express agreement. The
appointment letter which is relied upon by the High Court [Bharat
Broadband Network Ltd. v. United Telecoms Ltd., 2017 SCC OnLine
Del 11905] as indicating an express agreement on the facts of the
case is dated 17-1-2017. On this date, the Managing Director of
the appellant was certainly not aware that Shri Khan could not be
appointed by him as Section 12(5) read with the Seventh Schedule
only went to the invalidity of the appointment of the Managing
Director himself as an arbitrator. Shri Khan's invalid appointment
only became clear after the declaration of the law by the Supreme
Court in TRF [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC
377 : (2017) 4 SCC (Civ) 72] which, as we have seen hereinabove,
was only on 3-7-2017. After this date, far from there being an
express agreement between the parties as to the validity of Shri
Khan's appointment, the appellant filed an application on 7-10-
2017 before the sole arbitrator, bringing the arbitrator's attention
to the judgment in TRF [TRF Ltd. v. Energo Engg. Projects Ltd.,
(2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] and asking him to
declare that he has become de jure incapable of acting as an
arbitrator. Equally, the fact that a statement of claim may have
been filed before the arbitrator, would not mean that there is an
express agreement in words which would make it clear that both
parties wish Shri Khan to continue as arbitrator despite being
ineligible to act as such. This being the case, the impugned
judgment is not correct when it applies Section 4, Section 7,
Section 12(4), Section 13(2), and Section 16(2) of the Act to the
facts of the present case, and goes on to state that the appellant
cannot be allowed to raise the issue of eligibility of an arbitrator,
having itself appointed the arbitrator. The judgment under appeal
is also incorrect in stating that there is an express waiver in
writing from the fact that an appointment letter has been issued
by the appellant, and a statement of claim has been filed by the
respondent before the arbitrator. The moment the appellant came
to know that Shri Khan's appointment itself would be invalid, it
filed an application before the sole arbitrator for termination of his
mandate.' "
60. In the decision of Sohan Minerals (supra), this Court held as
follows:-
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"15. The correspondence exchanged between the parties do not
establish that the petitioner waived its objection by express
agreement. Participation in the arbitration proceeding per se does
not qualify as an express agreement in writing to waive the
objection under Section 12(5) of the Act of 1996 by participating
in the arbitration proceeding.
16. The appointment of the Arbitrator being de jure bad, is
required to be declared as so. This, however, is not a reflection on
the competence or the impartiality of the Arbitrator in any
manner whatsoever."
61. It is well settled that participation in an arbitral proceeding does
not amount to waiver. Moreover in this case, the learned advocate
submitted that, unless the subsequent loan agreement was handed
over to the petitioner, the petitioner would not be in a position to either
file their written statement or participate in the proceeding. Such
participation will not amount to waiver as contemplated under the
proviso to Section 12(5) of the said Act.
62. With regard to unilateral appointment, the Dispute Resolution
Clause provides that a sole arbitrator shall be appointed by the
Company. This provision is contrary to law and could not have been
invoked, after the amendment of the said Act of 2015. The proper
course of action should have been for the respondent to approach this
court for appointment of an arbitrator under section 11(6) of the said
Act. Section 12(5) and 8, 18 are quoted below:-
"12(5) Notwithstanding any prior agreement to the contrary, any
person whose relationship, with the parties or counsel or the
subject-matter of the dispute, falls under any of the categories
specified in the Seventh Schedule shall be ineligible to be
appointed as an arbitrator:
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Provided that parties may, subsequent to disputes having arisen
between them, waive the applicability of this sub-section by an
express agreement in writing"
"8. Power to refer parties to arbitration where there is an
arbitration agreement.-- (1)A judicial authority, before which an
action is brought in a matter which is the subject of an
arbitration agreement shall, if a party to the arbitration
agreement or any person claiming through or under him, so
applies not later than the date of submitting his first statement
on the substance of the dispute, then, notwithstanding any
judgment, decree or order of the Supreme Court or any Court,
refer the parties to arbitration unless it finds that prima facie no
valid arbitration agreement exists.
(2) The application referred to in sub-section (1) shall not be
entertained unless it is accompanied by the original arbitration
agreement or a duly certified copy thereof:
[Provided that where the original arbitration agreement or a
certified copy thereof is not available with the party applying for
reference to arbitration under sub-section (1), and the said
agreement or certified copy is retained by the other party to that
agreement, then, the party so applying shall file such application
along with a copy of the arbitration agreement and a petition
praying the Court to call upon the other party to produce the
original arbitration agreement or its duly certified copy before
that Court.]
