Challenge Under S. 13 of Arbitration Act Not Raised, Party Can Challenge Unilateral Appointment Of Arbitrator Under S. 34: Madras High Court

The bench of Justice Krishnan Ramasamy reiterated that if any award is passed in violation of the provisions of the A&C Act, the same would be against the public policy of India.

The petitioners, Hina Suneet Sharma and Suneet Sharma, borrowed a sum under the Loan-cum-Hypothecation Agreement from the respondent, M/s Nissan Renault Financial Services India Pvt Ltd.

After the petitioners failed to pay the outstanding amount, the loan of the petitioners was foreclosed and thereafter, the respondent invoked the arbitration clause and unilaterally appointed a Sole Arbitrator.

Challenging the ex-parte arbitral award passed in favour of the respondent, the petitioners filed a petition under Section 34 of the A&C Act before the Madras High Court.

Contending that the respondent appointed the Sole Arbitrator unilaterally, without the consent of the petitioners, the petitioners submitted before the High Court that the appointment was non-est in law.

The petitioner, Hina Suneet Sharma, averred that the unilateral appointment is contrary to Section 12(5) of the A&C Act and in contravention with the fundamental policy of Indian law.

It added that in the absence of any express agreement between the parties, waiving the applicability of Section 12 (5), the unilateral appointment of the Arbitrator is null and void.

Section 12(5) of the A&C Act provides that, notwithstanding any prior agreement to the contrary, if any person, whose relationship with the parties, counsel or the subject-matter of the dispute falls under any of the categories specified in the Seventh Schedule of the A&C Act, he shall be ineligible to be appointed as an arbitrator.

The proviso to Section 12(5) provides that the parties may, subsequent to the disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing.

The petitioners further averred that the Arbitrator had not given them any opportunity to file a counter claim and contest the matter.

The Court reckoned that under the relevant clause contained in the Loan-cum-Hypothecation Agreement, the respondent had the option to appoint the Sole Arbitrator at its own discretion. Consequently, in terms of the said clause, the authorised representative of the respondent had nominated the Sole Arbitrator.

The bench further took note that if the relationship of the arbitrator, with the parties or their counsels or with the subject-matter of the dispute, falls under any of the categories contemplated under Schedule VII of the A&C Act, he shall be ineligible to be appointed as Arbitrator.

Referring to Apex Court’s decision in Perkins Eastman Architects DPC vs. HSCC (India) Ltd (2019), the bench added, “When a person is ineligible to be appointed as Arbitrator, in the same way, he is also ineligible to nominate any Arbitrator. This is what the Hon'ble Apex Court has held in the Perkins case.”

Thus, the Court concluded that the persons specified in Schedule VII, including the employee, consultant, advisor, manager or director of the respondent, Nissan Renault Financial Services, are ineligible to act as an Arbitrator in terms of Section 12(5) of the A&C Act. In the same way, the said persons are also not eligible to nominate any person as an Arbitrator to act on their behalf or their concern, the Court ruled.

Noting that in the present case, the authorised representative of the respondent appointed the Arbitrator unilaterally without the consent of the petitioners, the bench observed that there was no express agreement between the parties providing consent in writing for the unilateral appointment.

“Hence, the unilateral appointment of the arbitrator by the respondent is in violation of provisions of Section 12(5) of the Act,” the Court concluded.

The respondent, Nissan Renault Financial Services, argued that if there is any unilateral appointment of the Arbitrator, the remedy available to the petitioners is to immediately challenge the same under Section 13 of the A&C Act before the Arbitral Tribunal. Since in the present case, the petitioners have not resorted to this remedy, they are not entitled to challenge the award on the said ground, the respondent contended.

Dismissing the argument of the respondent, the Court held that even though the petitioners failed to challenged the unilateral appointment of the Sole Arbitrator under Section 13 of the A&C Act, it would not take away their right to challenge the award under Section 34 of the A&C Act on the ground that the Arbitrator was unilaterally appointed.

Holding that the petitioners are certainly entitled to challenge the award under Section 34 if there is any violation of the provisions of the A&C Act, the Court added, “Even if there is any participation by the petitioners in the arbitral proceedings, the petitioners still have the right to challenge about the violations of the provisions of Section 12(5) of the Act under Section 34 of the Act.”

If an arbitral award is passed in violation of the provisions of the A&C Act, the same would be against the public policy of India, the Court said.

The bench further observed that the award was passed without giving any notice about the hearing to the petitioners, and the respondent also failed to furnish the statement of claim to the petitioners.

While ruling that the award was passed without giving any opportunity to the petitioners to file the counter claim and contest the matter, the bench concluded that the award was vitiated on account of violation of the Principles of Natural Justice.

Allowing the petition, the Court set aside the arbitral award on the ground that it was against the public policy of India and violated the principles of natural justice.

Case Title: Hina Suneet Sharma & Anr. versus M/s Nissan Renault Financial Services India Pvt Ltd

Citation: 2023 LiveLaw (Mad) 56

Dated: 15.02.2023

Counsel for the Petitioner: Mr. Adith Narayan Vijayaraghavan

Counsel for the Respondent: Mr. Suhrthi Parthasarathy

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