Madras High Court
Ms.Desetti L. Prasanna Kumari vs M/S.Cholamandalam Investment & ... on 23 August, 2021
Arb.O.P.No.20 of 2021
THE HIGH COURT OF JUDICATURE AT MADRAS
Dated 23.08.2021
CORAM:
THE HONOURABLE MR.JUSTICE N. SATHISH KUMAR
Arb.O.P.No.20 of 2021 & 1284 of 2021
1. Ms.Desetti L. Prasanna Kumari
2. Mr.Desetti Nooka Raju
3. M/s.Sri Lakshmi Prasanna traders,
Door No.18335/3, Ayodhyarampuram,
Samarlokota East Godavi,
Kakinada – 533 440. . . . Petitioners
Versus
M/s.Cholamandalam Investment & Finance Co. Ltd.,
Represented by Mr.B.Muthukumar,
Deputy General Manager, Legal,
'Dare House' No.2, N.S.C. Bose Road,
Chennai – 600 001. . . . Respondent
PRAYER : Petition filed under Sections 34 [2] of the Arbitration and
Conciliation Act, 1996 to set aside the award dated 08.10.2020 passed by
the learned Arbitrator Mr.P.Ganesan in Arbitration Case No.
CIFCL/ARB/LXVIII/1608/2007 for costs of this petition.
Page 1 / 9
https://www.mhc.tn.gov.in/judis/
Arb.O.P.No.20 of 2021
For Petitioners : Mr.K.Sarveshwar
For Respondent : Mr.S.Namasivayam
ORDER
Challenge has been made to the award passed by the learned
arbitrator dated 08.10.2020 in dispute arose between the parties in respect
of the loan agreement dated 27.04.2016.
2. Brief facts leading to filing of this Original Petition is as follows :
The respondent has approached the claimant for an equity loan and
availed a loan of a sum of Rs.50,00,000/- and it has to be repaid in 120
instalments and executed a loan agreement dated 27.04.2016. As the
respondent failed to repay the instalments regularly in terms of the
agreement, the matter has been referred to the sole arbitrator.
Page 2 / 9
https://www.mhc.tn.gov.in/judis/
Arb.O.P.No.20 of 2021
3. The main challenge is the very appointment of the arbitrator and it
is the contention of the learned counsel for the petitioner that the
appointment of the arbitrator itself is not according to law. The sole
arbitrator has been appointed by the company without the consent of the
petitioner herein. It is his further contention that the parties have agreed in
the contract itself to have fast track procedure. Such being the position, the
arbitrator so appointed should have been chosen by both sides as per Clause
26 of the agreement. Hence, submitted that the award passed by the learned
arbitrator, despite the objection raised with regard to the competency of the
arbitrator, such an award cannot be sustained in the eye of law.
4. The learned counsel appearing for the respondent submitted that
after the judgment in Perkins Eastman Architects DPC and another Vs.
HSCC [India] Ltd. [2019 SCC Online SC 1517]. the Apex Court in a
judgment in Organization of Railway Electrification Vs. ECI SPIC SMO
MCMC[J] reported in [2020] 14 Supreme Court Cases 712 has held that
there is no bar in law to appoint an arbitrator by the employer itself. Hence,
Page 3 / 9
https://www.mhc.tn.gov.in/judis/
Arb.O.P.No.20 of 2021
submitted that on that ground, the award cannot be attacked. It is his further
contention that since the respondent is also intended to proceed under
SARFAESI Act, they may be permitted to proceed afresh under the
SARFAESI Act. Hence, prayed for dismissal of this Original Petition.
5. I have perused the entire materials.
6. It is relevant to refer the arbitration clause in the agreement which
reads as follows :
All disputes, differences, and/or claims arising out of
the agreement whether during its subsistence or thereafter
shall be settled by arbitration in accordance with the
provisions of the Arbitration and Conciliation Act, 1996 and
or any statutory amendments thereof and shall be referred to
the sole arbitration of an arbitrator nominated by the
Company. The award given by such arbitrator shall be final
and binding on all parties to this Agreement. In the event of
Page 4 / 9
https://www.mhc.tn.gov.in/judis/
Arb.O.P.No.20 of 2021
an appointed arbitrator dying or being unable or unwilling to
act as arbitrator for any reason, the Company, on such death
of the arbitrator or his inability or unwillingness to act as
arbitrator, shall appoint another person to act as arbitrator.
