Karnataka High Court
General Insurance Employees Co ... vs Sri.Ramadas Shettigar on 7 August, 2025
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MFA No. 3229 of 2025
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 7TH DAY OF AUGUST, 2025
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MR. JUSTICE C M JOSHI
MISCELLANEOUS FIRST APPEAL NO. 3229 OF 2025 (AA)
BETWEEN:
GENERAL INSURANCE EMPLOYEES'
CO-OPERATIVE CREDIT SOCIETY LTD.
(A SOCIETY REGISTERED UNDER MULTI-STATE
CO-OPERATIVE SOCIETIES ACT)
AJJARKAD, COURT BACK ROAD,
UDUPI - 576101.
REP. BY ITS SECRETARY I/C.
MR. PRABHAKAR K. S. - AGE 52 YEARS
Digitally ...APPELLANT
signed by (BY SRI. MAHESH R UPPIN., ADVOCATE)
AMBIKA H B
Location:
High Court AND:
of Karnataka
1. SRI.RAMADAS SHETTIGAR
S/O. ANAND SHETTIGAR,
AGE 59 YRS.
UNITED INDIA INSURANCE CO. LTD.
DIVISIONAL OFFICE,
UDAYAVANI BUILDING,
TILE FACTORY ROAD,
MANIPAL, UDUPI - 576 104.
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MFA No. 3229 of 2025
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2. SMT. BHARATHI HANDE,
W/O. SHARATH KUMAR,
AGE 51 YEARS,
SUVIDHA HOMES,
VIBHUDAPRIYA NAGAR,
POST: KUNJIBETTU,
UDUPI-576102
3. SRI. S. GURURAJ AITHAL,
S/O. NOT KNOWN TO THE APPELLANT,
AGE 48 YEARS,
ADVOCATE AND ARBITRATOR,
NEAR GIECC SOCIETY HEAD OFFICE,
COURT BACK ROAD, AJJARKAD,
UDUPI-576101
...RESPONDENTS
THIS MFA IS FILED U/S.37(1)(c) OF THE ARBITRATION
AND CONCILIATION ACT, 1996, AGAINST THE ORDER DT.
20.03.2025 PASSED IN A.P.NO. 10/2024 ON THE FILE OF THE
II ADDITIONAL DISTRICT AND SESSIONS JUDGE, UDUPI,
ALLOWING THE PETITION FILED U/S.34 OF THE ARBITRATION
AND CONCILIATION ACT 1996 R/W SECTION 84(5) OF THE
MULTI STATE CO OPERATIVE SOCIETIES ACT, 2002.
THIS APPEAL, COMING ON FOR ORDERS, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU ,CHIEF JUSTICE
and
HON'BLE MR. JUSTICE C M JOSHI
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MFA No. 3229 of 2025
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ORAL JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU,CHIEF JUSTICE)
1. The appellant has filed the present appeal under Section
37(1)(c) of the Arbitration and Conciliation Act, 1996 [the A&C
Act] impugning an order dated 20.03.2025 passed by the
learned II Additional District and Sessions Judge, Udupi
[Commercial Court] in A.P.No.10/2024 [impugned order],
'Sri Ramdas Shettigar v. The General Insurance Employees'
Co-operative Credit Society Ltd. and others.
2. The respondent filed the aforementioned petition under Section
34 of the A&C Act impugning an Arbitral Award dated
10.04.2024 rendered by an Arbitral Tribunal comprising of a
sole arbitrator - Shri S. Gururaj Aithal [Arbitral Tribunal]. The
learned Commercial Court found that the sole arbitrator is
ineligible to act as an arbitrator in terms of Section 12(5) of the
A&C Act read with Seventh Schedule of the A&C Act.
Concededly, the sole arbitrator was at the material time acting
as a counsel for the appellant - Society in a suit bearing
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O.S.No.02/2015, which was pending consideration before
another court at the material time.
3. We consider it apposite to refer to Sub-sections (1), (2) and (5)
of Section 12 of the A&C Act. The same are set out below.
" 12. Grounds for challenge.--(1) When a person is
approached in connection with his possible ppointment
as an arbitrator, he shall disclose in writing any
circumstances,--
(a) such as the existence either direct or indirect, of
any past or present relationship with or interest
in any of the parties or in relation to the
subject-matter in dispute, whether financial,
business, professional or other kind, which is
likely to give rise to justifiable doubts as to his
independence or impartiality; and
(b) which are likely to affect his ability to devote
sufficient time to the arbitration and in particular
his ability to complete the entire arbitration
within a period of twelve months.
