Arbitral award passed by unilaterally appointed arbitrator is void: Calcutta High Court

The Calcutta High Court recently highlighted that arbitral awards passed by an arbitrator appointed unilaterally, that is, only by one of the parties to the arbitral dispute, are void and unenforceable in law [Cholamandalam Investment and Finance Co. Ltd. v. Amrapali Enterprises and anr.]..Justice Shekhar B Saraf made the observation while dismissing a plea for the execution of an arbitral award after the judge found that the award had been passed ex parte and by a sole arbitrator, who was appointed unilaterally by only one of the parties to the dispute..“Awards passed by a unilaterally appointed arbitrator are non est in the eyes of law,” the Court held..The Court explained that this is because such appointments would be tainted by possible bias in favour of the appointing party, thereby making such an appointment violative of Section 12 (5) (which relates to disqualification or ineligibility of persons to be appointed as arbitrators) of the Arbitration Act, 1996 (Act) read with Schedule VII to the Act..The Court further observed that such an appointment would not survive a challenge made to it under Section 34 of the Act. The Court added that such appointments and the process and award that follow cannot be validated at any later stage, meaning that such arbitral proceedings would be void ab initio..Consequently, the Court held that the award passed by an arbitrator so appointed can be set aside even in the course of considering a plea under Section 36 of the Act to execute the arbitral award..Drawing a parallel to case-laws concerning Section 47 of the Code of Civil Procedure (CPC), the Court observed that “decrees passed by bodies lacking inherent jurisdiction are unenforceable and it would be as if no decree existed at all.”.“Impartiality as discussed is the paramount principle of arbitral proceedings and something which the Courts have to safeguard at every stage of such proceedings. Even at the stage of execution, the lady of justice cannot turn a blind eye and let one party run over the other … Shackles of procedural limitation in such cases will not prevent parties from seeking the immunity of the Court. Parties making such unilateral appointments couch behind procedural technicalities to shield their unlawful act and reap the fruit of their own mischief. Accordingly, even if an award is not set side under the procedure established in section 34 of the Act, the courts, at the stage of execution can step in and declare a ‘unilateral appointment award’ as non-est in law, declare the same as a nullity and direct parties to re-agitate their issues before a new arbitral tribunal constituted in accordance with law,” the judgment added..The Court further clarified that this judgment is only applicable to awards passed in arbitral proceedings that commence after the 2015 amendment to the Arbitration Act, which had introduced Section 12 (5)..“It does not deal with proceedings having been initiated pre the 2015 amendment and concluding post the 2015 amendment,” the Court said..Before concluding the judgment, the judge also noted that the 2015 amendment was introduced to tackle the issue of impartiality creeping into arbitral proceedings on account of finance companies and banks themselves appointing a “small cabal of arbitrators.”.“… a virus had emerged wherein finance companies and banks were facilitating appointment of a small cabal of arbitrators in hundreds of cases for themselves. The awards passed were soiled and tainted with bias. It was clear that the borrower was the underdog as he had no choice in the matter of appointment of arbitrator and the very concept of impartiality was given a go bye. In order to overcome this issue, the legislative amendments of 2015 and the judicial pronouncements on such amendments by the Apex Court have brought in a level playing field so that no party could have a higher bargaining power in the decision making process for appointment of an arbitrator,” Justice Saraf remarked..The purpose of introducing such changes to the law was to save the “small guy” in arbitral proceedings, the Court said. The judge added that with these changes, the apparent impartiality that existed before in allowing one of the parties to unilaterally appoint arbitrators has been taken away since the same was fraught with inequalities at the very threshold of the arbitration process..All the same, the Court also noted that the proviso to Section 12 (5) of the Act still allows the parties to waive off such a disqualification when it comes to appointing arbitrators, provided such a waiver is explicit and in writing. .The Court was dealing with an application under Section 36 of Act by Cholamandalam Investment and Finance Company Ltd. seeking the enforcement of an award passed in their favour by a sole arbitrator who was appointed unilaterally by the finance company. The award was passed against Amrapali Enterprises, which had taken a loan from the finance company..Apart from dismissing the execution application, the Court declared the arbitral appointment to be a nullity. On the consent of the parties for a fresh arbitration, the Court also appointed another person as a sole arbitrator in the matter..Advocates Pratip Mukherjee and Ranjit Singh appeared for Cholamandalam Investment and Finance Company Ltd whereas advocate Sk. Sariful Haque appeared for Amrapali Enterprises..[Read Judgment]