Madras High Court

M/S.Padamshree Creation Pvt. Ltd vs Equitas Small Finance Bank Ltd on 18 April, 2023

                                                                        Arb.O.P.(Com.Div.) No.21 of 2022




                                   IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                                 DATED: 18.04.2023

                                                         CORAM

                                  THE HON'BLE Mr. JUSTICE KRISHNAN RAMASAMY

                                          Arb.O.P (Com.Div.) No. 21 of 2022
                                                and A.No.216 of 2022


                     1.M/s.Padamshree Creation Pvt. Ltd.
                     Rep. by its Director Mr. Madan Kumar Jindal,,
                     2.Mrs. Raj Rani,Director
                                                                              ... Petitioners


                                                     Versus


                     Equitas Small Finance Bank Ltd.,
                     MRJ Tower,T-2315,2nd floor,
                     Faiz Road,Opp.Hotel Alaska,
                     Karol Bagh,New Delhi.
                     Also at
                     4th Floor,Phase-II,
                     Spencer Plaza,No.769,
                     Mount Road,Anna Salai,
                     Chennai,Tamil Nadu-600002.
                     Rep.by its Assistant Manager-Legal.

                                                                              ...Respondent



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                                                                                  Arb.O.P.(Com.Div.) No.21 of 2022




                                  Arbitration Original Petition filed under Section 34 (2) (b) of the
                     Arbitration and Conciliation Act, 1996 to set aside the arbitral award dated
                     23.10.2020 passed by the sole Arbitrator in an Arbitration Award
                     CS/BL/Arbitration Case No.296 of 2020.
                                              For Petitioners : Ms. E.Elvina
                                                                for Mr.J.Srinivasan
                                              For Respondent : Mr.S.Suresh



                                                                  ORDER

The Arbitration Original Petition filed under Section 34 (2) (b) of the

Arbitration and Conciliation Act, 1996 to set aside the arbitral award dated

23.10.2020.

2. The 1st petitioner is a Private Limited Company and filed this

present petition through its authorized representative Mr.Madan Kumar

Jindal, the director of the Company. The petitioners borrowed a sum of

Rs.12,00,000/- by virtue of the Loan Agreement bearing No.

BLIESTDL0002685 dated 30.06.2018 with the respondent. The petitioners

have admitted the fact about the disbursement of the said loan but stated that

they have never received the copy of the loan agreement. However it is

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submitted that the representative of the respondent got the signature over

the Loan form but neither gave a copy nor supplied any agreement till date.

Despite requesting several times the respondent failed to send the agreement

and also failed to do his statutory duty. As per the terms and conditions of

the aforesaid agreement, the petitioners have to pay monthly installments for

a sum of Rs.43,690/- p.m. The 1st petitioner since taking the loan was paying

the installments regularly without any default. But later defaulted because of

financial crunch so the 1st petitioner sent a letter requesting to reschedule the

said loan agreement. The respondent neither rescheduled nor replied.

Though the 1st petitioner defaulted to make the payment of November and

December 2019 on date but later paid on different dates through NEFT, and

the balance of unpaid amount was Rs.7,14,654/-. Then the respondent

issued Demand notice dates 07.11.2019 and 07.12.2019 for due payment of

EMI against November and December 2019 for which the 1st petitioner has

already paid. Later, 1st petitioner failed to make payment of Jan 2020. Then

the respondent unilaterally appointed a sole Arbitrator by referring the

clauses in the said Loan Agreement and proceeded with the arbitration

proceedings.

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3.After receiving the notice from the arbitrator the 1st petitioner sent a

letter dated 09.03.2020 to the respondent stating that the reference notice

was received on 02.03.2020 i.e., only after the first hearing was conducted

on 28.02.2020 and also requested to transfer the proceeding in Delhi due to

financial problem. The respondent acknowledged this letter through mail

dated 12.03.2020 and assured they would revert back to the petitioners. But

there was no reply even after 15 days. The respondent then assured that the

arbitration proceedings will be nullified. Meanwhile the respondent sent a

legal notices dated 22.08.2020 and 08.12.2020 against the cheques issued

for security and made complaints under S.138 of N.I Act and the matter was

listed on 06.10.2021. The respondent then with the collusion of the sole

Arbitrator got an award dated 23.10.2020, the copy was received by the

petitioners on 31.10.2020. The petitioners also received an execution notice

for 28.05.2021 which was also adjourned. The Learned Arbitrator failed to

consider the facts proceeded with the adjudication passed an ex-parte award

dated 23.10.2020 which is under the challenge before this Court.

