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Court observed that even at the execution stage, the court can declare the "unilateral appointment award’' as null and direct parties to re-agitate their issues before a new arbitral tribunal constituted in accordance with the law.
A Single Judge bench of Justice Shekhar V Saraf of the Calcutta High Court recently refused to enforce an arbitral award passed by a sole arbitrator appointed unilaterally by the petitioner in the matter.
An application had been filed by the award holder, Cholamandalam Investment and Finance Company Ltd under section 36 of the Arbitration and Conciliation Act 1996 seeking execution of an arbitral award passed by the sole arbitrator by order dated 22.11.2021.
The court observed that an arbitral award passed by a unilaterally appointed arbitrator can't be considered an award under the Act and will be regarded as non-est in the eyes of the law because such appointments would be affected by possible bias in favour of the appointing party, which will be in violation of Section 12 (5) of the Arbitration Act, 1996 (Act) read with Schedule VII to the Act.
The parties entered into a Loan cum Hypothecation arrangement on 24.02.2020, in which the petitioner provided financial assistance to the respondent for the purchase of a vehicle. As a result of the parties' disputes, the petitioner unilaterally appointed the arbitrator. The respondent did not take part in the arbitration procedures, which were conducted ex parte ad the order was in favour of the petitioner, after that he approached the high court for enforcement of the award.
The respondent contended against the award's execution on the grounds that the appointment of the arbitrator was illegal, and so the arbitral procedures considered the arbitration award was bad in law, and thus it could not be enforced under the law.
An award made by an arbitrator thus appointed might be set aside even while the court is examining a petition under Section 36 of the Act to have the arbitral award executed, the court said.
The bench referred to some of the important judgments of the Apex Court. Court highlighted the case of HRD Corp vs. GAIL (2018) and said that arbitrators falling under Schedule VII of the Act are ineligible as they lack inherent jurisdiction.
The court held that an arbitral reference that begins with an illegal act vitiates the entire arbitral proceedings from its inception and the same cannot be validated and such arbitral proceedings will be considered void ab initio.
This judgment is applicable to awards wherein the arbitral proceeding commenced post the 2015 amendment to the Act. It does not deal with proceedings having been initiated pre the 2015 amendment and concluding post the 2015 amendment, the court remarked.
Further, the court also observed that an arbitral award delivered by a unilaterally appointed arbitrator is non-est and that its enforcement would be denied under Section 36 of the Act even if the award was not set aside under Section 34.
The court refused the enforcement of the arbitral award and directed the parties to re-agitate the claims before the fresh tribunal and directed the award debtor to withdraw the application filed under section 34 of the act before the City civil court.
Accordingly, with the consent of the parties, Court appointed a new sole arbitrator.
Case Title: Cholamandalam Investment and Finance Co. Ltd. v. Amrapali Enterprises and Anr
Statute - The Arbitration and Conciliation Act 1996
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