Madras High Court
Noorulla M.A vs M/S.Indo Asia Finance Limited on 7 June, 2023
Arb.O.P (Com.Div.) No.52 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATE: 07.06.2023
CORAM
THE HON'BLE Mr. JUSTICE KRISHNAN RAMASAMY
Arb.O.P (Com.Div.) No.52 of 2022
1.Noorulla M.A.
2.Thameen M.A.
...
Petitioners
versus
M/s.INDO ASIA Finance Limited,
Rep.by its Authorized Signatory,
Mr.G.Santhanakrishnan,
No.15,New Giri Road,
T.Nagar, Chennai – 600 017, ...Respondent
Prayer: Arbitration Original Petition filed under Section 34 (2) (a) (ii), (iii),
34 (2) (b) (ii) of the Arbitration and Conciliation Act, 1996, to set aside the
impugned arbitral award dated 28.01.2021 in ARB.CASE
No.ARC/IAFL/VL/105/16 passed by the learned Sole Arbitrator.
For Petitioners : Mr.R.Ramachandran
1/32
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For Respondent : Mr.Sashidhar Sivakumar
ORDER
This Arbitration Original Petition has been filed by the petitioners,
seeking to set aside the impugned arbitral award dated 28.01.2021 in
ARB.CASE No.ARC/IAFL/VL/105/16 passed by the learned Sole
Arbitrator.
2.The case of the petitioners are as follows:
2.1.The 1st petitioner had approached the respondent in 1998
for financial assitance for the purchase of vehicle with model TATA 407 &
1991, Engine No. 1516958 and Chassis No.809756, bearing Reg.No. TN 45
Y 2838 for a sum of Rs.1,91,400/-. They executed the loan agreement dated
18.11.1998 vide Loan Agreement No. HP02660. The 2nd respondent stood
as guarantor for the loan. As per the terms and conditions of the aforesaid
agreement, the 1st petitioner has to repay the total sum in the form of 24
equated monthly installments of Rs.8,000/-p.m. including the interest. The
1st respondent had also submitted his two original sale deeds and patta
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books of both properties as security. As per the terms of the loan agreement,
the 1st petitioner had tendered the EMIs without default from December
1998 till November 2001, till then he had paid Rs.1,41,297/-. Thereafter,
due to some financial constraints, the 1st petitioner was unable to pay the
remaining EMIs and informed to the respondent. The respondent recovered
the above said vehicle for the non-payment of loan in December 2001. On
many occasions 1st petitioner requested the respondent for the loan closure
letter. The respondents had informed that once the vehicle is sold, they will
issue the closure letter.
2.2.After a period of 17 years, the respondent had issued a
notice dated 17.10.2015 stating that they had initiated arbitration
proceedings by appointing a sole arbitrator. But they didn't send any notice
prior to this notice. On the receipt of the notice dated 03.06.2016 sent by the
arbitrator which was received on 15.06.2016, the petitioners appeared
before the learned Arbitrator on the said date but they were asked to come
for the next hearing as there were no proceedings on the said date.
Thereafter, they received another notice dated 05.11.2018 and consequently,
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the petitioners participated. On the said date the arbitrator conducted the
proceedings, directed to serve copies by the respondent/claimant. But they
had not served any documents as stated in the award.
2.3.Suddenly, the petitioners received the copy of the Arbitral
Award on 29.06.2021 where an award was passed on 28.01.2021, that the
respondent had unilaterally appointed an Arbitrator of their choice and had
filed a claim before the Arbitrator for a sum of Rs.3,88,01.18/- with interest
@8% p.a from 31.03.2016 until the realization and also in failure to
surrender the vehicle permitting the respondents to seize the vehicle and can
have the right to sell and recover the dues. The learned arbitrator without
considering the facts that the vehicle was seized and there were no more
loan payments to be made, but he had passed an award on 28.01.2021
allowing the claims with costs as prayed for by the respondent/claimant
beyond the terms of the agreement contrary to the legal provisions. Hence
the petition.
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3.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 28.01.2021 without giving sufficient
opportunity to the petitioners, such an award is in conflict with the most
basic notions of morality or justice. 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 ex parte award dated 28.01.2021 is liable to be set aside.
4. The learned counsel appearing for the petitioners would 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
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
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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.
5.The Learned counsel appearing 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 not given any opportunity to the petitioners to file
a counter and contest the matter. Hence, he prayed to set aside the award.
6. On the other hand, the learned counsel for the respondent strongly
refuted the contentions of the petitioners, stating that if there is any
unilateral appointment, the remedy available to the petitioners are to
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immediately challenge the same under Section 13 of the Act before the same
Arbitral Tribunal. However, in the present case, the petitioners had not
resorted to this remedy. Hence, the petitioners are 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.
7.I have given due consideration to the submissions made by the
learned counsel appearing for the petitioners and the respondent and
perused the entire materials placed on record .
8.Upon hearing the learned counsel on petitioners and perusing the
documents, it appears that in the present case, in the terms of the provision
of the above said Loan Agreement, the respondent has an option for
appointment of sole Arbitrator at their discretion. In terms of the said
agreement, the respondent had nominated the sole Arbitrator.
9. In terms of Schedule VII of the Act, if the Arbitrator is an
employee, consultant, advisor or has any other past or present business
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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.
10.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).
11. 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.
