S.Rathna vs Indo Asia Finance Limited

IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 06.10.2026
Pronounced on : 26.10.2026
CORAM
THE HONOURABLE MR.JUSTICE D.BHARATHA CHAKRAVARTHY
CNR:{HCMA010953402023}
Arb O.P(COM.DIV.) Nos.354 to 358 of 2023
Arb O.P(COM.DIV.) No.354 of 2023
1. S.Rathna
2. S.Prakash Prabhu
Petitioners in Arb.O.P
(Com.Div.) No.354 of 2023
Arb O.P(COM.DIV.) No. 355 of 2023
CNR:{HCMA010953392023}
1. S.Prakash Prabhu
2.S.Rathna
Petitioners in Arb.O.P
(Com.Div.) No.355 of 2023
Arb O.P(COM.DIV.) No. 356 of 2023
CNR:{HCMA010950172023}
1. S.Rathna
2.S.Prakash Prabhu
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3.S.Sekar
Petitioners in Arb.O.P.
(Com.Div.) No.356 of 2023
Arb O.P(COM.DIV.) No. 357 of 2023
CNR:{HCMA010950162023}
1. S.Prakash Prabhu
2.S.Sekar
3.P.Sankar
Petitioners in Arb.O.P.
(Com.Div.) No.357 of 2023
Arb O.P(COM.DIV.) No. 358 of 2023
CNR:{HCMA010953382023}
1. S.Prakash Prabhu
2.S.Rathna
3.S.Sekar
Petitioners in Arb.O.P.
(Com.Div.) No.358 of 2023
Vs
M/s.Indo Asia Finance Limited,
Represented by Mrs. Sowmiya
Respondent in all cases
Arb O.P(COM.DIV.) No. 354 of 2023
PRAYER
To set aside the award dated 10.10.2022 in P.A.A.C.P. No.7 of 2021 passed by
Sole Arbitrator, Chennai and direct the respondent to pay the costs of the
petitioner.
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Arb O.P(COM.DIV.) No. 355 of 2023
PRAYER
To set aside the award dated 10.10.2022 in P.A.A.C.P.No.8 of 2021 passed by
Sole Arbitrator, Chennai and direct the respondent to pay the costs of the
petitioner.
Arb O.P(COM.DIV.) No. 356 of 2023
PRAYER
To set aside the award dated 10.10.2022 in P.A.A.C.P.No.5 of 2021 passed by
Sole Arbitrator, Chennai and direct the respondent to pay the costs of the
petitioner.
Arb O.P(COM.DIV.) No. 357 of 2023
PRAYER
To set aside the award dated 10.10.2022 in P.A.A.C.P.No.9 of 2021 passed by
Sole Arbitrator, Chennai and direct the respondent to pay the costs of the
petitioner.
Arb O.P(COM.DIV.) No. 358 of 2023
PRAYER
To set aside the award dated 10.10.2022 in P.A.A.C.P.No.6 of 2021 passed by
Sole Arbitrator, Chennai and direct the respondent to pay the costs of the
petitioner.
For Petitioners: Mrs.Hema Sampath,
Senior Counsel for Ms.R.Meenal
For Respondent: Mr.K.V.Babu
For Mr.S.Arun Mathew
COMMON ORDER
A. The Petitions:
All five Arbitration Original Petitions are connected to each other and, as
such, are disposed of by this common order.
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2. All these petitions seek to set aside the arbitral awards passed by the
Sole Arbitrator under Section 34 of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as ‘the Act’). The petitioners are all members of the
same family and are interchangeably arrayed in the original petitions. The
respondent is the same, namely M/s. Indo Asia Finance Ltd .
B. The facts in Brief:
3.Arb.O.P. (Com.Div.) No. 354 of 2023 is filed by S. Rathna, W/o.
S.Sekar , and Mr. S.Prakash Prabhu, S/o. S.Sekar . It is stated that the said Rathna
and Prakash Prabhu approached the respondent/company for financing the
purchase of two AL Comet vehicles, executed Loan-cum-Hypothecation
Agreement No.5029 on 03.09.2007, and obtained a refinance of Rs.14,00,000/-.
Thereafter, although they paid some instalments, a total sum of Rs.15,44,600/-
remained due as on 11.02.2013. In view of the default, the respondent also
claimed additional financial charges of Rs.16,96,801/- and other charges of
Rs.2,232/-.
3.1 It is also stated that a separate arbitration agreement was entered into
on 03.09.2007. Accordingly, the respondent invoked arbitration and, in
accordance with the agreement, appointed Mr M. Ganesan as the Sole
Arbitrator. A claim petition No. 3 of 2012 was filed, seeking the above sum with
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subsequent interest. The claim petition was resisted by the petitioners herein by
filing a counter statement.
3.2 While the proceedings were pending, it is noted that the original Sole
Arbitrator, i.e., Mr. M. Ganesan, died on 12.05.2021. Thereafter, the claimant
unilaterally appointed Mr. P. Anbarasan, Advocate, by a letter dated 21.10.2021,
to continue the arbitration proceedings initiated against the petitioners herein.
