[Cites 24, Cited by 0]
Calcutta High Court
Mahua Bhaumik And Anr vs Urgo Capital Limited on 19 December, 2025
IN THE HIGH COURT AT CALCUTTA
(COMMERCIAL DIVISION)
ORIGINAL SIDE
RESERVED ON: 09.12.2025
DELIVERED ON: 19.12.2025
PRESENT:
HON'BLE JUSTICE GAURANG KANTH
AP-COM 908 OF 2025
MAHUA BHAUMIK AND ANR
VERSUS
URGO CAPITAL LIMITED
Appearance:
Mr. Kumarjit Banerjee, Adv.
..... for the petitioner
Mr. K.K. Pandey, Adv. ..... for the respondent
JUDGMENT
Gaurang Kanth, J.:-
1. The Petitioner has preferred the present petition under Section 14 of the
Arbitration and Conciliation Act, 1996, seeking termination of the mandate
of the Sole Arbitrator appointed by Ordways Solutions Pvt. Ltd., also
known as "SAMA". The challenge is primarily directed against the alleged
unilateral appointment of the Arbitrator pursuant to Clause 18 of the loan
agreement dated 30.09.2024.
2. The facts leading to the present Petition are as follows:
3. Petitioner No. 1 is the sole proprietor of M/s Reliance Roadlines, a
proprietorship concern registered as a Micro, Small and Medium
Enterprise (MSME). The said firm is engaged in providing transportation
services for carriage of textile and fabric consignments from India to
Bangladesh.
4. On 30.09.2024, a loan agreement was executed between the Petitioners
(Petitioner No. 1 as borrower and Petitioner No. 2 as co-borrower) and the
Respondent. Pursuant thereto, the Petitioners availed a loan facility of Rs.
20,36,500/- from the Respondent.
5. The Petitioners submit that, owing to the prevailing political instability in
Bangladesh, including frequent strikes, transport blockades, and severe
slowdowns at land ports, there were substantial operational disruptions in
cross-border transport. These circumstances allegedly led to prolonged
transit times, scarcity of essential workforce, and a significant decline in
the turnover of M/s Reliance Roadlines, resulting in acute financial
distress and temporary irregularities in repayment of monthly instalments
from April 2025 onwards.
6. It is further stated that the default in payment of certain instalments was
not deliberate. The Petitioners assert that they have never intended to
evade repayment and that the last instalment of Rs. 74,650/- was duly
paid on 24.04.2025.
7. The Reserve Bank of India, acting as the principal banking regulator,
issued a notification dated 17.03.2016 introducing the Framework for
Revival and Rehabilitation of Micro, Small and Medium Enterprises, aimed
at providing timely support to fundamentally viable MSMEs facing
temporary financial stress. The Framework obligates lenders to identify
stressed accounts at an early stage and to formulate a Corrective Action
Plan (CAP) to revive them, prior to the account being classified as a Non-
Performing Asset.
8. On 08.10.2025, the Petitioner addressed a representation to the
Respondent requesting initiation of the revival and rehabilitation process
under the aforesaid RBI Framework. According to the Petitioners, instead
of considering such request, the Respondent issued a loan recall notice
dated 10.10.2025.
9. The loan agreement contains an arbitration clause (Clause 18) providing
that disputes shall be referred to an institution recognized by the
Government of India for dispute resolution. Vide notice dated 11.11.2025,
the Respondent invoked the arbitration clause and initiated arbitral
proceedings under Section 21 of the Arbitration and Conciliation Act, 1996.
By the said notice, the Respondent proposed SAMA (Ordways Solutions Pvt.
Ltd.), a private online dispute resolution platform, as the appointing
authority and sought the Petitioners' consent within seven days.
10. The Petitioners, vide communication dated 18.11.2025, objected to the
Respondent's proposal for reference to SAMA and also addressed a
separate letter to SAMA recording their objection to its involvement in the
appointment process.
11. Notwithstanding the Petitioners' objections, SAMA, on 19.11.2025,
appointed a Sole Arbitrator. The Respondent thereafter filed its Statement
of Claim and an application under Section 17 of the Act on 24.11.2025.