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12.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:
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
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arbitrator made by the respondent is in violation of provisions of Section
12(5) of the Act.
13.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 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:
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“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 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
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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 falls under any of
the categories specified in the Seventh
Schedule, he is ineligible to be appointed
as an arbitrator but not otherwise.
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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
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when there are two parties, one may nominate an
arbitrator and the other may 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
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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
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
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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 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
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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 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 Ltd4. 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
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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 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.
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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
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DPC & Anr. v. HSCC (India) Ltd. 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 (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.
14.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?
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15.In my considered view, the answer is no. The petitioners are
certainly entitled to challenge the appointment of the Arbitrator under
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.
16. 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
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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.
17. 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 in as much 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.
18. 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
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avoid miscarriage of justice. Once this Court finds irregularity or illegality
in the orders/judgments of the lower authorities, while exercising inherent
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?
19.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
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stage of the execution of the award, the appointment of the Arbitrator can be
questioned, not particularly under Section 13 but also under Section 34 of
the Act and the same can be rectified by this Court.
20.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
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: AIR 1954 SC 340] as follows : (SCR p. 121 : AIR p. 342,
para 6)
“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.”
21. 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.
22. Therefore, arbitration proceedings are liable be vitiated from the
stage of the appointment of the Arbitrator when the very appointment of the
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Arb.O.P (Com.Div.) No.52 of 2022
Arbitrator unilaterally, is improper and impermissible by virtue of Section
12(5) of the Act.
23.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.”
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Arb.O.P (Com.Div.) No.52 of 2022
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.
24. In the present case, as the 1st petitioner accepts that he was unable
to pay his EMIs due to his financial crunch after November 2001, though he
completed paying Rs.1,41,297/-. But he says that he was not obligated to
pay the EMIs, as the respondents recovered the subject vehicle for the non-
payment of loan amount in the month of December 2001. It was also agreed
that the loan agreement will be closed after the sale of the seized vehicle.
Even when the petitioners asked for the closure letter the respondent stated
that once the vehicle sold to the third party they would issue the loan letter.
The respondent had thereafter with a mala fide intention and by suppressing
the material facts unilaterally appointed an Arbitrator. It appears that the
learned arbitrator failed to consider the facts and without giving sufficient
opportunity to the petitioners proceeded with the matter and passed an ex-
parte award. The learned Arbitrator had not ordered fresh notice to the
petitioners due to non-appearance of their counsel, the petitioners did not
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Arb.O.P (Com.Div.) No.52 of 2022
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.
25.Hence the award passed by the learned Arbitrator is liable to be set
aside on the ground of unilateral appointment of the arbitrator.
26.For all the reasons assigned above, this Court is of the view that
the present award is not sustainable under law and the same is liable to be
set aside as it is against the public policy of India.
27.In the result, this Arbitration Original Petition is allowed and the
impugned Award dated 28.01.2021 passed by the learned Arbitrator is set
aside. No costs.
28.Since the Award passed by the learned Arbitrator is set aside by
this Court primarily on the ground that the unilateral appointment of the
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Arb.O.P (Com.Div.) No.52 of 2022
Arbitrator itself is contrary to the provision of law as well as against the
settled position of law and also since the learned counsel for both the parties
have requested this Court to appoint an Arbitrator in the event of setting
aside the award by this Court, in the interest of justice and in order to save
the time and to resolve the dispute at the earliest of point of time without
any further delay and as this Court deals with the applications filed under
Section 11 of the Act, this Court feels it appropriate to appoint an Arbitrator
to which the parties agreed to. Accordingly, this Court passes the following:
i) Ms.Anu Ganesan, Advocate, residing at
New No.325 (old No.158), Third Floor, Linghi
Chetti Street,George Town, Chennai- 600 001,
Contact No.9941542415 is appointed as Arbitrator to
enter upon reference and adjudicate the disputes inter
se the parties.
ii) The learned Arbitrator appointed herein, shall
after issuing notice to the parties and upon hearing
them, pass an award as expeditiously as possible,
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Arb.O.P (Com.Div.) No.52 of 2022
preferably within a period of six months from the date
of receipt of the Order without influencing any of the
observations made by this Court in this order.
iii) Learned Arbitrator is requested to conduct
arbitration proceedings in accordance with the Madras
High Court Arbitration Proceedings Rules, 2017 and
the fee of the learned Arbitrator shall be fixed in
accordance with Madras High Court Arbitration Centre
(MHCAC) (Administrative Cost and Arbitrator's Fees),
Rules 2017.
iv) In the event of non-appearance of the
respondent/petitioners herein, the
petitioners/respondents herein shall bear the entire
remuneration and other expenses and thereafter, the
petitioners/respondents can recover the same directly
from the petitioners/respondents herein.
v) Since this Court has appointed an Arbitrator,
it is open to the petitioner/s as well as the respondent
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Arb.O.P (Com.Div.) No.52 of 2022
herein to seek other reliefs under the provisions of
Arbitration and Conciliation Act 1996 before the
learned Arbitrator.
07.06.2023
sd/suk
Speaking/Non-speaking order
Index : Yes / No
Neutral Citation : Yes / No
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Arb.O.P (Com.Div.) No.52 of 2022
KRISHNAN RAMASAMY.J.,
sd/suk
Arb.O.P (Com.Div.) No.52 of 2022
07.06.2023
https://www.mhc.tn.gov.in/judis
