Madras High Court
Menaka V vs M/S.Shriram City Union Finance ... on 13 June, 2023
O.P. No.126 of 2023
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATE: 13.06.2023
CORAM
THE HON'BLE Mr. JUSTICE KRISHNAN RAMASAMY
O.P.No.126 of 2020
and A.No.703 of 2020
1.Menaka V.
2.Indira V.
... Petitioners
versus
1.M/s.Shriram City Union Finance Limited,
Rep.by its Authorized Representative,
D.Senthil Kumaran,
New No.11, Old No. 50/5,
Ellaiamman Koil Street, Ramasamy Avenue,
Vannanthurai, Chennai – 600 020,
2.Vishnuvardhan,
3.S.Ganesan ...Respondents
Prayer: Original Petition filed under Section 34 (2) (a) (iii) of the Arbitration
and Conciliation Act, 1996, to set aside the impugned arbitral award dated
30.12.2016 in A.C.P.No. (EF) CMS 064 of 2015 passed by the learned Sole
Arbitrator.
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O.P. No.126 of 2023
For Petitioners :Ms.Usha
For R1 :Mr.K.V.Anantha Krushnan
For R3 :No Appearance
ORDER
This Original Petition have been filed by the petitioners, seeking to set
aside the impugned arbitral award dated 30.12.2016 in A.C.P.No.(EF) CMS
064 of 2015 passed by the learned Sole Arbitrator.
2.The case of the petitioners are as follows:
2.1.The 1st respondent bank initiated the arbitration proceedings in
terms of loan agreement dated 23.12.2013 entered into between the petitioners
as guarantors, 2nd respondent as the borrower and the 1st respondent. The
respondents in the arbitral award states that the petitioners had approached the
1st respondent for trade enterprises loan for a sum of Rs.25,00,000/-. They
executed the loan agreement dated 23.12.2013 vide Loan Agreement No.
TNAG2F1312230001. As per the terms and conditions of the aforesaid
agreement, they have to repay the total sum in the form of 24 equated monthly
installments of Rs.13,650/- p.m. from 10.01.2014. But the petitioners submit
that they have not signed in any form or application pertaining to the aforesaid
agreement. They had also requested the 1st respondent to furnish the copy of the
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documents which were said to have been signed by them but till date they have
not come forward to produce even a photocopy of the same.
2.2. The learned arbitrator had failed to notice that in the aforesaid
loan agreement, the address of the petitioners who are shown as the guarantors
and the address of the 2nd respondent, who had borrowed the loan amount are
one and the same and they just live in different floors. The petitioners are
tenants of the said premises who lives in ground floor. The 2 nd respondent
-borrower is also a tenant who lives in the same premises at first floor. Their
parents were old aged that the borrower had taken advantage of the same and
collected their personal information. They had also vacated the premises on
22.10.2014 and the 3rd respondent is unknown to them. They were unaware of
an award which had been passed against the petitioners on 30.12.2016. The
learned arbitrator also had not given proper notice before passing the award.
They had came to know only when the award came to be challenged before E.P
proceedings in E.P.No.3836/2017 pending in X Assistant City Civil Court,
Chennai. Then only they applied and obtained the copy of the award on
06.09.2018.
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2.3. Further, the award states the 1st respondent had unilaterally
appointed an Arbitrator of their choice and had filed a claim before the
Arbitrator for a sum of Rs.27,3000/- towards principle with interest banking
charges, overdue charges and all the expenses and the total sum of
Rs.3,81,019/-, without proper notice to the petitioners. The Learned Arbitrator
without considering the facts and without ordering fresh notice for the non-
appearance of petitioners, he had passed an award on 30.12.2016 allowing the
claims with costs as prayed for by the 1st respondent/claimant beyond the terms
of the agreement contrary to the legal provisions.
3.The main grounds of challenge made by the petitioners are that the
respondents appointed the learned Arbitrator unilaterally and the impugned
award came to be passed on 30.12.2016 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 30.12.2016 is liable to be set aside.
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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
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
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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 1st respondent strongly
refuted the contentions of the petitioners, stating that if there is any unilateral
appointment, the remedy available to the petitioners are to 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 1st respondent and perused the
entire materials placed on record. Despite service of notice, none appeared on
behalf of 3rd respondent.
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
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the above said Loan Agreement, the 1st respondent has an option for
appointment of sole Arbitrator at their discretion. In terms of the said
agreement, the 1st 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 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
respondents. 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
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same way, the above persons are also not eligible to nominate any person as
Arbitrator to act on behalf of them or the concern.
12.In the present case, the 1st 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
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arbitrator. Hence, the unilateral appointment of the arbitrator made by the 1 st
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:
“33. Resolution of dispute/arbitration
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(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 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
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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.
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
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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
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.
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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 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
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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
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,
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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 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
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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 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
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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 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
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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?
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
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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 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
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petitioners having not raised any objection towards the appointment of the
Arbitrator made by the 1st 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 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?
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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 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
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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)
“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.”
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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 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
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O.P. No.126 of 2023
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.
24. In the present case, the petitioners are not the parties to the loan
agreement. The 2nd respondent with a malafide intention used the petitioners
personal information for the aforesaid loan agreement. Despite several requests,
the 1st respondent failed to send the copies of the agreements to which they had
stated that the petitioners had signed as the guarantors of the aforesaid loan
agreement. The 1st respondent by suppressing the material facts, has unilaterally
appointed an Arbitrator without sending notice. The learned arbitrator failed to
consider the facts that both the addresses of the petitioners and the 2 nd
respondent are one and the same. And without giving sufficient opportunity to
the petitioners, he proceeded with the matter and passed an ex-parte award. The
learned Arbitrator had not ordered fresh notice to the petitioners for their non-
appearance and the petitioners did not have any opportunity to file and contest
the matter. Even if the petitioners had filed the counter and considered, the
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O.P. No.126 of 2023
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 Original Petition is allowed and the impugned Award
dated 30.12.2016 passed by the learned Arbitrator is set aside. Consequently,
the connected application is closed. 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 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
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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) Mr.M.V.Swaroop, Advocate, residing at
No.17/5, Krishna Street, T.Nagar, Chennai and Contact
No.9003263741, 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, 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.
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O.P. No.126 of 2023
iv) In the event of non-appearance of the
respondents/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 respondents herein to
seek other reliefs under the provisions of Arbitration and
Conciliation Act 1996 before the learned Arbitrator.
13.06.2023
rst/suk
Speaking/Non-speaking order
Index : Yes / No
Neutral Citation : Yes / No
Note:Issue Order Copy on 06.07.2023
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O.P. No.126 of 2023
KRISHNAN RAMASAMY.J.,
rst/suk
O.P .No.126 of 2020
and A.No.703 of 2020
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O.P. No.126 of 2023
13.06.2023
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