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4. The main grounds of challenge made by the petitioners are that the

respondent appointed the learned Arbitrator unilaterally and the impugned

award came to be passed on 23.10.2020 without giving sufficient

opportunity to the petitioners, such an award is in conflict with the most

basic notions of morality or justice. The learned Arbitrator has not ordered

fresh notice to the petitioners due to non-appearance in the arbitration

proceedings, also the petitioners were never given an opportunity to file any

statement of defence/objections to the claim. Under these circumstances,

without any further scrutiny, the learned Arbitrator passed an award dated

23.10.2020 is liable to be set aside. The respondent after getting the award

with the collusion initiated false complaint under S.138 of N.I.Act, only to

harass the petitioner and also initiated complaints case which amounts to

double jeopardy.

5. The learned counsel for the petitioners would also submit that as

per the law laid down by the Hon'ble Apex Court in the case of “Perkins

Eastman Architects DPC Vs. HSCC (India) Ltd.” reported in 2019 SCC

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OnLine SC 1517, in the event of any unilateral appointment of Arbitrator

without the consent of the other party, the same would be non-est in law.

Therefore, he contends that the present appointment of the Arbitrator is non-

est in law. In terms of the proviso of Section 12(5) of the Act, in the event

of unilateral appointment, the appointed Arbitrator can proceed with, when

the other party waives the applicability of this Section by way of an express

agreement in writing. In the present case, no such express agreement has

been made by the petitioners. Therefore, he would contend that in the

absence of any such express agreement, the unilateral appointment of the

Arbitrator is null and void and consequently the award passed by the said

Arbitrator, is liable to be set aside.

6. The learned counsel for the petitioners would also contend that

since the unilateral appointment is contrary to proviso to sub-section (5) of

Section 12 of the Act, the same would fall under Explanation (2) of Section

34(2)(b) of the Act, and it is in contravention with the fundamental policy of

Indian law as held by the Hon'ble Apex Court. Further, he would contend

that the award is also liable to be set aside, since the learned Arbitrator has

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not given any opportunity to the petitioners to file a counter and contest the

matter. Hence, he prayed to set aside the award.

7.On the other hand, the learned counsel for the respondent strongly

refuted the contentions of the petitioner, stating that if there is any unilateral

appointment, the remedy available to the petitioner is to immediately

challenge the same under Section 13 of the Act before the same Arbitral

Tribunal. However, in the present case, the petitioner had not resorted to

this remedy. Hence, the petitioner is not entitled to challenge the award at

this stage. He would further contend that there is no merits in this original

petition and same is liable to be dismissed.

8. I have given due consideration to the submissions made by the

learned counsel appearing for the petitioners and respondent and perused

the entire materials placed on record.

9. Upon hearing the learned counsel for the petitioners and on perusal

of the documents, it appears that in the terms of the provisions of the Loan

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Agreement, the respondent has option for the appointment of sole Arbitrator

at their discretion. In terms of the said agreement, the authorised

representative of the respondent had nominated the sole Arbitrator and

accordingly, the authorised representative of the respondent had nominated

the sole Arbitrator.

10. In terms of Schedule VII of the Act, if the Arbitrator is an

employee, consultant, advisor or has any other past or present business

relationship with a party or if the Arbitrator is a Manager, Director or part of

the management, or has a similar controlling influence, in an affiliate of one

of the parties if the affiliate is directly involved in the matters in dispute in

the arbitration, shall be ineligible to be appointed as Arbitrator.

11. When a person is ineligible to be appointed as an Arbitrator, in

the same way, he is also ineligible to nominate any Arbitrator also. This is

what the Hon'ble Apex Court has held in the Perkins' case (cited supra).

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12. Any person can be appointed as the Arbitrator, subject to that he

shall not be either the employee, consultant, advisor or have any other past

or present business relationship or as Manager, Director or part of the

management of the respondent. If any of the above mentioned person is

appointed as Arbitrator, he is ineligible to act as an arbitrator in terms of

Section 12(5) of the Act. In the same way, the above persons are also not

eligible to nominate any person as Arbitrator to act on behalf of them or the

concern.

13. In the present case, the respondent appointed the arbitrator

unilaterally without the consent of the petitioners. Section 12(5) of the Act

states as follows:

“12. Ground for challenge.-

(1).......................

(2).......................

(3).......................

(4).......................

