Award Passed By A Unilaterally Appointed Arbitrator Is A Nullity, Cannot Be Enforced Under Section 36 Of The A&C Act: Calcutta High Court

The High Court of Calcutta has held that an arbitration award passed by an arbitrator who was unilaterally appointed by one of the parties cannot be executed under Section 36 of the A&C Act.

The bench of Justice Shekhar B. Saraf held that a unilaterally appointed award does not carry the privilege of existence in the eyes of the law and is regarded as a nullity, therefore, there is nothing to execute in an enforcement petition.

Facts

The parties entered into Master Lease Agreement dated 15.07.2018 whereby the award holder advanced a loan of Rs. 87,83.410/- to the award debtor. Allegedly, the award debtor failed to repay the amount.

Consequently, the award holder invoked the arbitration and unilaterally appointed the sole arbitrator in terms of Clause 18 of the Agreement. The award debtor did not participate in the arbitral proceedings and the award was passed ex-parte. The arbitrator awarded an amount of Rs. 65,41,583/- in favour of the award holder. Accordingly, the award holder filed an application under Section 36 for the enforcement of the arbitration award.

Analysis by the Court

The Court observed that Clause 18 of the Agreement conferred the right on the award holder to unilaterally appoint the arbitrator. The Court held that in terms of the judgments of the Hon’ble Supreme Court in Perkins Eastman v. HSCC, (2019) 17 SCR 275 and HRD Corporation v. GAIL, (2018) 12 SCC 471, the procedure for the appointment as contemplated under Clause 18 is invalid and the arbitrator unilaterally appointed would be lacking jurisdiction to decide the dispute between the parties, therefore, the consequent award would also be a nullity.

The Court relied on its earlier judgment in Cholamandalam Investment v. Amrapali Enterprises, (2023) SCC Online Cal 605 wherein the Court had ruled on the similar lines. It held that an award passed by an arbitrator who is unilaterally appointed by one of the parties is not valid in the eyes of law and there is noting to execute in an application seeking enforcement of an arbitral award which was passed by a unilaterally appointed arbitrator.

The Court then distinguished its judgment in McLoed Russel v. Aditya Birla Finance, 2023 SCC OnLine Cal 330 wherein it held that not all unilateral appointments are bad in law. The Court held that in that case, the petitioner had participated in the arbitral proceedings and accorded waiver as per the proviso to Section 12(5) and had specifically affirmed the arbitrator’s jurisdiction. However, in the present case, the award debtor did not acquiesce to the arbitrator’s jurisdiction by participating in the arbitral proceedings but refused to participate and was proceeded ex-parte.

Accordingly, the Court dismissed the enforcement petition and granted liberty to the parties to re-agitate their claims before an independent arbitral tribunal.

Case Title: SREI Equipment Finance v. Sadhan Mandal, EC 137 of 2023

Citation: 2023 LiveLaw (Cal) 100

Date: 11.03.2023

Counsel for the Award Holder: Mr. Anik Banerjee, Adv. Mr. Rajib Mullick, Adv. Ms. Sonia Mukherjee, Adv

Counsel for the Award Debtor: Mr. Priyankar Saha, Adv.

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