Award Passed By A Unilaterally Appointed Arbitrator Is Non-Est, It Cannot Be A Bar To The Maintainability Of Petition Under Section 11 Of The A&C Act: Delhi High Court Reiterates

The bench of Justice Sanjeev Narula held that passing of an award would not give sanctity to the non-est proceedings and the mere fact that the petitioner did not challenge the unilateral appointment under Section 14 of the Act cannot deprive it of the right to approach the court for appointment of independent arbitrator.

Facts

The parties entered into a Builder Agreement dated 06.09.2014 whereby the petitioner was 'the buyer' and the respondent was 'the developer'. Clause 20 of the Agreement was the arbitration clause. A dispute arose between the parties due to the alleged delay in completion and non-payment of dues.

The arbitration clause empowered the respondent to unilaterally appoint the sole arbitrator. Accordingly, the respondent appointed the sole arbitrator vide notice dated 21.11.2017 and referred the dispute to him. The petitioner objected to the appointment of the arbitrator and raised questions on the jurisdiction of the arbitrator. Consequently, the arbitrator recused itself and directed the parties to mutually appoint the substitute arbitrator.

Again on 09.10.2018, the respondent unilaterally appointed the second/substitute arbitrator. Aggrieved by the unilateral appointment of the arbitrator, the petitioner approached the High Court under Section 11 of the Act. The High Court dismissed the petition and held that the Managing Director of the Respondent cannot act as the sole arbitrator, however, he can appoint the arbitrator.

Aggrieved with the decision of the High Court, the petitioner preferred an appeal before the Supreme Court that was disposed of with the liberty to the petitioner to file a review petition before the HC. Accordingly, the petitioner filed the review petition and in view of the Judgment of the SC in Perkins Eastman^[1] the High Court allowed the review petition and listed the matter for de novo arguments.

The objection(s) of the respondent

The respondent objected to the maintainability of the petition on the following grounds:

• The appointment of the second arbitrator stood affirmed by the order of the High Court, therefore, the ensuing proceedings and the award is also legal.
• No stay was ever granted by the Supreme Court on the Arbitral Proceedings, thus, the same lawfully continued after the appointment stood affirmed.
• The recourse against the unilateral appointment of the arbitrator is under Section 14 of the A&C Act and the petitioner has not taken recourse to that but filed an application under Section 11 of the Act.
• The final award has been passed and the correct recourse for the petitioner was to challenge the award under Section 34 of the Act, however, the petitioner has taken no such steps within the stipulated time period, therefore, the award has become final and binding.

Analysis by the Court

The Court held that in absence of any express agreement to the contrary, the petitioner cannot be deprived of her right to seek appointment of an independent and impartial arbitrator under Section 11(6) of the Act, notwithstanding the progression of the non-est arbitral proceedings towards the eventual culmination into a final award.

The Court rejected the argument of the respondent that the appointment of the unilateral arbitrator stood affirmed by the earlier order, therefore, the subsequent proceedings would also be valid. The Court held that the earlier order of the Court was recalled, therefore, the respondent cannot rely on that order to give sanctity to an illegal arbitral proceeding.

The Court further held that passing of an award would not give sanctity to the non-est proceedings and the mere fact that the petitioner did not challenge the unilateral appointment under Section 14 of the Act cannot deprive it of the right to approach the court for appointment of independent arbitrator.

Accordingly, the Court allowed the petition and appointed the arbitrator.

Case Title: Geeta Poddar v. Satya Developers Pvt. Ltd. 

Citation: 2022 LiveLaw (Del) 838

Date: 31.08.2022

Counsel for the Petitioner: Mr. Rajiv Dalal, Mr. Sanjeev Sharma, Ms. Kamal Dalai and Mr. Vikas Bhardwaj, Advocates.

Counsel for the Respondent: Ms. Kaadambari with Mr. Uttam Kumar, Advocates.

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