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TMI Blog2023 (3) TMI 1475X X X X Extracts X X X X X X X X Extracts X X X X ..... istance was extended to the borrower for purchase of one vehicle. It is to be noted here that the said hypothecated vehicle is presently in possession of the award holder as the same was surrendered by the borrower. 3. It has also been submitted that the impugned award has been challenged under Section 34 of the Act before the City Civil Court. However, I understand that the same may be time barred. 4. From the submissions made by the parties and perusal of the arbitral award, it is apparent that Mr. Soma Kar Ghosh, Sole Arbitrator was unilaterally appointed by the award holder vide its letter dated June 24, 2021. Further, the arbitral proceedings were conducted without participation of the award debtors and consequently, the arbitral award was passed ex-parte. 5. The position of law on unilateral appointment of an arbitrator is no more res integra and has been settled by the Supreme Court through various judicial pronouncements. 6. Firstly, in the case of HRD Corporation vs. GAIL reported in (2018) 12 SCC 471 [Coram: R.F. Nariman and S.K. Kaul, JJ.], the Apex Court ruled that when a person directly falls under Schedule VII, ineligibility goes to the root of the appointment as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that his mandate is automatically terminated under Section 14(1)(a) of the Act. Further, any prior agreement to do away with this ineligibility would be wiped out by the non-obstante clause contained in Section 12(5), and the same can be cured only through an express waiver. I have delineated the relevant paragraphs herein below:- "15. Section 12(5), on the other hand, is a new provision which relates to the de jure inability of an arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the non-obstante clause in Section 12(5) the moment any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the Seventh Schedule. The sub-section then declares that such person shall be "ineligible" to be appointed as arbitrator. The only way in which this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icta laid down in these judgments makes it crystal clear that there cannot be unilateral appointment of a sole arbitrator by the respondent as per Clause 19 of the loan agreement as the same is illegal and defeats the very purpose of unbiased and impartial adjudication of the dispute between the parties. The guiding principle is transparency, fairness, neutrality and independence in the selection process and hence, appointment of a sole arbitrator can either be with mutual consent of parties or by an order of the competent court. There can be no third way." 10. Similarly in B.K. Consortium Engineers Private Limited vs. Indian Institute of Management, Calcutta reported in (2023 SCC OnLine Cal 124) I had the occasion to examine the importance of independence and neutrality of the arbitral tribunal wherein I had expressed the following observations - "8. In the light of the apex court's pronouncements in Perkins Eastman Architects DPC & Another v. HSCC (India) Ltd. reported in [2019] 17 S.C.R. 275 and TRF Ltd. v. Energo Engineering Projects Ltd. reported in [2017] 7 S.C.R. 409, it is crystal clear that unilateral appointment of an arbitrator by a party who has some sort of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India) Ltd. (supra), held that unilateral appointment of an arbitrator by a party is impermissible." 13. In a similar fashion, in JV Engineering Associate, Civil Engineering Contractors vs. General Manager, CORE reported in 2020 SCC OnLine Mad 4829, the Madras High Court dealt with the validity of an arbitral award passed by an ineligible arbitrator. P.T. Asha, J., concluded as follows:- "31. In the above circumstances the Award in question having been passed by an Arbitrator who is ineligible to be an Arbitrator deserves to be set aside more particularly since there is no express waiver in writing as contemplated under the proviso to Section 12(5)." 14. Likewise, the Bombay High Court in Naresh Kanyalal Rajwani vs. Kotak Mahindra Bank reported in 2022 SCC OnLine Bom 6204, was dealing with effect of unilateral appointments on an arbitral award. Manish Pitale, J., remarked the following:- "23. Therefore, it becomes evident that in the present case, from the very inception, i.e. from the stage of appointment of the Arbitrator, the proceedings were vitiated and the arbitral award was therefore, rendered unsustainable. This Court is inclined to allow the petition only on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court cannot go behind the decree nor can it question its legality or correctness. But there is one exception to this general rule and that is that where the decree sought to be executed is a nullity for lack of inherent jurisdiction in the court passing it, its invalidity can be set up in an execution proceeding. Where there is lack of inherent jurisdiction, it goes to the root of the competence of the court to try the case and a decree which is a nullity is void and can be declared to be void by any court in which it is presented. Its nullity can be set up whenever and wherever it is sought to be enforced or relied upon and even at the stage of execution or even in collateral proceedings. The executing court can, therefore, entertain an objection that the decree is a nullity and can refuse to execute the decree. By doing so, the executing court would not incur the reproach that it is going behind the decree, because the decree being null and void, there would really be no decree at all. Vide Kiran Singh v. Chaman Paswan [AIR 1954 SC 340 : (1955) 1 SCR 117] and Seth Hiralal Patni v. Sri Kali Nath [AIR 1962 SC 199 : (1962) 2 SCR 747]. It is, therefore, obvious that in the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have not examined or dealt with the conundrum of the proceeding having been initiated pre the 2015 amendment and concluding post the 2015 amendment. 22. From the analysis undertaken above, the principles that emanated are extracted below: a) As held in HRD Corp (supra), arbitrators falling under Schedule VII of the Act are ineligible as they lack inherent jurisdiction. Such ineligibility was extended to persons appointed by persons falling under Schedule VII of the Act in TRF Limited (supra). This ineligibility was ultimately extended to persons who are unilaterally appointed by one of the parties to the arbitration in Perkins (supra). b) The Apex court has judicially expanded the Schedule VII of the Act to include persons unilaterally appointed by one of the parties vide its judgment in Perkins (supra) and/or persons appointed by persons falling under Schedule VII of the Act vide its judgment in TRF Limited (supra). c) It is a settled principle of law that compliance with Section 12(5) read with Schedule VII is sine qua non for any arbitral reference to gain recognition and validity before the Courts. An arbitral reference which begins with an illegal act vitiates the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies at the very threshold of the initiation of the arbitration proceedings. However, the proviso to Section 12(5) of the Act allows for waiver but clarifies that the same has to be explicit and in writing. 24. Impartiality as discussed is the paramount principle of arbitral proceedings and something which the Courts have to safeguard at every stage of such proceedings. Even at the stage of execution, the lady of justice cannot turn a blind eye and let one party run over the other. The people vest faith in the Court to safeguard their rights and uphold the principles of natural justice, irrespective of procedural hurdles. Whatever the case may be, including an execution case where Courts are expected to simply enforce the award without further probing, impartiality as a principle cannot be railroaded. Shackles of procedural limitation in such cases will not prevent parties from seeking the immunity of the Court. Parties making such unilateral appointments couch behind procedural technicalities to shield their unlawful act and reap the fruit of their own mischief. Accordingly, even if an award is not set side under the procedure established in section 34 of the Act, the courts, at t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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