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2023 (4) TMI 315 - HC - Indian LawsUnilateral appointment of the Arbitrator, without express agreement - 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? HELD THAT - The answer is no. The petitioners can certainly entitled to challenge 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 take away the rights of the petitioners to challenge under Section 34 of the Act. Even if there is any participation by the petitioners in the arbitral proceedings, the petitioners still have the right to challenge about the violations of the provisions of Section 12(5) of the Act under Section 34 of the Act. Any violation of provisions of the Act, is amount to against the public policy of India. In the present case, apart from appointing the Arbitrator unilaterally by the respondent, the Arbitrator had also failed to send any notice about the hearing to the petitioners and the respondent had also failed to furnish the claim statement to the petitioners. Therefore, the petitioners did not have any opportunity to file the counter and contest the matter. Even if the petitioners have filed the counter and considered, the present award is liable to be set aside for the violations of the provisions of Section 12(5) of the Act. The present award is liable to be set aside on the ground of unilateral appointment of arbitrator. Further in the present case, it appears that the award has been passed without giving any opportunity to the petitioners and therefore, the award is suffered with the violation of Principles of Natural Justice also. This Court is of the view that the present award is not sustainable under law and the same is liable to be set aside and it is against the public policy of India as it violates the principles of natural justice - the Award dated 30.08.2021 is set aside. This Arbitration Original Petition is allowed.
Issues Involved:
1. Unilateral appointment of the Arbitrator. 2. Violation of Section 12(5) of the Arbitration and Conciliation Act, 1996. 3. Lack of notice and opportunity to the petitioners. 4. Violation of Principles of Natural Justice. 5. Public policy of India. Issue-wise Detailed Analysis: 1. Unilateral Appointment of the Arbitrator: The petitioners challenged the ex-parte arbitral award on the ground that the respondent unilaterally appointed the sole Arbitrator without their consent. The appointment was made through a letter dated 05.02.2021, referencing the Loan-cum-Hypothecation Agreement dated 27.11.2019. The petitioners argued that such unilateral appointments are non-est in law, citing the Supreme Court's decision in *Perkins Eastman Architects DPC Vs. HSCC (India) Ltd.*, which held that any unilateral appointment of an Arbitrator without the consent of the other party is invalid. 2. Violation of Section 12(5) of the Arbitration and Conciliation Act, 1996: The petitioners contended that the unilateral appointment of the Arbitrator violated Section 12(5) of the Act, which states that any person related to the parties or the dispute as specified in the Seventh Schedule is ineligible to be appointed as an Arbitrator. The proviso to this section allows for such appointments only if both parties expressly agree in writing, which did not occur in this case. The court affirmed that the unilateral appointment was indeed in violation of Section 12(5). 3. Lack of Notice and Opportunity to the Petitioners: The petitioners also argued that they were not given any notice by the Arbitrator or provided with the respondent's claim statement, which deprived them of the opportunity to file a counter and contest the matter. The court noted that the Arbitrator failed to send any notice about the hearings, and the respondent did not furnish the claim statement to the petitioners, thereby denying them the opportunity to present their case. 4. Violation of Principles of Natural Justice: The court observed that the lack of notice and the opportunity to be heard resulted in a violation of the Principles of Natural Justice. The petitioners were not given a fair chance to participate in the arbitral proceedings, which is a fundamental requirement for any judicial or quasi-judicial process. 5. Public Policy of India: The court emphasized that any award passed in violation of the provisions of the Act, including the unilateral appointment of an Arbitrator and the denial of natural justice, is against the public policy of India. The Supreme Court in *Associate Builders vs. Delhi Development Authority* held that such violations are contrary to the fundamental policy of Indian law. Conclusion: The court concluded that the unilateral appointment of the Arbitrator by the respondent was non-est in law and in violation of Section 12(5) of the Act. Additionally, the Arbitrator's failure to provide notice and the respondent's failure to furnish the claim statement violated the Principles of Natural Justice. Consequently, the award dated 30.08.2021 was set aside as it was not sustainable under law and was against the public policy of India. The Arbitration Original Petition was allowed.
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