Requirement Of Serving Notice On Other Party For Appointment Of Arbitrator Is Dispensed With In Statutory Arbitration: Gujarat High Court

Brief Facts

The present First Appeal is preferred under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act' for short) assailing the judgment and order dated 10.7.2024 passed by Judge, Court No. 7, City Civil Court, Ahmedabad (hereinafter referred to as 'the learned Court' for short) in Commercial Civil Misc. Application No.175 of 2022.

The appellant No.1 is a registered by Partnership Firm whereas appellant Nos. 2 to 4 are the guarantors. It is the case of the appellants that the appellant No.1 Firm had approached the respondent No.1 Bank (hereinafter referred to as 'the respondent' for short) to avail EFC cum FBP/FBD under LC facilities to the tune of Rs.750.00 lakhs. For the same, appellant Nos. 2 to 4 stood as guarantors.

For the facility availed by the appellants, the stock for export was hypothecated as primary security and two other different properties were mortgaged as collateral security.

However, certain irregularities in payment was done on behalf of the appellants which has culminated into the account of the appellant being classified as a Non-performing Asset on 19.11.2018. Due to non-payment of dues by the appellant as well as classification of the account of the appellant as Non-performing Asset, the respondent issued a legal notice on 29.11.2018, calling upon the appellants to pay the full payment of overdue amount within a stipulated time failing which appropriate legal action would be initiated.

The arbitration proceedings further continued. The appellants took part in the proceedings. After hearing both the parties, learned Sole Arbitrator was pleased to pass an award dated 1.6.2022 accepting the claims of the respondents- original claimants. Being aggrieved and dissatisfied by the award dated 1.6.2022, the appellants preferred Commercial Civil Misc. Application No. 175 of 2022 before the learned Court under Section 34 of the Act. The learned Court after hearing contention raised by both the parties dismissed the application preferred by the appellants on 10.7.2024.

Contentions

The appellant submitted that the appointment of the Sole Arbitrator was an unilateral appointment. The provisions, as envisaged under Section 21 of the Arbitration and Conciliation Act, 1996 (in short as 'the Act, 1996') were not followed and there was a complete breach of Section 12 of the Act, 1996.

Reliance was placed on the Supreme Court judgment in Perkins Eastman Architects DPC v. HSCC Ltd. (2020) wherein it was held that unilateral appointment was supposed to vitiate the arbitration proceedings.

Court's Analysis

The court at the outset rejected the contention of the appellant on the ground of section 21 of the Arbitration Act and observed that the basic foundation in the contention made by the appellant is fallacious, inasmuch as, the arbitration proceedings under consideration is not a commercial arbitration, but a statutory arbitration.

The court further observed that the Arbitrator is appointed pursuant to the provisions of Section 84(5) of the Multi State Co-operative Societies Act. The appointment of the Arbitrator is made by the State Government on behalf of the Central Government. The argument canvassed by the learned counsel for the appellants about the applicability of provisions of Section 21, in a statutory arbitration, is absolutely meritless.

The court further observed that it is also not in dispute that the appellant is a defaulter and he has taken the facilities as per the loan agreement which specifically refers to the dispute being conducted by an Arbitrator appointed under Section 84(5) of the Multi State Co-operatives Act.

The court further rejected the argument that the arbitrator was biased and partial and observed that further, the arguments on the independence and impartiality of the statutory arbitrator solely on the ground that he is doing the cases of the bank for a long time is liable to rejected being wholly misconceived.

The court referred to the Supreme Court judgment in MMTC Ltd. vs. Vedanta Ltd.(2019) wherein it was held that As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34. In other words, the Court cannot undertake an independent assessment of the merits of the award, and must only ascertain that the exercise of power by the Court under Section 34 has not exceeded the scope of the provision.

Accordingly, the present appeal was dismissed.

Case Title: M/S KONNECTING INDIA & ORS. Versus THE KALUPUR COMMERCIAL CO OP. BANK LTD. & ANR.

Citation : C/FA/3575/2024

Judgment Date: 16/10/2024

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