Not Necessary For Party To Raise Objection Regarding Unilateral Appointment Before The Arbitrator, Can Be Raised In S. 34 Petition: Bombay High Court

While dealing with a petition filed under Section 34 of the A&C Act, the Court held that it was not necessary for the petitioner to raise an objection regarding the unilateral appointment before the arbitrator, to be able to raise the same in a Section 34 petition to challenge the arbitral award.

The bench of Justice Manish Pitale further reiterated that mere participation in the arbitral proceedings cannot disentitle the petitioner from raising the said issue in a Section 34 petition, in the absence of a written agreement between the parties waiving the objection against the unilateral appointment, as contemplated under the proviso to Section 12(5).

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

As per the proviso to Section 12(5), 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 respondent, M/s Tata Motors Finance Ltd, invoked the arbitration clause contained in the agreement executed with the petitioner, Hanuman Motors Pvt Ltd, and nominated a Sole Arbitrator to adjudicate the dispute between the parties in relation to a loan agreement.

The Sole Arbitrator passed an award, allowing the claims of the respondent. The petitioner/ award debtor, Hanuman Motors, filed a petition under Section 34 of the A&C Act before the Bombay High Court, challenging the arbitral award.

Hanuman Motors submitted before the Court that the award deserves to be set aside solely on the ground that the arbitration clause provided for unilateral appointment of the arbitrator by the respondent, and the same was hit by Section 12(5) read with the Seventh Schedule of the A&C Act.

It averred that the appointment of the arbitrator was covered under Item 1 of the Seventh Schedule, read with Section 12(5) of the A&C Act.

It added that in view of the Amendment Act of 2015, unilateral appointment of arbitrator is no longer permissible since Section 12(5) of the A&C Act starts with a non-obstante clause. Thus, notwithstanding any prior agreement to the contrary between the parties, any arbitrator appointed unilaterally by a party is ineligible to proceed with the arbitration proceedings, it pleaded.

The petitioner, Hanuman Motors, further argued that objection regarding the ineligibility of the arbitrator under Section 12(5) can be waived only by an express agreement between the parties and not by their conduct. It pleaded that there was no such written agreement between the parties to waive such an objection.

To this, the respondent, Tata Motors Finance, submitted that the petitioner ought to have specifically raised the objection regarding unilateral appointment of the arbitrator, before the arbitrator himself. It is only then that the petitioner could be permitted to raise such a ground in the Section 34 petition, it argued.

In the absence of any such objection being raised before the arbitrator, the same could not be directly raised for the first time in a Section 34 petition, Tata Motors Finance averred.

The Court referred to the Apex Court’s decision in Bharat Broadband Network Limited vs. United Telecoms Limited (2019), where it was ruled that whenever either party had exclusive power to appoint a sole arbitrator, a situation was created where serious doubts would arise about the eligibility of the said arbitrator, and the same would vitiate the entire arbitral proceedings.

The bench further noted that as per the Bombay High Court’s decision in Naresh Kanayalal Rajwani and Ors. vs. Kotak Mahindra Bank Ltd. & Anr (2022), unless the party waives an objection against the unilateral appointment of the arbitrator in writing, mere participation in the arbitral proceedings would not disentitle it from specifically raising the said issue to challenge the arbitral award.

Referring to the facts of the case, the Court observed that the Sole Arbitrator was unilaterally appointed by the respondent, Tata Motors Finance. Further, the respondent was unable to demonstrate as to whether there was indeed any waiver on the part of the petitioner, Hanuman Motors, in writing, waiving the objection pertaining to the unilateral appointment of the Sole Arbitrator.

Therefore, the bench concluded that the proviso to Section 12(5) of the A&C Act cannot operate. In such a situation, mere participation in the arbitral proceedings cannot disentitle the petitioner from raising the said issue in the Section 34 petition, the Court said.

Accepting the contentions made by the petitioner, Hanuman Motors, the Court held that it was not necessary for the petitioner to raise an objection regarding the unilateral appointment before the arbitrator, to be able to raise the same in a petition filed under Section 34 to challenge the arbitral award.

“This Court is in agreement with the said view, for the reason that the nature of the objection is such that it goes to the very root of the matter and if it is found that the learned arbitrator could not have entered upon the reference itself, there was no question of holding that such an objection could never be raised before the Court under Section 34 of the said Act, merely because it was not raised before the learned arbitrator,” the bench remarked.

Perusing the facts of the case, the Court took note that the petitioner, Hanuman Motors, sent various communications to the arbitrator, taking a stand that it did not consent to the arbitration proceedings, sufficiently demonstrating that it did, indeed, object to the arbitrator entering upon the reference.

While holding that the unilateral appointment of the Sole Arbitrator completely vitiated the award, the Court allowed the petition and set aside the award.

Case Title: Hanuman Motors Pvt Ltd & Anr. vs. M/s Tata Motors Finance Ltd

Citation: 2023 LiveLaw (Bom) 155

Dated: 01.03.2023

Counsel for the Petitioners: Ms. Nishtha Garg i/b. Kartik S. Garg

Counsel for the Respondent: Mr. Rahul Sarda a/w. Ms. Netra Jagtap i/b. Jay and Co.

Click Here To Read/Download Order