Delhi High Court Stays Arbitral Awards Due To Unilateral Appointment Of Arbitrator
The Delhi High Court bench presided by Justice C. Hari Shankar has stayed the execution of two arbitral awards, holding that the unilateral appointment of the arbitrator by the respondent, without court intervention under Section 11 of the Arbitration and Conciliation Act, 1996, and in violation of Section 12(5) of the Act, rendered the arbitration proceedings invalid...
The Delhi High Court bench presided by Justice C. Hari Shankar has stayed the execution of two arbitral awards, holding that the unilateral appointment of the arbitrator by the respondent, without court intervention under Section 11 of the Arbitration and Conciliation Act, 1996, and in violation of Section 12(5) of the Act, rendered the arbitration proceedings invalid ab initio.
Bckground Facts:
The petitioners, M/s PGL Estatecon Pvt. Ltd. and M/s Flozen Estates and Developers Pvt. Ltd. have challenged the arbitral awards passed by an arbitrator appointed by the respondent, M/S Jyoti Enterprises. The arbitration clause provided that the proprietor of the respondent could act as the arbitrator.
The respondent issued a notice under Section 21 of the Arbitration and Conciliation Act, 1996, on 13 March 2021. The arbitrator was appointed unilaterally by the respondent without approaching the court under Section 11 of the Arbitration and Conciliation Act. The petitioners had raised objections before the arbitrator that his appointment was invalid due to a conflict of interest, as he was the respondent's counsel. The arbitrator ignored these objections.
Observations:
The court observed that the arbitration clause allowed the proprietor of the respondent to act as arbitrator, which was contrary to Section 12(5) of the Arbitration and Conciliation Act, 1996, which prohibits unilateral appointments unless there is consensus ad idem between parties.
The court found that the notice issued by the respondent on March 13, 2021, seeking reference of the dispute to arbitration, was not stricto sensu a Section 21 notice under the Act but a demand notice. The respondent never approached the court under Section 11 to seek the appointment of an arbitrator. The court, prima facie, held that the arbitration was invalid ab initio.
The arbitrator appointed by the respondent was the respondent's own counsel. The petitioner had made two requests to the arbitrator to recuse himself due to lack of jurisdiction as his appointment was invalid, but the requests were not addressed.
The execution of the impugned award was stayed. The matter was listed on 24.09.2024.
Case Title: M/s PGL Estatecon Pvt. Ltd. vs. M/s Jyoti Enterprises
Citation: 2024 LiveLaw (Del) 1036
Case Number: O.M.P. (COMM) 99/2023 & O.M.P. (COMM) 100/2023
Date of Order: September 11, 2024