(3) Notwithstanding that an application has been made under
sub-section (1) and that the issue is pending before the judicial
authority, an arbitration may be commenced or continued and an
arbitral award made."
"18. Equal treatment of parties.--The parties shall be treated
with equality and each party shall be given a full opportunity to
present this case."
63. Unilateral appointment is contrary to the concept of equal
treatment of the parties in an arbitral proceeding and it operates from
the very stage of the appointment of the arbitrator. The law provides
that the parties can agree to settlement of the dispute through an
alternative dispute redressal mechanism, but the tribunal constituted
as per the agreement shall be independent and impartial. The
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arbitrator can never be a chosen person of only one party. The said
unilateral appointment is totally contrary to party autonomy. Each
party has an equal role in the matter of appointment/nomination of the
tribunal and parties must have confidence that the Arbitrator will not
be biased. As the lender(respondent) and/or any of its officers was
unable to act as an Arbitrator, the said respondent was disqualified by
law from appointing an Arbitrator.
64. The relevant paragraphs of Perkins Eastman Architects DPC
and Another vs. HSCC (India) Ltd. reported in 2019 SCC OnLine SC
1517 are quoted below:-
..."20. We thus have two categories of cases. The first, similar
to the one dealt with in TRF Ltd. [TRF Ltd. v. Energo Engg.
Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] where
the Managing Director himself is named as an arbitrator with
an additional power to appoint any other person as an
arbitrator. In the second category, the Managing Director is
not to act as an arbitrator himself but is empowered or
authorised to appoint any other person of his choice or
discretion as an arbitrator. If, in the first category of cases,
the Managing Director was found incompetent, it was
because of the interest that he would be said to be having in
the outcome or result of the dispute. The element of invalidity
would thus be directly relatable to and arise from the interest
that he would be having in such outcome or decision. If that
be the test, similar invalidity would always arise and spring
even in the second category of cases. If the interest that he
has in the outcome of the dispute, is taken to be the basis for
the possibility of bias, it will always be present irrespective of
whether the matter stands under the first or second category
of cases. We are conscious that if such deduction is drawn
from the decision of this Court in TRF Ltd. [TRF
Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017)
4 SCC (Civ) 72] , all cases having clauses similar to that with
which we are presently concerned, a party to the agreement
would be disentitled to make any appointment of an
arbitrator on its own and it would always be available to
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argue that a party or an official or an authority having
interest in the dispute would be disentitled to make
appointment of an arbitrator.
21. But, in our view that has to be the logical deduction
from TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017)
8 SCC 377 : (2017) 4 SCC (Civ) 72] Para 50 of the decision
shows that this Court was concerned with the issue, "whether
the Managing Director, after becoming ineligible by operation
of law, is he still eligible to nominate an arbitrator" The
ineligibility referred to therein, was as a result of operation of
law, in that a person having an interest in the dispute or in
the outcome or decision thereof, must not only be ineligible to
act as an arbitrator but must also not be eligible to appoint
anyone else as an arbitrator and that such person cannot and
should not have any role in charting out any course to the
dispute resolution by having the power to appoint an
arbitrator. The next sentences in the paragraph, further show
that cases where both the parties could nominate respective
arbitrators of their choice were found to be completely a
different situation. The reason is clear 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. But, in a case where only one party has a
right to appoint a sole arbitrator, its choice will always have
an element of exclusivity in determining or charting the
course for dispute resolution. Naturally, the person who has
an interest in the outcome or decision of the dispute must not
have the power to appoint a sole arbitrator. That has to be
taken as the essence of the amendments brought in by the
Arbitration and Conciliation (Amendment) Act, 2015 (3 of
2016) and recognised by the decision of this Court in TRF
Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC
377 : (2017) 4 SCC (Civ) 72]
...