Upon such appointment, a preliminary objection under Sections 12 and 13 of
the Act, 1996 was filed. It is stated that there are justifiable doubts as to the
independence of the Arbitrator. The Arbitrator had failed to disclose his consent
to the appointment, and it was also prayed that the preliminary issue should be
decided first.
3.3 Under these circumstances, the arbitration proceeded further, and
ultimately, an award was passed in P.A.A.C.P. No.7 of 2021 by the said
Arbitrator, decreeing the claim for a sum of Rs.32,43,633/- with further interest
at the rate of 15% per annum and costs of Rs.7,500/-. Aggrieved by the same,
the petitioners have filed this petition to set aside the award.
4 . Arb.O.P. (Com. Div.) No. 355 of 2023 is filed by S.Prakash Prabhu,
S/o. S.Sekar , and S.Rathna, W/o. S.Sekar . It is stated that for the purchase of two
new AL Comet vehicles, a Loan-cum-Hypothecation Agreement was entered
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into on 03.09.2007, and a sum of Rs.14,00,000 /- was refinanced. It is further
stated that although the instalments were duly paid, they were delayed, and as
per the loan agreement, the respondent/finance company is entitled to additional
finance charges at the rate of 36% per annum compounded with monthly rests.
Accordingly, claiming a sum of Rs.10,86,002/- as additional finance charges
and a sum of Rs.1,143/- towards other charges, the respondent invoked
arbitration and appointed Mr. M. Ganesan as the Sole Arbitrator. Thereafter, the
respondent filed Claim Petition No. 2 of 2012 on 11.02.2013. The claim petition
is resisted by the petitioners herein by filing a counter statement.
4.1 On 16.04.2021, the Arbitrator terminated the arbitral reference,
holding that the claimant had not appeared or co-operated since 2012.
Thereafter, noting that the Arbitrator had died on 12.05.2021, the respondent
unilaterally appointed P. Anbarasan, Advocate, as the Sole Arbitrator.
Immediately thereafter, the petitioner filed a preliminary objection challenging
the eligibility, neutrality, and maintainability of the arbitration claim. Ultimately,
the arbitration proceeded, and the Sole Arbitrator passed an award on
10.10.2022, decreeing the claim of Rs.10,87,145/- with further interest at the
rate of 15% per annum.
5. Arb.O.P. (Com. Div.) No. 356 of 2023 is filed by S.Rathna,
W/o.S.Sekar; S.Prakash Prabhu, S/o. S.Sekar; and S.Sekar, S/o.Somu Devar . It
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appears that for the purchase of two AL buses, a Loan-cum-Hypothecation
Agreement No.5055 was entered into by the petitioners herein, and a sum of
Rs.17,50,000/- was refinanced by the claimant, who claimed that as on
10.10.2007, a sum of Rs.18,02,000/- was due towards the loan amount, a sum of
Rs.30,12,130/- towards additional finance charges, and a sum of Rs.4,060/- as
other charges. The respondent invoked arbitration and appointed Mr Ganesan as
the Sole Arbitrator. The respondent filed claim petition No. 4 of 2012, claiming
the aforesaid total sum of Rs. 48,18,190/-. The petitioners resisted the claim
petition by filing a counter statement.
5.1 As far as Arb. O.P. (Com. Div.) No. 356 of 2023 is concerned, the
loan agreement contained an arbitration clause enabling the lender to
unilaterally appoint an Arbitrator. While the arbitration proceedings were
pending, the Sole Arbitrator, Mr Ganesan, died on 12.05.2021. Thereafter, by a
letter dated 21.10.2021, the respondent appointed the present Arbitrator, Mr P.
Anbarasan, Advocate.
5.2 Immediately upon his appointment, a preliminary objection under
Sections 12 and 13 of the Act was filed, contending that the arbitrator's
impartiality was in doubt, that he failed to make the required disclosure, and
that he should not function as an arbitrator. The arbitration proceeded, and by an
award dated 10.10.2022 in P.A.A.C.P. No.5 of 2021, the claim amount of
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Rs.48,18,190/- was decreed with further interest at 15% per annum. Challenging
the same, the above petition is filed.
6. Arb.O.P. (Com. Div.) No. 357 of 2023 is filed by S.Prakash Prabhu,
S/o.S.Sekar, S. Sekhar, S/o.Somu Devar and P. Shankar, S/o.Somu Devar . It is
stated that, for the purchase of one A.L. Comet and one Tata Ace vehicle, a
Loan-cum-Hypothecation Agreement No. 4866 was entered into on 30.11.2006,
and a sum of Rs. 9,25,000/- was refinanced. Although the loan amounts were
paid, the respondent claimed there was a delay in paying the instalments and
additional financial charges of Rs. 4,54,836/- and other charges of Rs. 500/-, for
a total of Rs. 4,55,336/-, and invoked arbitration and thereafter filed Claim
Petition No. 7 of 2012. The respondent resisted the claim petition by filing a
counter statement.
