2022 (11) TMI 1484 - HC - Indian Laws

Bank's unilateral arbitrator appointment violates Section 12(5) Arbitration Act in home loan dispute award set aside

The Bombay HC set aside an arbitration award in a home loan dispute between petitioners and a bank. The court found that the bank's unilateral appointment ... Maintainability of the arbitration proceedings - Unilateral appointment of the Arbitrator - certified copies of documentsnot supplied - Violation of principles of natural justice - home loan agreement executed between the respondent-Bank and the petitioners - ​​​​​​​HELD THAT:- It is clear that there is no substance in the contention raised on behalf of the respondent-Bank that Section 12(5) read with Seventh Schedule as amended with effect from 23/10/2015, would not apply merely because the agreement between the parties was executed prior in point of time i.e. in the year 2006. The non-obstante clause, with which Section 12(5) of the aforesaid Act begins, destroys the very basis of the aforesaid submission made on behalf of the respondent-Bank. The Supreme Court in the case of Perkins Eastman Architects DPC and Anr. Vs. HSCC (India) Limited [2019 (11) TMI 1154 - SUPREME COURT] has clearly laid down that a person having an interest in the 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. In the present case, as noted above, the arbitration clause gave power and authority to the respondent-Bank to unilaterally appoint the Arbitrator. As a matter of fact, in the present case, the learned Arbitrator was appointed unilaterally by the respondent-Bank, which was clearly in the teeth of the position of law clarified by the Supreme Court in the context of Section 12(5) of the said Act, read with Seventh Schedule thereof. Nonetheless, this Court has perused the material placed on record. There is substance in the contentions raised on behalf of the petitioners that the procedure adopted by the learned Arbitrator in the present case did not adhere to the principles of natural justice. There is no dispute about the fact that the learned Arbitrator failed to frame issues in order to afford an opportunity to the parties to lead evidence. The minutes of the meeting dated 27/7/2019, upon which the respondent-Bank has placed reliance can be of no assistance to the respondent-Bank, for the reason that in the absence of framing of issues and consideration of the stand taken on behalf of the petitioners, granting of opportunity to lead evidence, could be of no significance. It is also apparent that the learned Arbitrator extended his own mandate twice. Therefore, it is found that the impugned award passed by the learned Arbitrator suffers from serious procedural infirmities and violation of the principles of natural justice. The Court allowed the petition, setting aside the impugned award on the grounds of unilateral appointment of the Arbitrator and violation of principles of natural justice. The petition was allowed, and the impugned award was set aside. Issues Involved:1. Maintainability of the arbitration proceedings.2. Violation of principles of natural justice.3. Unilateral appointment of the Arbitrator.Summary:1. Maintainability of the Arbitration Proceedings:The petitioners challenged the Award dated 3/8/2019, passed by a sole Arbitrator, directing them to pay a specific amount along with interest to the respondent-Bank. The respondent-Bank raised a preliminary objection regarding the maintainability of the petition on the ground of territorial jurisdiction. This objection was rejected by the Court, which held that it had territorial jurisdiction to entertain and decide the petition.2. Violation of Principles of Natural Justice:The petitioners argued that the arbitration proceedings were vitiated due to procedural infirmities and violations of natural justice. They contended that proper opportunity was not granted to lead evidence, and issues were not framed during the arbitral proceedings. The Court found substance in these contentions, noting that the Arbitrator failed to frame issues and extended his mandate twice, which indicated serious procedural infirmities and violation of principles of natural justice.3. Unilateral Appointment of the Arbitrator:The petitioners emphasized that the arbitration proceedings were vitiated from the inception due to the unilateral appointment of the Arbitrator by the respondent-Bank, which was in violation of Section 12(5) of the Arbitration and Conciliation Act, 1996, read with the Seventh Schedule. The Court agreed, citing the Supreme Court's ruling in Perkins Eastman Architects DPC and Anr. Vs. HSCC (India) Limited, which clarified that a person having an interest in the dispute is ineligible to act as an Arbitrator or appoint one. The Court held that the unilateral appointment of the Arbitrator by the respondent-Bank rendered the proceedings unsustainable.Conclusion:The Court allowed the petition, setting aside the impugned award on the grounds of unilateral appointment of the Arbitrator and violation of principles of natural justice. The petition was allowed, and the impugned award was set aside. Pending applications were disposed of, with no order as to costs.