Such person shall be entitled to proceed with the reference
from the stage it is left by his predecessor. The venue of
arbitration proceedings shall be at Chennai at the Registered
Office of the Company which is presently at 'DARE HOUSE',
No.2, [Old No.234], NSC Bose Road, Parrys, Chennai – 600
001. The borrower agrees to a fast track arbitration to be
disposed within 90 days from the date of reference.”
7. It is to be noted that the very clause provides for appointment of
an arbitrator by the company itself. Further the procedure contemplated in
clause 26 of the agreement is in a nature of fast track procedure. Since both
the parties have agreed to fast tract procedure, the proceedings have to be
completed within 90 days. As far as the first part of the clause is concerned,
Page 5 / 9
https://www.mhc.tn.gov.in/judis/
Arb.O.P.No.20 of 2021
the same with regard to the nomination of the arbitrator by the company. It
is to be noted that such an appointment or nomination by the company is
bad in law in view of the law laid down by the Perkins Eastman
Architects DPC and another Vs. HSCC [India] Ltd. case. It is submitted
that subsequent to the Perkins Eastman Architects DPC and another Vs.
HSCC [India] Ltd. case, in Organization of Railway Electrification Vs.
ECI SPIC SMO MCMC[J] the Apex Court has held that nomination of the
arbitrator from the panel of retired officers of Railways. It is to be noted
that the above judgment has been passed in the context of amendment made
in the General Conditions of the Contract of Railways, which provides for
providing a panel of arbitrator from the retired railway officers and choice is
given to the other side to chose the arbitrator from the panel submitted by
the Railways. Such being the position, the same has been counter balanced
in view of the choice given to the claimants. Hence, the above Apex Court
judgment cannot be pressed into service in this case.
8. Admittedly, in this case, no consent, whatsoever has been obtained
Page 6 / 9
https://www.mhc.tn.gov.in/judis/
Arb.O.P.No.20 of 2021
from the petitioner. Therefore, nomination or appointment the arbitrator has
to be as per law laid down in Perkins Eastman Architects DPC and
another Vs. HSCC [India] Ltd. case. In this regard, the petitioner has also
raised objection under section 16 of the Arbitration and Conciliation Act.
The learned arbitrator has not decided the above objection in the line of the
legal position. However, he has passed an order as if the award will be
passed without any partiality and only on merits. Be that as it may.
9. The parties have agreed for fast track procedure as per the
provisions contained under section 29 [B] of the Arbitration and
Conciliation Act. When the parties have agreed for fast track procedure,
then the arbitrator has to be appointed as chosen by both the parties.
Otherwise, there must be consent by both sides for a common arbitrator.
Section 29 [B] [2] of the Arbitration and Conciliation Act makes it very
clear that when the parties have agreed to have fast track procedure, the
arbitral tribunal consisting of a sole arbitrator shall be chosen by the parties.
Whereas, in this case, when the parties have agreed in the contract for fast
Page 7 / 9
https://www.mhc.tn.gov.in/judis/
Arb.O.P.No.20 of 2021
track procedure, nomination of the arbitator by the employer itself is not
only against the statutory provisions, but also against the law laid down by
the Apex Court in Perkins Eastman Architects DPC and another Vs.
HSCC [India] Ltd case. In such view of the matter, this Court is of the
view that when the very appointment of the arbitrator is not according to
law, the award passed by such an arbitrator cannot be sustained in the eye of
law and no sanctity can be attached to it.
10. Accordingly, this petition is allowed and the award passed by the
learned abitrator dated is set aside. With regard to the submission of the
learned counsel for the respondent that they may be given liberty to proceed
under SARFAESI Act afresh, it is for them to take legal recourse according
to law, not on the basis of the Award, which is already set aside.
23.08.2021
vrc
Page 8 / 9
https://www.mhc.tn.gov.in/judis/
Arb.O.P.No.20 of 2021
N. SATHISH KUMAR, J.
vrc
Arb.O.P.No.20 of 2021
23.08.2021
Page 9 / 9
https://www.mhc.tn.gov.in/judis/