Explanation 1.--The grounds stated in the
Fifth Schedule shall guide in determining
whether circumstances exist which give rise to
justifiable doubts as to the independence or
impartiality of an arbitrator.
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Explanation 2.--The disclosure shall be
made by such person in the form specified in
the Sixth Schedule.
(2) An arbitrator, from the time of his appointment and
throughout the arbitral proceedings, shall, without
delay, disclose to the parties in writing any
circumstances referred to in sub-section (1) unless
they have already been informed of them by him.
..........
(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."
4. In terms of Section 12(1) of the A&C Act, an arbitrator is
required to disclose in writing any circumstances of existence of
any past or present relationship with or interest in any of the
parties or in relation to the subject-matter in dispute, whether
financial, business, professional or other kind, which is likely to
give rise to justifiable doubts as to his independence and
impartiality of an arbitrator.
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5. In terms of explanation 1 to Section 12(1) of the A&C Act, the
Arbitrator is required to be guided by the circumstances as
stated in the Fifth Schedule for determining whether the
circumstances exist which give rise to justifiable doubts. In
terms of explanation 2 to Section 12(1) of the A&C Act, the
disclosure is required to be made in the form as specified in the
Sixth Schedule. There is no material on record to indicate that
the sole arbitrator had made any such disclosure as is
mandatory.
6. In terms of Section 12(5) of the A&C Act, an arbitrator is
ineligible to act as an arbitrator, if his relationship with the
parties or counsel or the subject-matter of dispute, falls under
any of the categories as specified in the Seventh Schedule. The
provisions of Section 12(5) of the A&C Act cannot be waived
except by an agreement in writing.
7. It is relevant to refer to the following entries in the Seventh
Schedule.
"Arbitrator's relationship with the parties or counsel
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1. The arbitrator is an employee, consultant, advisor
or has any other past or present business
relationship with a party.
2. The arbitrator currently represents or advises one
of the parties or an affiliate of one of the parties.
3. The arbitrator currently represents the lawyer or
law firm acting as counsel for one of the parties.
4. The arbitrator is a lawyer in the same law firm
which is representing one of the parties.
........
7. The arbitrator's law firm currently has a significant
commercial relationship with one of the parties or
an affiliate of one of the parties.
.......
11. The arbitrator is a legal representative of an
entity that is a party in the arbitration."
8. In the present case, it is clear that the sole arbitrator has
incurred the ineligibility in terms of Section 12(5) of the A&C Act,
as read with the Seventh Schedule.
9. The ineligibility of the sole arbitrator strikes at the very
jurisdiction of the arbitrator to adjudicate the disputes between
the parties. In HRD CORPORATION (MARCUS OIL AND CHEMICAL
DIVISION) VS. GAIL (INDIA) LTD.,: (2018) 12 SCC 471, the Supreme
Court had accepted the view that if the arbitrator was ineligible
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to act under Section 12(5) of the A&C Act; the provisions of
Section 14 of the A&C Act would be applicable. The Arbitrator
would become de jure or de facto unable to perform his
functions. The relevant extract of the said decision is set out
below.