The learned Sole Arbitrator has also furnished the disclosure required
under Section 12 of the Arbitration and Conciliation Act, 1996.
12. Aggrieved by the appointment of the Arbitrator through SAMA, the
Petitioners have filed the present petition under Section 14 of the Act
seeking termination of the mandate of the learned Sole Arbitrator.
Submissions on behalf of the Petitioners
13. Learned Counsel for the Petitioners, Mr. Kumarjit Banerjee, submits that
Clause 18 of the agreement contemplates reference of disputes only to an
institution recognized by the Government of India. It is argued that the
Petitioners never consented to the appointment of an arbitrator through a
private online dispute resolution platform such as SAMA (Ordways
Solutions Pvt. Ltd.), and that recourse to such a forum is contrary to the
agreed contractual mechanism.
14. It is contended that, in the absence of consensus between the parties
regarding the appointment procedure, the Respondent ought to have
invoked Section 11(3A) of the Arbitration and Conciliation Act, 1996, for
appointment of an arbitrator in accordance with law, rather than
unilaterally initiating the process through a private platform.
15. Learned Counsel further submits that the appointment of the Sole
Arbitrator is vitiated by unilateralism. Reliance is placed upon the
judgments of this Court and the Delhi High Court, Ballarpur Industries
Ltd. v. S.G. Enterprises, OMP(T) (Comm) 40/2024; Proddatur Cable
TV Digi Services v. Siti Cable Network Ltd., reported as 2020 SCC
OnLine Del 350; and this Court's decision in Bhubaneshwari Seafood
Pvt. Ltd. & Anr. v. Ugro Capital Ltd., APOT/296/2024, to contend that
a unilateral appointment of an arbitrator is impermissible in law and
stands condemned by consistent judicial authority.
16. It is further argued that, in view of the aforesaid precedents, any
appointment made unilaterally or through a procedure not mutually
agreed to by the parties renders the arbitrator de jure ineligible under the
scheme of the Act. The Petitioners thus submit that the present case falls
within the ambit of Section 14, and the mandate of the arbitrator is liable
to be terminated on account of the inherent illegality in the appointment
process.
17. In view of these circumstances, it is prayed that the mandate of the
Arbitral Tribunal be terminated.
Submissions on behalf of the Respondent
18. Mr. K.K. Pandey, Learned Counsel for the Respondent, submits that
SAMA is an independent private dispute resolution platform operating
through its own institutional framework, and that the appointment of the
Sole Arbitrator has been carried out strictly in accordance with such
independent mechanism. It is urged that the Respondent had no role or
influence in the selection or appointment of the Arbitrator, and therefore
the allegation of unilateral appointment is misconceived.
19. It is further contended that the Arbitrator has been appointed pursuant to
the institutional procedure contemplated under the agreement, and that
the learned Sole Arbitrator is a neutral third party having no connection
with any of the litigating parties. The Arbitrator has already furnished the
requisite declaration of independence and impartiality under Section 12 of
the Act. Reliance is placed on Chennai Metro Rail Limited
Administrative Building v. Transtonnelstory Afcons (JV), reported as
2024 (6) SCC 211, to contend that where an arbitrator has been
appointed through a neutral and independent institutional mechanism,
courts ought not to interfere with such appointments at the threshold.
20. Learned Counsel further submits that the Petitioners have not made out
any case of de jure ineligibility or de facto inability of the Arbitrator. It is
submitted that the present case does not attract the Seventh Schedule or
even the Fifth Schedule of the Act, and therefore no case for termination of
mandate under Section 14 is made out. Reliance is placed on Societe
Pepper Grenoble SARL v. Union of India, reported as 2004 (75) DRJ 74,
and National Highways Authority of India v. K.K. Sarin, reported as
2009 SCC OnLine Del 764, to argue that mere dissatisfaction with the
mode of appointment of the arbitrator, in the absence of any specific
circumstances indicating bias or lack of independence or statutory
ineligibility, does not warrant the invocation of jurisdiction under Section
14 of the Arbitration and Conciliation Act, 1996.