24. In Voestalpine [Voestalpine Schienen GmbH v. DMRC,
(2017) 4 SCC 665 : (2017) 2 SCC (Civ) 607] , this Court dealt
with independence and impartiality of the arbitrator as under
: (SCC pp. 687-88 & 690-91, paras 20 to 22 & 30)
"20. Independence and impartiality of the arbitrator are the
hallmarks of any arbitration proceedings. Rule against bias is
one of the fundamental principles of natural justice which
applied to all judicial and quasi-judicial proceedings. It is for
this reason that notwithstanding the fact that relationship
between the parties to the arbitration and the arbitrators
themselves are contractual in nature and the source of an
arbitrator's appointment is deduced from the agreement
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entered into between the parties, notwithstanding the same
non-independence and non-impartiality of such arbitrator
(though contractually agreed upon) would render him
ineligible to conduct the arbitration. The genesis behind this
rational is that even when an arbitrator is appointed in terms
of contract and by the parties to the contract, he is
independent of the parties. Functions and duties require him
to rise above the partisan interest of the parties and not to act
in, or so as to further, the particular interest of either parties.
After all, the arbitrator has adjudicatory role to perform and,
therefore, he must be independent of parties as well as
impartial. The United Kingdom Supreme Court has
beautifully highlighted this aspect
in Hashwani v. Jivraj [Hashwani v. Jivraj, (2011) 1 WLR 1872
: 2011 UKSC 40] in the following words : (WLR p. 1889, para
45)
'45. ... the dominant purpose of appointing an arbitrator or
arbitrators is the impartial resolution of the dispute between
the parties in accordance with the terms of the agreement
and, although the contract between the parties and the
arbitrators would be a contract for the provision of personal
services, they were not personal services under the direction
of the parties.'
21. Similarly, Cour de Cassation, France, in a judgment
delivered in 1972 in Consorts Ury [Fouchard, Gaillard,
Goldman on International Commercial Arbitration, 562
[Emmanuel Gaillard & John Savage (Eds.) 1999] {quoting
Cour de cassation [Cass.] [Supreme Court for judicial
matters] Consorts Ury v. S.A. des Galeries Lafayette, Cass. 2e
civ., 13-4-1972, JCP, Pt. II, No. 17189 (1972) (France)}.] ,
underlined that:
'an independent mind is indispensable in the exercise of
judicial power, whatever the source of that power may be, and
it is one of the essential qualities of an arbitrator'.
22. Independence and impartiality are two different concepts.
An arbitrator may be independent and yet, lack impartiality,
or vice versa. Impartiality, as is well accepted, is a more
subjective concept as compared to independence.
Independence, which is more an objective concept, may, thus,
be more straightforwardly ascertained by the parties at the
outset of the arbitration proceedings in light of the
circumstances disclosed by the arbitrator, while partiality will
more likely surface during the arbitration proceedings.
***
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30. Time has come to send positive signals to the
international business community, in order to create healthy
arbitration environment and conducive arbitration culture in
this country. Further, as highlighted by the Law Commission
also in its report, duty becomes more onerous in government
contracts, where one of the parties to the dispute is the
Government or public sector undertaking itself and the
authority to appoint the arbitrator rests with it. In the instant
case also, though choice is given by DMRC to the opposite
party but it is limited to choose an arbitrator from the panel
prepared by DMRC. It, therefore, becomes imperative to have
a much broadbased panel, so that there is no
misapprehension that principle of impartiality and
independence would be discarded at any stage of the
proceedings, specially at the stage of constitution of the
Arbitral Tribunal. We, therefore, direct that DMRC shall
prepare a broadbased panel on the aforesaid lines, within a
period of two months from today..."
65. In the decision of Central Organisation for Railway
Electrification vs. ECI SPIC SMO MCML (JV) A Joint Venture
Company reported in 2024 SCC OnLine SC 3219, the Hon'ble Apex
Court considered the issues with regard to ineligibility of an arbitrator
by operation of law under the amended Act of 1996. It was held that
unilateral appointment of an arbitrator was violative of Section 18 of
the said Act. The law mandated that the parties should be treated
equally. The relevant paragraphs are quoted below:-
"133. Many PSUs are regularly involved in arbitration
disputes and constantly need the services of arbitrators. Such
institutions often maintain a pool of potential arbitrators with the
sole object of having a ready pool of qualified professionals who
have committed their time and consented to act as arbitrators for
fixed fees. The Arbitration Act does not prohibit parties to an
arbitration agreement from maintaining a curated panel of
potential arbitrators. However, the problem arises when the PSUs
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make it mandatory for other parties to select their nominees from
the curated panel of arbitrators. When a PSU exercises its
discretion to curate a panel, the very factor that the PSU is
choosing only a certain number of persons as potential
arbitrators and not others will raise a reasonable doubt in the
mind of a fair-minded person. The PSUs may conceivably have
nominated a person on the panel of potential arbitrators because
they have a certain predisposition in favour of the former. This
doubt is reinforced when the other party is given no choice but to
select its arbitrator from the curated panel.