"12. After the 2016 Amendment Act, a dichotomy is made
by the Act between persons who become "ineligible" to be
appointed as arbitrators, and persons about whom
justifiable doubts exist as to their independence or
impartiality. Since ineligibility goes to the root of the
appointment, Section 12(5) read with the Seventh
Schedule makes it clear that if the arbitrator falls in any
one of the categories specified in the Seventh Schedule,
he becomes "ineligible" to act as arbitrator. Once he
becomes ineligible, it is clear that, under Section 14(1)(a),
he then becomes de jure unable to perform his functions
inasmuch as, in law, he is regarded as "ineligible". In
order to determine whether an arbitrator is de jure unable
to perform his functions, it is not necessary to go to the
Arbitral Tribunal under Section 13. Since such a person
would lack inherent jurisdiction to proceed any further, an
application may be filed under Section 14(2) to the Court
to decide on the termination of his/her mandate on this
ground. As opposed to this, in a challenge where grounds
stated in the Fifth Schedule are disclosed, which give rise
to justifiable doubts as to the arbitrator's independence or
impartiality, such doubts as to independence or
impartiality have to be determined as a matter of fact in
the facts of the particular challenge by the Arbitral
Tribunal under Section 13. If a challenge is not
successful, and the Arbitral Tribunal decides that there
are no justifiable doubts as to the independence or
impartiality of the arbitrator/arbitrators, the Tribunal must
then continue the arbitral proceedings under Section 13(4)
and make an award. It is only after such award is made,
that the party challenging the arbitrator's appointment on
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grounds contained in the Fifth Schedule may make an
application for setting aside the arbitral award in
accordance with Section 34 on the aforesaid grounds. It is
clear, therefore, that any challenge contained in the Fifth
Schedule against the appointment of Justice Doabia and
Justice Lahoti cannot be gone into at this stage, but will
be gone into only after the Arbitral Tribunal has given an
award. Therefore, we express no opinion on items
contained in the Fifth Schedule under which the appellant
may challenge the appointment of either arbitrator. They
will be free to do so only after an award is rendered by the
Tribunal."
[emphasis added]
10. In Kotak Mahindra Bank Ltd. vs Narendra Kumar
Prajapat: 2023 DHC 3705, a division bench of the Delhi High
Court, had held that the arbitral award rendered by an arbitrator
who was ineligible under Section 12(5) of the A&C Act would be
a nullity and thus could be challenged even at the stage of
execution of the enforcement of the Arbitral Award.
11. In a recent decision in Mahavir Prasad Gupta and sons v.
State (NCT of Delhi):2025 SCC OnLine Del 4241, the Division
Bench of the Delhi High Court (of which one of us was a
member) had after referring to various precedents summarized
the principles as under:
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" 84. In view of the above discussion, the legal position
on the unilateral appointment of the Sole and Presiding
Arbitrator is summarized as under:
a) Mandatory Requirement: Any arbitration
agreement providing unilateral appointment of
the sole or presiding arbitrator is invalid. A
unilateral appointment by any party in the
arbitrations seated in India is strictly prohibited
and considered as null and void since its very
inception. Resultantly, any proceedings
conducted before such unilaterally appointed
Arbitral Tribunal are also nullity and cannot
result into an enforceable award being against
Public Policy of India and can be set aside under
Section 34 of the Act and/or refused to be
enforced under Section 36 of the Act.
b) Deemed Waiver: The proviso to Section 12(5) of
the Act requires an express agreement in
writing. The conduct of the parties, no matter
how acquiescent or conducive, is
inconsequential and cannot constitute a valid
waiver under the proviso to Section 12(5) of the
Act. The ineligibility of a unilaterally appointed
arbitrator can be waived only by an express
agreement in writing between the parties after
the dispute has arisen between them. Section
12(5) of the Act is an exception to Section 4 of
the Act as there is no deemed waiver under
Section 4 of the Act for unilateral appointment by
conduct of participation in the proceedings. The
proviso to Section 12(5) of the Act requires an
'express agreement in writing' and deemed
waiver under Section 4 of the Act will not be
applicable to the proviso to Section 12(5) of the
Act.
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c) Award by an Ineligible Arbitrator is a Nullity:
An award passed by a unilaterally appointed
arbitrator is a nullity as the ineligibility goes to
the root of the jurisdiction. Hence, the award can
be set aside under Section 34(2)(b) of the Act by
the Court on its own if it 'finds that' an award is
passed by unilaterally appointed arbitrator
without even raising such objection by either
party.
d) Stage of Challenge: An objection to the lack of
inherent jurisdiction of an arbitrator can be taken
at any stage during or after the arbitration
proceedings including by a party who has
appointed the sole or presiding arbitrator
unilaterally as the act of appointment is not an
express waiver of the ineligibility under proviso
to Section 12(5) of the Act. Such objection can
be taken even at stage of challenge to the award
under Section 34 of the Act or during the
enforcement proceedings under Section 36 of
the Act."
12. In view of the above, the impugned award is not sustainable
and we concur with the decision of the learned commercial court
to set aside the impugned award on the ground that the sole
arbitrator was ineligible to act as an arbitrator.
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13. The present appeal is unmerited and, accordingly,
dismissed.
14. Pending Interlocutory application is disposed of.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(C M JOSHI)
JUDGE
KG