21. It is further argued that the statutory framework of the act unequivocally
mandates that any challenge to the Arbitrator on the ground of alleged
bias or procedural infirmity must, in the first instance, be raised before the
Arbitral Tribunal under Section 13 of the Act. The legal position stands
reaffirmed by the Hon'ble Supreme Court in Central Organisation for
Railway Electrification v. ECI-SPIC-SMO-MCML (JV), reported as 2024
SCC OnLine SC 3219. The Supreme Court has clarified that the act
provides a complete and self-contained mechanism, whereby objections
relating to the constitution of the tribunal or the conduct of the arbitrator
are to be decided by the tribunal itself, and only upon the conclusion of
the arbitral proceedings may the aggrieved party invoke the remedy under
Section 34 of the Act. Consequently, it is submitted that the present
petition under Section 14 is not maintainable, as the grievances sought to
be raised do not disclose any de jure or de facto inability of the arbitrator
to perform his mandate, but rather fall squarely within the statutory ambit
of Sections 12, 13 and 16 of the Act.
Legal Analysis
22. This Court has heard the submissions advanced by the learned counsel for
both parties and has carefully examined the documents placed on record.
23. The arbitration clause governing the rights and obligations of the parties
reads as follows:
"Clause 18- Arbitration and Dispute settlement
(a) All claims, disputes differences, or questions of any nature arising
between the parties whether during or after the termination of this
agreement in relation to the construction, meaning or interpretation of any
term used or clause of this agreement or as to the rights, duties, and
liabilities of the parties arising out of this agreement shall be resolved
through arbitration which shall be administered by an institution
recognized by the Government of India for dispute resolution, such
institution will appoint the arbitrator for conducting the arbitration
proceedings in accordance with its rules for conduct of arbitration
proceedings under the Arbitration and Conciliation Act, 1996 as may be
amended from time to time. The arbitration proceedings shall be
conducted preferably through online means or otherwise through
conventional means in English language. The arbitral award shall be final
and binding on the parties. The seat and venue of arbitration (if
conducted through conventional means) shall be at Kolkata.
(b) the award given by the Arbitrator shall be final and binding on the parties
to this agreement. The cost of the arbitration shall be both with the parties
in accordance with the award passed by the Arbitrator."
24. A plain reading of Clause 18 unequivocally reflects the intention of the
parties that the arbitration proceedings shall be conducted by an
institution recognized by the Government of India. However, in deviation
from the said contractual stipulation, the respondent unilaterally
approached a private online dispute resolution forum. The petitioner, upon
becoming aware of this deviation, promptly raised objections to this course
of action and communicated the same to both the said institution and the
respondent. Nevertheless, the appointment process was carried forward,
resulting in the constitution of a sole arbitrator, who subsequently
furnished a declaration under Section 12(5) of the Act, asserting his
independence and impartiality.
25. Against this factual backdrop, the primary issue that arises for
consideration is whether the constitution of the Arbitral Tribunal in a
manner allegedly inconsistent with the agreed procedure and without the
concurrence of both parties, ipso facto, constitutes a "de jure" inability of
the arbitrator within the meaning of Section 14 of the Arbitration and
Conciliation Act, 1996.
26. Before examining this question, it is necessary to consider the scheme of
Sections 14, 15 and 16 of the Act.
27. A combined reading of Sections 14, 15 and 16 reveals a carefully
calibrated legislative framework, which draws a clear distinction between (i)
contingencies in which the mandate of an arbitrator stands terminated
automatically, and (ii) all other jurisdictional challenges pertaining to the
constitution or authority of the arbitral tribunal. Section 14 provides for
termination of the mandate only in narrowly defined circumstances. Under
Section 14(1)(a), termination occurs where the arbitrator becomes "de jure"
or "de facto" unable to perform his functions. The expression "de jure"
inability refers to a legal ineligibility or statutory bar, and whereas "de
facto" inability pertains to factual incapacity or failure to act without
undue delay. Section 14(1)(b) recognizes termination of mandate in cases
where the arbitrator withdraws or where the parties mutually agree to
terminate the mandate. Where a dispute arises as to the existence of any
of the aforesaid contingencies, Section 14(2) permits the aggrieved party to
approach the Court. However, the scope of judicial scrutiny under Section
14(2) remains strictly confined to examine whether the limited statutory
grounds enumerated under Section 14(1) are in fact attracted.
