2023 (3) TMI 1475 - HC - Indian Laws

Arbitral award by unilaterally appointed arbitrator deemed non-executable due to lack of inherent jurisdiction

The Calcutta HC dismissed an execution petition for an arbitral award passed by a unilaterally appointed arbitrator. The court held that awards by de jure ... Unilateral appointment of arbitrator - ineligibility under Section 12(5) read with Schedule VII - lack of inherent jurisdiction - award void ab initio / non est - execution of arbitral award under Section 36 - power of court to refuse execution of a nullity decree/award - proviso permitting express written waiver - applicability to arbitral proceedings commenced post the 2015 amendmentUnilateral appointment of arbitrator - ineligibility under Section 12(5) read with Schedule VII - lack of inherent jurisdiction - Validity of the sole arbitrator's appointment who was unilaterally appointed by the award-holder. - HELD THAT: - The Court found that the sole arbitrator was unilaterally appointed by the award-holder and, in the light of binding Supreme Court precedents, such unilateral appointment renders the arbitrator de jure ineligible where Section 12(5) read with Schedule VII applies. The Court followed the reasoning in HRD Corporation, TRF Limited, Perkins Eastman and related authorities to conclude that a person unilaterally appointed by a party who has an interest in the dispute lacks inherent jurisdiction to act as arbitrator unless there is an express written waiver after disputes have arisen. Consequently, the appointment of Mr. Soma Kar Ghosh was illegal and void from inception. [Paras 6, 7, 11, 15, 16]The unilateral appointment was illegal and the arbitrator was de jure ineligible, lacking inherent jurisdiction.Award void ab initio / non est - award passed by a de jure ineligible arbitrator - Effect of the arbitrator's illegality on the arbitral award. - HELD THAT: - Applying the principle that an arbitral reference which begins with an illegal act vitiates the proceedings, the Court held that an award made by an arbitrator who is de jure ineligible cannot be treated as an arbitral award under the Act. Such awards are non est in law and suffer from a permanent and indelible taint of bias and want of competence. The Court concluded that the impugned award cannot be accorded the privileged status of an award and must be regarded as void ab initio. [Paras 15, 16, 20, 24]The impugned award is void ab initio and non est in law because it was passed by a de jure ineligible arbitrator.Execution of arbitral award under Section 36 - power of court to refuse execution of a nullity decree/award - Whether the executing court can refuse execution of an arbitral award that is a nullity for lack of inherent jurisdiction. - HELD THAT: - The Court held that even though Section 36 of the Act ordinarily confines the court to execute an award as a decree, established jurisprudence permits an executing court to refuse enforcement where the decree/award is a nullity for want of inherent jurisdiction. Relying on precedents concerning decrees rendered by courts lacking inherent jurisdiction, the Court reasoned that awards rendered by arbitrators who are de jure ineligible are similarly unenforceable; there is, in effect, no decree to enforce. Therefore the executing court may declare such an award a nullity and decline execution. [Paras 17, 18, 19, 20, 24]The executing court may refuse execution of an award that is a nullity for lack of inherent jurisdiction; the present execution petition cannot be maintained.Proviso permitting express written waiver - applicability to arbitral proceedings commenced post the 2015 amendment - Scope for curing ineligibility and temporal application of the decision. - HELD THAT: - The Court recognized that the statutory scheme permits curing ineligibility only by an express written waiver by the parties made after disputes have arisen, as provided in the proviso to Section 12(5). The judgment was expressly limited to cases in which arbitral proceedings commenced after the 2015 amendment to the Act; proceedings initiated before that amendment but concluding after were not considered. [Paras 8, 21, 22, 23]Ineligibility may be cured only by an express written waiver post-dispute; the decision applies to proceedings commenced post the 2015 amendment.Remedy of fresh arbitration - court's power to direct re-arbitration - Relief to be granted when an award is declared non est and whether parties can be directed to re-agitate the dispute. - HELD THAT: - Having declared the award void, the Court held that parties remain free to re-agitate the dispute before a properly constituted arbitral tribunal. In the present case, the parties consented to fresh arbitration; accordingly, the Court appointed a new sole arbitrator by consent and directed compliance with prescribed disclosures and status-quo regarding the hypothecated vehicle, while ordering withdrawal of the pending Section 34 challenge as infructuous. [Paras 20, 26, 27, 28, 29]Parties may re-agitate the dispute; by consent the Court appointed a fresh arbitrator, directed statutory disclosure and preservation of status quo, and ordered withdrawal of the Section 34 petition.Final Conclusion: The execution petition under Section 36 is dismissed because the impugned award was rendered by a de jure ineligible, unilaterally appointed arbitrator and is therefore void ab initio and non est in law; the Section 34 challenge is rendered infructuous and is to be withdrawn, the parties having consented to fresh arbitration for which a sole arbitrator has been appointed and directions given as to disclosure and status quo. 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.