Sole Arbitrator Was Appointed Unilaterally In Contradiction To Apex Court’s Decision U/s. 12(5) Of Arbitration Act: Gujarat HC Quashes Arbitral Awards
The Gujarat High Court in a case, has quashed arbitral awards on the ground that the Sole Arbitrator was appointed unilaterally which is contrary to the decision of the Apex Court under Section 12(5) of the Arbitration and Conciliation Act, 1996.
A petition was filed against the awards passed by the Sole Arbitrator appointed by the respondent i.e., Non-Banking Finance Company (NBFC) on account that the arbitration awards were passed ex parte and that such arbitrator could not have been unilaterally appointed by the respondent as per the settled legal position.
A Single Bench of Justice Bhargav D. Karia held, “… the Hon’ble Apex Court has held that a person having an interest in a dispute or in the outcome thereof is ineligible not only to act as an arbitrator but is also rendered ineligible to appoint anyone else as an arbitrator. It is an admitted position in each of the petition that the arbitration clause gave power and authority to the respondent NBFC unilaterally to appoint the sole arbitrator and accordingly the Sole Arbitrator was appointed unilaterally which is contrary to the decision of the Apex Court in the context of Section 12(5) of the Act read with Seventh Schedule thereof.”
The Bench said that even though the petitioners are required to challenge the award under Section 34 of the Act, they have been able to show exceptional circumstances and bad faith on the part of the respondent to invoke the remedy under Article 226 and 227 of the Constitution whose ambit is broad and pervasive.
Advocate Vishwas K. Shah appeared for the petitioners while Advocates Yash Jain and Aditya P. Dave appeared for the respondents.
Factual Background -
It was the case of the petitioners that they availed financial assistance from the respondent NBFC and could not repay the outstanding dues and therefore the respondent invoked the arbitration by appointment of the Sole Arbitrator to adjudicate the dispute between the parties. The said arbitrator passed ex parte award in Special Civil Application no.728 of 2023, Special Civil Application no.6844 of 22 and Special Civil Application no.8468 of 2021, whereas notice issued by the Sole Arbitrator was under challenge in Special Civil Application no.17868 of 2022.
As the common issue with regard to the jurisdiction of the Sole Arbitrator was arising in all the petitions, the same were heard analogously and were disposed of by the common order of the court.
The High Court after hearing the contentions of the counsel observed, “… in the exceptional circumstances as emerging from the facts of these petitions, these petitions are entertained instead of relegating the petitioners to avail appropriate remedy under Section 34 of the Act. … it becomes evident that from the very inception i.e. from the stage of appointment of the sole arbitrator, the proceedings were vitiated and the impugned ex parte arbitral awards are therefore rendered unsustainable.”
The Court further said that the impugned awards are liable to be quashed and set aside with a liberty to the respondent NBFC to initiate fresh proceedings in accordance with the settled legal position by appointing the arbitrator either with the consent of the petitioners or by approaching the High Court under Section 11 of the Act.
Accordingly, the High Court allowed the petition and set aside the arbitral awards.
Cause Title- M/s. Rich and Royal v. Authorised Officer, Hinduja Leyland Finance Ltd.