28. Once termination under Section 14(1) is established, Section 15 functions
as a consequential mechanism, requiring that a substitute arbitrator be
appointed strictly in accordance with the same procedure or rules that
governed the original appointment.
29. In contrast, Section 16 is the statutory repository for all other challenges
relating to the jurisdiction of the arbitral tribunal, including objections to
the validity of the arbitration agreement, the competence of the tribunal, or
alleged irregularities in the appointment process. The arbitral tribunal, by
virtue of the doctrine of kompetenz-kompetenz, is empowered to decide
such objections in the first instance. If the tribunal rejects a Section 16
challenge and upholds its jurisdiction, the aggrieved party may either raise
the issue under Section 34 after the award or invoke the appellate remedy
under Section 37(2). The statutory framework thus ensures that all
jurisdictional objections, save those falling within the narrow confines of
Section 14, must first be addressed before the tribunal.
30. The contours of Section 14 have been authoritatively clarified by the
Hon'ble Supreme Court in HRD Corporation v. GAIL (India) Ltd.,
reported as (2018) 12 SCC 471 and Bharat Broadband Network Ltd. v.
United Telecoms Ltd., reported as (2019) 5 SCC 755. In HRD
Corporation (supra), the Court held that Section 14 applies only where the
arbitrator suffers from a "de jure" or "de facto" inability to perform his
functions. "De jure" incapacity predominantly covers statutory ineligibility
under the Seventh Schedule, in which case termination is automatic and
does not require recourse to Section 13. "De facto" incapacity concerns
factual impossibility such as illness or non-performance. The Court
emphasized that issues of bias, and independence must be addressed
through the mechanism under Sections 12(3) and 13, and not under
Section 14. In Bharat Broadband (supra), the Supreme Court reaffirmed
that statutory ineligibility under the Seventh Schedule results in automatic
termination under Section 14(1)(a), and that substitution under Section 15
must follow the original contractual process. These precedents underscore
that Section 14 is confined to clear cases of ineligibility or incapacity and
cannot be invoked for broader appointment or jurisdiction related
objections, which fall within the domain of Section 16.
31. Returning to the present case, the respondent, contrary to the arbitration
clause, invoked a private dispute resolution forum for the appointment of
the arbitrator. The Hon'ble Supreme Court in Perkins Eastman
Architects DPC v. HSCC (India) Ltd., reported as (2020) 20 SCC 760,
has categorically held that unilateral appointments violate the
fundamental requirement of neutrality embedded in the Act. The
Constitution Bench in Central Organisation for Railway
Electrification v. ECI-SPIC-SMO-MCML (JV), reported as (2025) 4 SCC
641, has categorically held that parity and equality between the parties
must be maintained at every stage of the appointment process, and that
no party can claim a unilateral or dominant role. The Court further held
that unilateral appointment clauses in public-private contracts violate
Article 14 of the Constitution of India. The relevant portion reads as
follows:
"Independence and impartiality of the arbitral proceedings and equality of
parties are concomitant principles. The independence and impartiality of
arbitral proceedings can be effectively be enforced only if the parties can
participate equally at all stages of an arbitral process. Therefore, the principle of
equal treatment of parties applies at all stages of arbitral proceedings, including
the stage of the appointment of the arbitrators."
In the said judgment, the Hon'ble Supreme court categorically held that
'Unilateral appointment clauses in public-private contracts are violative of
Article 14 of the Constitution."
32. Tested against these principles, the appointment undertaken through
SAMA, without adherence to the agreed inter-party mechanism, is
inconsistent with the statutory mandate of equal participation and with
the foundational principles of party autonomy. The challenge raised by the
petitioner, therefore strikes at the very root of the appointment process. An
arbitrator appointed through a procedure contrary to the contractual
mechanism, and in violation of the principles laid down in Perkins
Eastman (supra) and Central Organisation for Railway Electrification
(supra), suffers from a de jure incapacity to continue, as the defect vitiates
the very source of his authority.