134. In CORE (supra), the three-member tribunal was sought
to be constituted in the following manner : (i) the Railways would
suggest at least four names of retired railway officers; (ii) the
contractor would select two names out of the panel for
appointment as their arbitrator; (iii) The General Manager (of the
Railways) would thereafter choose at least one person out of the
two to be appointed as the contractor's arbitrator; and (iv) The
General Manager would proceed to appoint the balance
arbitrators from the panel or outside the panel and also indicate
the presiding arbitrator.
135. Such an arbitrator-appointment clause is likely to give
rise to justifiable doubts as to the independence and impartiality
of arbitrators for two reasons : (i) the contractor is restricted to
choosing its arbitrator from the panel of four arbitrators
nominated by the party who is a disputant; and (ii) the
contractor's choice is further constrained because it is made
subject to the decision of the General Manager who will choose
one among the two persons suggested by the party. Since the
contractor has to select its arbitrator from a curated panel, the
arbitration clause does not allow the contractor equal
participation in the appointment of their arbitrator. Moreover, the
clause allows the General Manager to appoint the balance
arbitrators from either the panel or outside the panel. Thus, the
process of appointing the arbitrators is unequal because the
General Manager can go beyond the panel of four potential
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arbitrators, while the contractor is bound by the names enlisted
in the panel.
136. In a three-member tribunal, the independence and
impartiality of a third or presiding arbitrator are prerequisites to
the integrity of the arbitral proceedings. In CORE (supra), the
arbitration clause allowed the General Manager to unilaterally
nominate the presiding officer out of the panel of three
arbitrators. The clause does not countenance any participation
from the contractor in the process of appointing or nominating
the presiding officer. Thus, the process of appointing and
nominating the presiding officer is unequal and prejudiced in
favour of the Railways. The fact that the General Manager is
nominating the presiding officer gives rise to a reasonable doubt
about the independence and impartiality of the entire arbitration
proceedings.
137. Given the above discussion, it needs reiteration that the
Arbitration Act does not prohibit PSUs from empanelling
potential arbitrators. However, an arbitration clause cannot
mandate the other party to select its arbitrator from the panel
curated by PSUs. The PSUs can give a choice to the other party to
select its arbitrators from the curated list provided the other
party expressly waives the applicability of the nemo judex rule."
In paragraph 169 of the majority view, the Hon'ble Apex Court
concluded thus:-
"169. In view of the above discussion, we conclude that:
a. The principle of equal treatment of parties applies at all
stages of arbitration proceedings, including the stage of
appointment of arbitrators ;
b. The Arbitration Act does not prohibit PSUs from
empanelling potential arbitrators. However, an arbitration
clause cannot mandate the other party to select its
arbitrator from the panel curated by PSUs;
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c. A clause that allows one party to unilaterally appoint a sole
arbitrator gives rise to justifiable doubts as to the
independence and impartiality of the arbitrator. Further,
such a unilateral clause is exclusive and hinders equal
participation of the other party in the appointment process
of arbitrators;
d. In the appointment of a three-member panel, mandating
the other party to select its arbitrator from a curated panel
of potential arbitrators is against the principle of equal
treatment of parties. In this situation, there is no effective
counterbalance because parties do not participate equally
in the process of appointing arbitrators. The process of
appointing arbitrators in CORE (supra) is unequal and
prejudiced in favour of the Railways;
e. Unilateral appointment clauses in public-private contracts
are violative of Article 14 of the Constitution ;
f. The principle of express waiver contained under the proviso
to Section 12(5) also applies to situations where the parties
seek to waive the allegation of bias against an arbitrator
appointed unilaterally by one of the parties. After the
disputes have arisen, the parties can determine whether
there is a necessity to waive the nemo judex rule; and
g. The law laid down in the present reference will apply
prospectively to arbitrator appointments to be made after
the date of this judgment. This direction applies to three-
member tribunals.
