2023 (3) TMI 1475 - HC - Indian Laws

Seeking execution of an arbitral award - unilateral appointment of an arbitrator - HELD THAT - The impugned award which was passed by a dejure ineligible arbitrator suffers from a permanent and indelible mark of bias and prejudice which cannot be washed away at any stage including the execution proceedings. Infact as the arbitrator was dejure ineligible to perform his functions and therefore lacked inherent jurisdiction or competence to adjudicate the disputes in hand the impugned award cannot be accorded the privileged status of an award. It is palpably clear that an arbitral award passed by a unilaterally appointed arbitrator will not survive the Section 34 challenge. However the arbitration application before me is not under Section 34 but rather an execution petition under Section 36. There is no denying the fact that the Act is a complete code in itself and at the same time it is equally true that Section 36provides no scope of adverse interference with an arbitral award except executing it as a decree of the court. While Section 47 of the Code of Civil Procedure 1908 (CPC) governs the challenge to a court decree at the execution stage there is no such similar provision provided in the Act. However at this juncture it would be relevant to examine the jurisprudence with respect to decrees passed by bodies lacking inherent jurisdiction. While Section 47 of the CPC is not directly applicable the jurisprudence referred to above cannot be ignored. Similar principles have to be applied in cases of awards passed by arbitral tribunals lacking inherent jurisdiction. This court cannot shut its eyes to the grave irregularity that will occur if it does not interfere. As outlined in various afore-stated judicial pronouncements an arbitral award passed by a unilaterally appointed arbitrator cannot be considered as an award under the provisions of the Act and consequently they have to be regarded as non est in the eyes of law - Possibility of waiver was granted as a concession to party autonomy in arbitration law. But that does not mean that the jurisdiction is not inherently lacking before such express waiver is made. As a flip side to this such waivers should be very strictly construed in terms of its explicitness. The present execution petition has no legs to stand on for the reasons that the award sought to be enforced is not a legal decree. The decree does not exist. Therefore not merely is it non-executable the parties would be free to re-agitate the matter before a new arbitral tribunal. However the parties have given consent in the present matter. Petition dismissed.

Summary

Issues Involved:
1. Unilateral appointment of arbitrator.
2. Validity of arbitral award passed by unilaterally appointed arbitrator.
3. Execution of arbitral award.
4. Jurisdiction of executing court.

Summary:

1. Unilateral Appointment of Arbitrator:
The primary issue in this case was the unilateral appointment of Mr. Soma Kar Ghosh as the sole arbitrator by the award holder, Cholamandalam Investment and Finance Company Ltd., without the participation of the award debtors, Amrapali Enterprises and Saif Khan. The court highlighted that the law on unilateral appointment of an arbitrator has been settled by the Supreme Court through various judicial pronouncements, including HRD Corporation vs. GAIL, TRF Limited vs. Energo Engineering Projects Limited, Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd., and Bharat Broadband Network Limited vs. United Telecoms Limited. These cases collectively established that unilateral appointments are inherently biased and lack jurisdiction unless expressly waived in writing by both parties after the dispute has arisen.

2. Validity of Arbitral Award:
The court found that the arbitral award passed by Mr. Soma Kar Ghosh was unsustainable and non-est in the eyes of law due to his unilateral appointment. Citing precedents, the court noted that an arbitral award passed by an ineligible arbitrator cannot be considered a valid award under the Arbitration and Conciliation Act, 1996. The court referenced cases such as Ram Kumar and Ors. vs. Shriram Transport Finance Co. Limited, JV Engineering Associate vs. General Manager, CORE, and Naresh Kanyalal Rajwani vs. Kotak Mahindra Bank, which supported the view that awards passed by unilaterally appointed arbitrators are void ab initio.

3. Execution of Arbitral Award:
The court addressed the issue of whether an arbitral award passed by a unilaterally appointed arbitrator could be executed under Section 36 of the Act. The court concluded that such an award is not a legal decree and therefore non-executable. The court emphasized that decrees passed by bodies lacking inherent jurisdiction are unenforceable, drawing parallels with the jurisprudence under Section 47 of the Code of Civil Procedure, 1908.

4. Jurisdiction of Executing Court:
The court asserted its jurisdiction to intervene even at the execution stage, stating that it cannot turn a blind eye to the inherent bias and lack of jurisdiction in the arbitral proceedings. The court held that impartiality is a paramount principle that must be safeguarded at every stage, including execution. Consequently, the court dismissed the execution petition, directed the award-debtor to withdraw the Section 34 application before the City Civil Court, and appointed a new arbitrator with the consent of both parties.

Conclusion:
The court dismissed the execution petition (EC 122/2022) and directed the parties to re-agitate the matter before a newly appointed arbitrator, ensuring compliance with the principles of impartiality and fairness in arbitration proceedings. The court's decision underscores the importance of adhering to statutory requirements and judicial precedents to maintain the integrity of the arbitration process.