(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.”

A mere perusal of the above makes it clear that the persons mentioned

in Schedule VII of the Act would be ineligible to be appointed as Arbitrator.

Further, the persons mentioned in Schedule VII are also ineligible to

nominate any person as arbitrator. Further there is no express agreement

between the parties for providing consent in writing for the unilateral

appointment of the arbitrator. Hence, the unilateral appointment of the

arbitrator made by the respondent is in violation of provisions of Section

12(5) of the Act.

14. At this juncture, it would be appropriate to extract the relevant

portion of the judgment rendered by the Hon'ble Supreme Court in the

Perkin's case. at paragraph Nos.16, 17, 18 and 21, which read as follows:

“16. However, the point that has been urged, relying upon the decision of this Court in Walter Bau AG and TRF Limited, requires consideration. In the present case Clause 24 empowers the Chairman and Managing Director of the respondent to make the appointment of a sole arbitrator and

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said Clause also stipulates that no person other than a person appointed by such Chairman and Managing Director of the respondent would act as an arbitrator. In TRF Limited, a Bench of three Judges of this Court, was called upon to consider whether the appointment of an arbitrator made by the Managing Director of the respondent therein was a valid one and whether at that stage an application moved under Section 11(6) of the Act could be entertained by the Court. The relevant Clause, namely, Clause 33 which provided for resolution of disputes in that case was under:

“33. Resolution of dispute/arbitration

(a) In case any disagreement or dispute arises between the buyer and the seller under or in connection with the PO, both shall make every effort to resolve it amicably by direct informal negotiation.

(b) If, even after 30 days from the commencement of such informal negotiation, seller and the buyer have not been able to resolve the dispute amicably, either party may require that the dispute be referred for resolution to the formal mechanism of arbitration.

(c) All disputes which cannot be settled by mutual negotiation shall be referred to and determined by arbitration as per the Arbitration and Conciliation Act, 1996 as amended.

(d) Unless otherwise provided, any dispute or difference between the parties in connection with this agreement shall be referred to sole arbitration of the Managing Director of buyer or his nominee. Venue of arbitration shall

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be Delhi, and the arbitration shall be conducted in English language.

(e) The award of the Tribunal shall be final and binding on both, buyer and seller.”

17. In TRF Limited, the Agreement was entered into before the provisions of the Amending Act (Act No.3 of 2016) came into force. It was submitted by the appellant that by virtue of the provisions of the Amending Act and insertion of the Fifth and Seventh Schedules in the Act, the Managing Director of the respondent would be a person having direct interest in the dispute and as such could not act as an arbitrator. The extension of the submission was that a person who himself was disqualified and disentitled could also not nominate any other person to act Arbitration Application No.32 of 2019 Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. as an arbitrator. The submission countered by the respondent therein was as under: -

“7.1. The submission to the effect that since the Managing Director of the respondent has become ineligible to act as an arbitrator subsequent to the amendment in the Act, he could also not have nominated any other person as arbitrator is absolutely unsustainable, for the Fifth and the Seventh Schedules fundamentally guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence and impartiality of the arbitrator. To elaborate, if any person whose relationship with the parties or the counsel or the subject-matter of dispute

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falls under any of the categories specified in the Seventh Schedule, he is ineligible to be appointed as an arbitrator but not otherwise.

18. The issue was discussed and decided by this Court as under:-

50. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned Senior Counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned Senior Counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor impartiality nor any such other circumstance. We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator.

At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may

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appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the “named sole arbitrator” and he has also been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction. In this regard, our attention has been drawn to a two-Judge Bench decision in State of Orissa v. Commr. of Land Records & Settlement. In the said case, the question arose, can the Board of Revenue revise the order passed by its delegate. Dwelling upon the said proposition, the Court held: (SCC p. 173, para 25) “25. We have to note that the Commissioner when he exercises power of the Board delegated to him under Section 33 of the Settlement Act, 1958, the order passed by him is to be treated as an order of the Board of Revenue and not as that of the Commissioner in his capacity as Commissioner. This position is clear from two rulings of this Court to which we shall presently refer. The first of the said rulings is the one decided by the Constitution Bench of this Court in Roop Chand v. State of Punjab. In that case, it was held by the majority that where the State Government had, under Section 41(1) of the East Punjab Holdings (Consolidation and Prevention of