170. The reference is answered in the above terms.
171. Pending application(s), if any, shall stand disposed of."
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66. In the decision of Proddatur Cable TV Digi Services v. Siti
Cable Network Ltd., reported in 2020 SCC OnLine Del 350, the
Delhi High Court held as follows:-
"25. Insofar as the reliance by the respondent on the
judgments permitting unilateral appointment by the Authority
designate of one party to the agreement is concerned, in my
view, the same will have no relevance in view of the judgment
of the Supreme Court in the case of Perkins (supra). The
argument of the respondent that in the Arbitration Clause
before the Supreme Court in the case of Perkins was with
regard to the power of a Managing Director to appoint an
Arbitrator whereas in the present case it is the Company only
merits rejection. First and foremost, one has to see the
rationale and the reasoning behind the judgment in the case
of Perkins (supra). The Supreme Court held that the
Managing Director was ineligible from appointing an
Arbitrator on the simple logic that a Managing Director of a
Company would always have an interest in the outcome of the
arbitration proceedings. The interest in this context takes the
shape of bias and partiality. As a natural corollary, if the
Managing Director suffers this disability, even if he was to
appoint another person as an Arbitrator, the thread of
biasness, partiality and interest in the outcome of the dispute
would continue to run. Seen in this light, it can hardly be
argued that the judgment in Perkins (supra) will not apply
only because the designated Authority empowered to appoint
an Arbitrator is other than a Managing Director. Moreover, as
brought out by the respondent itself, Company here is run by
the Board of Directors. The 'Board of Directors' is defined in
Section 2(10) of the Companies Act, 2013 as under:
"2(10) "Board of Directors" or "Board", in relation to a company,
means the collective body of the directors of the company."
26. Thus, the Company is run none other than the Directors
collectively. Duties of the Directors have been stipulated in
Section 166 of the Companies Act, 2013. A bare perusal of
the duties clearly reveals that the Director at all times, has to
act in good faith to promote the objects of the Company and
in the best interest of the Company, its employees and the
shareholders. A Director shall not involve in a situation in
which he may have a direct or an indirect interest that
conflicts or possibly may conflict with the interest of the
Company. It goes without saying that the Directors of the
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Company as a part of the Board of the Directors would be
interested in the outcome of the Arbitration proceedings. The
Company therefore, acting through its Board of Directors
would suffer the ineligibility under Section 12(5) read with
Schedule VII of the Act. The same ineligibility would also
apply to any person appointed by the said Company. Thus, in
my view, for the purposes of Section 11(6) and Section 12(5)
read with Schedule VII, there cannot be a distinction based
on the appointing authority being a Company."
67. In the decision of Chennai Metro Rail Ltd. v. Transtonnelstroy
Afcons (JV) and Anr., reported in (2024) 6 SCC 211, the Hon'ble Apex
Court held as follows:-
"33. The decisions in HRD [HRD Corpn. v. GAIL, (2018) 12 SCC
471 : (2018) 5 SCC (Civ) 401] and Bharat Broadband [Bharat
Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC
755 : (2019) 3 SCC (Civ) 1] are unequivocal and to the effect that
the issue of bias should be raised before the same Tribunal at the
earliest opportunity. The advertence of the time-limit of 15 days
is nothing but a statutory incorporation of that idea. However,
when the grounds enumerated in the Seventh Schedule occur or
are brought to the notice of one party unless such party
expressly waives its objections, it is ipso facto sufficient for that
party, to say that the Tribunal's mandate is automatically
terminated. The party aggrieved then can go ahead and challenge
the Tribunal's continuation with the proceedings under Section
14."
68. Thus, when the arbitrator was de jure unable to perform, he did
not have a mandate. Hence the petitioners did not continue to
participate. The petitioners did not challenge the proceeding on such
ground before the said Arbitrator, but nothing prevents the petitioners
from challenging the award on the ground of nullity.
69. Under such circumstances, the application is entertained by the
Court, and the impugned award is set aside on the ground of lack of
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mandate of the learned Arbitrator to adjudicate the dispute. The award
is a nullity as the constitution of the tribunal was contrary to law and
in disregard to the decisions of the Hon'ble Apex Court. The award is
opposed to public policy, inasmuch as, the Arbitrator was de jure
unable to act as the adjudicator. Unilateral appointment of an
arbitrator is voilative of principles of natural justice and offends the
very concept of just and fair treatment of the parties in the proceeding.
The award is also hit by the doctrine of bias. Bias also constitutes a
reasonable apprehension that the Arbitrator, who was chosen by the
respondent, would not decide the dispute independently. Likelihood of
bias or reasonable apprehension of bias, also vitiates the award.
70. The application is allowed.
71. There shall be, however, no order as to costs.
(i) Urgent certified website copies of this judgment, if applied for, be
supplied to the parties expeditiously on compliance with the usual
formalities.
( Shampa Sarkar, J. )
