The Delhi High Court recently expressed shock on finding that one unilaterally appointed sole arbitrator had handled 4,155 arbitral proceedings concerning Axis Bank [Shikha Ghosh Vs Axis Bank].

On Court's queries, Axis Bank also disclosed that 76,000 arbitral awards were passed by such sole arbitrators across India in proceedings concerning the bank.

A Division Bench of Justices Prathiba M Singh and Dinesh Bhatt expressed concerns over this state of affairs, terming it the "tip of the iceberg."

The Court underscored that such unilateral appointments and repeated appointments of the same arbitrators strike at the neutrality of the arbitral process.

"Arbitrators who were appointed in thousands of matters like this without filing proper declarations cannot be said to be independent and impartial arbitrators... handling thousands of the arbitrations by the very same arbitrator appointed by one single party would give rise to justifiable doubts as to independence and impartiality," it said.

The Court proceeed to order Axis Bank to explain how it permitted the same.

"Axis Bank which is the party in the present case is answerable as to how this situation could be permitted and the Bank also requires to take some remedial measures without doubt," the Court said.

It also directed the Reserve Bank of India (RBI) to caution other banks and financial institutions against unilateral arbitrator appointments.

"The RBI being the sector regulator, shall also caution all banks in this regard, so that if any remedial measures need to be taken by other banks and financial institutions in respect of unilateral appointments, the same can also be looked into and some guidance issued in respect thereof," the Court said.

The Court was hearing an appeal by one Shikha Ghosh challenging an arbitral award passed in favour of Axis Bank in a loan dispute. The Bank had disbursed a loan of ₹16.66 lakh to Ghosh in 2019 and later initiated arbitration after alleging default in repayment.

Ghosh contended that she had not been properly served in the arbitral proceedings and that the award was passed without her knowledge.

During the proceedings, the Court asked Axis Bank to disclose, among other things, the number of arbitrations handled by sole arbitrator Vikrant Bhardwaj on behalf of the Bank.

The affidavit filed in response revealed that Bhardwaj had acted as arbitrator in 4,155 cases involving Axis Bank over four to five years, prompting the Court to express concern.

“The most shocking aspect uncovered from the affidavit of the Respondent Bank is that in a span of four to five years the said Arbitrator - Shri Vikrant Bhardwaj has acted as an arbitrator in a whopping 4155 cases concerning the Respondent Bank,” the Court said.

Meanwhile, the bank said that it has since discontinued unilateral appointments. No such unilateral arbitrator appointment has been carried out from 2023 onwards, the bank submitted.

The bank, represented by Senior Advocate Dayan Krishnan, also conceded that awards arising from unilateral appointments were void ab initio in light of Supreme Court rulings requiring neutrality in the appointment process.

The bank further informed the Court that about 65 percent of Bhardwaj’s 4,155 matters had been settled, while no execution petition was filed in around 1,264 cases.

Pertinently, it disclosed that 76,000 awards had been passed pan-India by sole arbitrators who were unilaterally appointed in disputes involving the bank. The Court expressed concerns about the neutrality of such unilaterally appointed arbitrators, observing,

"Clearly, such lawyers who are appointed as arbitrators cannot be considered as lacking bias. Repeated appointments of the same arbitrators in thousands of cases goes against the core of Neutrality which is at the soul of any arbitral process."

The Court added that banks, being custodians of public money, cannot adopt remedies contrary to law for loan recovery. At the same time, it noted that defaulting borrowers cannot be permitted to escape repayment.

It, therefore, directed Axis Bank to also file its response on what course of action it proposes to adopt with respect to awards already passed by unilaterally appointed arbitrators.

The RBI has been asked to examine whether guidance should be issued to other banks and financial institutions regarding unilateral arbitral appointments.

Both Axis Bank and the RBI have to file their affidavits by November 16.

As far as the present dispute was concerned, the Court declared the May 26, 2023 arbitral award against Ghosh unenforceable. It permitted Axis Bank to initiate fresh recovery proceedings in accordance with law.

The matter will next be heard on November 17.

Ghosh was represented by advocates Vishal Gupta, Ratneswar Das, Barnali Deka Das and Swati Singh.

Axis Bank was represented by Senior Advocate Dayan Krishnan with advocate Sanjay Kumar.

The RBI was represented by Senior Advocate Ramesh Babu with advocate Manisha Singh.

[Read Judgment]