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Fragmentation) Act, 1948, delegated its appellate powers vested in it under Section 21(4) to an “officer”, an order passed by such an officer was an order passed by the State Government itself and “not an order passed by any officer under this Act” within Section 42 and was not revisable by the State Government. It was pointed out that for the purpose of exercise of powers of revision by the State under Section 42 of that Act, the order sought to be revised must be an order passed by an officer in his own right and not as a delegate of the State. The State Government was, therefore, not entitled under Section 42 to call for the records of the case which was disposed of by an officer acting as its delegate.” (emphasis in original)

51. Be it noted in the said case, reference was made to Behari Kunj Sahkari Awas Samiti v. State of U.P., which followed the decision in Roop Chand v. State of Punjab. It is seemly to note here that the said principle has been followed in Indore Vikas Pradhikaran.

52. Mr Sundaram has strongly relied on Pratapchand Nopaji. In the said case, the three-Judge Bench applied the maxim “qui facit per alium facit per se”. We may profitably reproduce the passage: (SCC p. 214, para 9) “9. … The principle which would apply, if the objects are struck by Section 23 of the Contract Act, is embodied in the maxim: “qui facit per alium facit per se” (what one does through another is done by oneself). To put it in another form, that which cannot be done directly may not be done indirectly by engaging another outside the prohibited area to do the illegal act within the prohibited area. It is immaterial whether, for the doing of such an illegal

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act, the agent employed is given the wider powers or authority of the “pucca adatia”, or, as the High Court had held, he is clothed with the powers of an ordinary commission agent only.”

53. The aforesaid authorities have been commended to us to establish the proposition that if the nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself. According to the learned counsel for the appellant, ineligibility strikes at the root of his power to arbitrate or get it arbitrated upon by a nominee.

54. In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as

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the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so.”

19..........................

20. We thus have two categories of cases. The first, similar to the one dealt with in TRF Ltd. 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. 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

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and it would always be available to 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 Limited. Paragraph 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 Arbitration Application No.32 of 2019 Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. course for dispute resolution. Naturally, the person who

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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 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited.” Therefore, the above judgment of the Hon'ble Apex Court makes it clear

that the appointment of sole arbitrator unilaterally by one of the parties

would be ineligible by operation of law.

15. Now the question that arises for consideration is whether the

petitioners participated in the arbitral proceedings or after having the

knowledge of the appointment of the sole Arbitrator, failed to challenge the

said appointment in terms of Section 13 of the Act, and whether the same

would deprive the rights of the petitioners to challenge the said appointment

of the Arbitrator in terms of the provisions of Section 34 of the Act for the

violation of provisions of Section 12(5) of the Act?

16. In my considered view, the answer is no. The petitioners are

certainly entitled to challenge the appointment of the Arbitrator under

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Section 34 of the Act, if there is any violation of the provisions of the Act.

Even though, the petitioners have not challenged the unilateral appointment

of the sole Arbitrator under Section 13 of the Act, it would not certainly

take away the rights of the petitioners to challenge the same under Section

34 of the Act. Even if there is any participation by the petitioners in the

arbitral proceedings, they would still have the right to challenge about the

violation of the provisions of Section 12(5) of the Act under Section 34 of

the Act.

17. Further, proviso to Section 12(5) envisages that the parties may

subsequent to disputes having arisen between them, waive the applicability

of this sub-section by an express agreement in writing. The definition of

'express and implied authority' is explicitly defined under Section 187 of

the Contract Act, which reads as under:

“187. Definitions of express and implied authority. An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.

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18. A perusal of the above makes it clear that an authority is to be

implied when it is inferred from the circumstances of the case and is said to

be express when it is given by words spoken or written. In the present case,

from the circumstances even if it is inferred that the authority is implied by

the act of the petitioners having not raised any objection towards the

appointment of the Arbitrator made by the respondent unilaterally, the same

cannot be taken as implied authority inasmuch as the proviso to Section

12(5) of the Act insists that the 'express agreement between the parties for

providing consent for unilateral appointment, must be in writing. Therefore,

if the consent is not in writing, no other inference can be drawn contrary to

what is provided under the proviso to Section 12(5) of the Act.

19. The endeavour of this Court is always to rectify the errors

apparent on the decisions/orders/judgments of the

authorities/Tribunals/lower Courts etc., at any stage of the matter in order to

avoid miscarriage of justice. Once this Court finds irregularity or illegality

in the orders/judgments of the lower authorities, while exercising inherent

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jurisdiction, this Court can very well set right the same. In the present case,

the award itself was challenged under Section 34 of the Act primarily on the

ground that the appointment of Arbitrator is unilateral and cannot be

sustained. Therefore, now the question raises as to whether such a challenge

to the appointment of the Arbitrator is sustainable in the proceedings filed

under Section 34 of the Act for setting aside the award?