33. The petitioner has also placed reliance upon the decisions of the Delhi High
Court in Ballarpur Industries Ltd. (supra), Proddatur Cable TV Digi
Services (supra), and the decision of the coordinate bench of this Court in
Bhubaneshwari Seafood Pvt. Ltd. (supra), all of which reinforce the
settled principle that unilateral appointment of an arbitrator is
impermissible.
34. In Proddatur Cable (supra), the Delhi High Court, while dealing with a
petition under Sections 14 and 15, held that a clause enabling unilateral
appointment was invalid under Section 12(5) read with Perkins Eastman
(supra). Consequently, the mandate of the arbitrator was terminated and a
substitute arbitrator was appointed in accordance with Section 15 of the
Act. Similarly, in Ballarpur Industries (supra), the appointment was
quashed on the ground of unilateralism in the appointment process. The
decision of the Coordinate Bench of this Court in Bhubaneshwari
Seafood Pvt. Ltd. (supra) does not advance the petitioner's case, as the
Court therein, while expressing a prima facie view on the unilateral
selection of the Online Dispute Resolution Forum, interfered with the
interim order of the Tribunal in the light of the specific facts and
circumstances prevailing in that matter.
35. The respondent, on the other hand, had placed reliance on Societe Pepper
Grenoble (supra) and National Highways Authority of India v. K.K.
Sarin (supra). However, both these decisions pre-date the authoritative
pronouncements of the Hon'ble Supreme Court in Perkins Eastman
(supra) and the Constitution Bench judgment in Central Organisation
for Railway Electrification (supra). In view of the subsequent and
binding clarification of law laid down in these decisions, particularly with
respect to the impermissibility of unilateral appointments and the
mandatory requirement of equal participation of parties, the precedential
value of Societe Pepper Grenoble (supra) and National Highways
Authority of India v. K.K. Sarin (supra) stands substantially diluted,
and they cannot govern the present dispute.
36. These judicial pronouncements unequivocally establish that the unilateral
selection of an appointing institution, without the consent of the petitioner,
deprives the petitioner of an equal and meaningful opportunity to
participate in the constitution of the arbitral tribunal. Such a deviation
strikes at the core principles of party autonomy and equal participation
embodied in the Act. An arbitrator appointed through such a procedurally
unilateral mechanism suffers from de jure incapacity, rendering him
incompetent to continue. Accordingly, in the exercise of jurisdiction under
Section 14(2) of the Act, the mandate of the arbitrator is terminated.
37. In order to do complete justice, this Court enquired from both parties as to
whether they would consent to the appointment of a substitute Arbitrator
by this Court for adjudication of the disputes between them. Both parties
unequivocally stated that they have no objection to the appointment of an
independent arbitrator by this Court. Accordingly, Mr. Sayak Ranjan
Ganguly, Advocate (Mobile No. 9831298043), having his office at 10, Old
Post Office Street, Room No. 82D, Left Wing, 3rd Floor, Kolkata - 700001,
is hereby appointed as the Sole Arbitrator to adjudicate the disputes
between the parties. The learned Sole Arbitrator shall be at liberty to
determine his fees and other terms in accordance with law.
38. This Court clarifies that it has neither examined nor commented upon the
internal procedures of SAMA. The Court's scrutiny is confined solely to the
legal requirement that the constitution of an arbitral tribunal must
conform to one of the two methods recognized under the Act, namely (i)
appointment by mutual consent in accordance with the agreed procedure,
or (ii) appointment pursuant to an order of the Court. Any deviation from
these recognized modes of appointment cannot receive legal sanction.
39. It is further clarified that this Court has not examined the merits of the
dispute, and the learned Sole Arbitrator shall proceed with the arbitral
proceedings uninfluenced by any observations of this Court on the merits.
40. In view of the foregoing discussion, the present petition is allowed.
(GAURANG KANTH, J.)
SAKIL AMED P.A.