20. The answer is 'yes'. When an authority exercises jurisdiction it

does not possess, its decision amounts to a nullity in law. Thus, a decision

by an authority having no jurisdiction is non est and its invalidity can be set

up whenever it is sought to be acted upon. In the present case, by virtue of

Section 12(5) of the Act, the learned Arbitrator, who was appointed

unilaterally, is ineligible to be an Arbitrator and the award passed by him,

deserves to be set aside, more particularly, as already observed, there is no

express waiver in writing as contemplated under the proviso to Section

12(5). Therefore, this Court is of the considered view that irrespective of

the stage whether it is at the initial stage of the arbitral proceedings or at

stage of the execution of the award, the appointment of the Arbitrator can be

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questioned, not particularly under Section 13 but also under Section 34 of

the Act and the same can be rectified by this Court.

21. In this regard, it is worthwhile to refer a judgment of the Hon'ble

Supreme Court reported in "Hindustan Zinc Ltd. v. Ajmer Vidyut Vitran

Nigam Ltd., (2019) 17 SCC 82, wherein, it has been held under as under in

para 16 and 17:

“16. Shri Vaidyanathan, learned Senior Counsel for the appellant, has argued that the challenge to the award was only on merits before the learned Commercial Court, and no challenge was raised stating that the arbitrator's appointment itself would be without jurisdiction, both the parties having agreed to the order dated 12-2-2007 to refer the matter to arbitration. However, the said issue was argued and taken up before the High Court in first appeal under Section 37 of the Arbitration Act.

17. We are of the view that it is settled law that if there is an inherent lack of jurisdiction, the plea can be taken up at any stage and also in collateral proceedings. This was held by this Court in "Kiran Singh v. Chaman Paswan [Kiran Singh v.Chaman Paswan, (1955) 1 SCR 117 : AIR 1954 SC 340] as follows : (SCR p. 121 : AIR p. 342, para 6)

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“6. … It is a fundamental principle well-

established that a decree passed by a court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree, and such a defect cannot be cured even by consent of parties. If the question now under consideration fell to be determined only on the application of general principles governing the matter, there can be no doubt that the District Court of Monghyr was coram non judice, and that its judgment and decree would be nullities.”

22. In "Sanjay Pukraj Bafna v. Volkswagon Finance (P) Ltd.

Reported in 2020 SCC OnLine Bombay 6362, it was held that an improper

and impermissible appointment imperils any arbitral award, for it goes to

the root of the matter.

23. Therefore, arbitration proceedings are liable be vitiated from the

stage of the appointment of the Arbitrator when the very appointmennt of

the Arbitrator unilaterally, is improper and impermissible by virtue of

Section 12(5) of the Act.

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24. Further, any violation of provisions of the Act is against the

public policy of India. The Hon'ble Supreme Court has also held at

paragraph No.27 in the case of “Associate Builders vs. Delhi Development

Authorities” reported in 2015 3 SCC 49, which reads as follows:

“Fundamental Policy of Indian Law

27. Coming to each of the heads contained in the Saw Pipes judgement, we will first deal with the head "fundamental policy of Indian Law". It has already been seen from the Renusagar judgement that violation of the Foreign Exchange Act and disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. To this it could be added that the binding effect of the judgement of a superior court being disregarded would be equally violative of the fundamental policy of Indian law.”

A perusal of the above judgment makes it clear that if any award passed in

violation of the provisions of the Act, the same would be against the public

policy of India.

https://www.mhc.tn.gov.in/judis Arb.O.P.(Com.Div.) No.21 of 2022

25. In the present case, the respondent initiated arbitration

proceedings unilaterally without sending notice. The Learned Arbitrator

also failed to consider the facts of the case and the respondent also

concealed the facts. Also the Learned Arbitrator should have issued fresh

notice with regard to non-appearance of petitioner in arbitration

proceedings. Further, the Learned arbitrator without giving sufficient

opportunity to the petitioners proceeded with the matter and passed an

award. Therefore, the petitioners did not have any opportunity to file and

contest the matter. Even if the petitioners had filed counter and considered,

the present award is liable to be set aside for the violation of the provision

under Section 12(5) of the Act.