6.1 In this case also, on the death of the Sole Arbitrator, Mr. Ganesan, on
12.05.2021, by a letter dated 21.10.2021, the very same Arbitrator, Mr. P.
Anbarasan, Advocate, was appointed to continue the arbitration proceedings
initiated against the respondent. Similarly, in the other cases, preliminary
objections under Sections 12 and 13 of the Act were also filed, and the
arbitration continued. By an award dated 10.10.2022, the same Arbitrator
decreed the claim of Rs.4,55,336/- with further interest at the rate of 15% per
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annum in the Award bearing reference number P.A.A.C.P. No.9 of 2021.
Aggrieved by the same, the petitioner has filed this petition.
7.Arb.O.P. (Com. Div.) No. 358 of 2023 is filed by S.Prakash Prabhu,
S/o. S.Sekar; S.Rathna, W/o. S.Sekar; and S.Sekar, S/o. Somu Devar. It is stated
that for the purchase of two Tata vehicles, a Loan-cum-Hypothecation
Agreement No. 5056 was entered into on 10.10.2007, and a sum of
Rs.17,50,000/- was refinanced to them. Subsequently, as on 11.02.2013, a sum
of Rs.17,69,000/- towards the loan amount, additional finance charges of
Rs.25,28,980/-, and other charges of Rs.4,525/- were held to be due. Arbitration
was invoked, and the said Mr. M. Ganesan was appointed as an Arbitrator. A
Claim Petition No. 5 of 2012 was filed. The claim was resisted by filing a
counter statement.
7.1 When the arbitration proceedings were pending, as stated supra, the
said Mr M.Ganesan died, and Mr P.Anbarasan was appointed, and a preliminary
objection was made. The arbitration continued, and by an award dated
10.10.2022, the claim of Rs. 43,02,505/- was decreed with further interest at the
rate of 15% per annum, vide award bearing reference number P.A.A.C.P. No. 6
of 2021.
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C. The Arguments:
8. Mrs Hema Sampath , the learned Senior Counsel appearing on behalf of
the petitioners, would submit that all five awards are identically worded and
were passed by the same Sole Arbitrator. Her first contention is that the Sole
Arbitrator, appointed in 2021 after the 2015 amendment to the Act, is de jure
ineligible, was appointed unilaterally, and violated Section 12(5). Accordingly,
the Arbitrator's proceedings are completely illegal and voi d ab initio, and the
awards are liable to be set aside.
8.1 The second contention made by the learned Senior Counsel is that,
except in two hypothecation agreements, the other three agreements do not even
contain an arbitration clause. The respondent relies on an unstamped, forged
arbitration agreement, and despite the objection being raised, the Arbitrator does
not consider it.
8.2 The third contention of the learned Senior Counsel is that in the above
five petitions, at least in two transactions, the entire loan amount has been
settled in full, and thereafter, by way of an afterthought, additional finance
charges are claimed after communicating to the petitioners that the loan amount
is discharged. Although the full payment settlement letters could not be
produced before the Arbitrator, they are now produced before this Court. Thus,
in those cases, no amount was due, and the award is liable to be set aside.
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8.3 In all five cases, if the last date of payment of the installment is taken
into account, the claim statement is made beyond the period of three years and
therefore is barred by limitation.
8.4 In one case, namely Arb.O.P. (Com.Div.) No. 355 of 2023, the then
Arbitrator, Mr Ganesan, passed an award terminating the proceedings. Ignoring
this fact and treating the matter as if it were pending, as in other cases, the
subsequent Arbitrator continued the proceedings, rendering the said award
patently illegal.
8.5 The learned Senior Counsel would submit that if the total sum of
money paid by the petitioners in all the five transactions is taken into account, it
runs into a sum manifold to the amount advanced, and these are all belated
claims made by the respondent company only to extract further money from the
petitioners.
8.6 In support of her contentions regarding three agreements, the
arbitration agreement is also unstamped, though the Hon’ble Supreme Court of
India in N.N. Global Mercantile Private Limited v. Indo Unique Flame Pvt.
Ltd. and others [(2023) 7 SCC 1] has held that the defect is curable; in this
case it remains uncured to date. With reference to limitation, the learned Senior
Counsel would rely upon the judgment of the Hon’ble Supreme Court of India
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in M/s. B and T AG v. Ministry of Defence [( 2023) LiveLaw (SC) 466] , more
specifically Paragraph 55. The learned Senior Counsel would also rely upon the
judgment of this Court in N.Munusamy and another vs. Shriram City Union
Finance Limited (Arb.O.P. (Com. Div.) No.509 of 2022) to contend that the
unilateral appointment of an Arbitrator is illegal and the same can be challenged
in a petition under Section 34 of the Act.
8 .7 Per contra, Mr K.V. Babu, the learned counsel appearing on behalf of
the respondent, would submit that in these cases, the arbitration proceedings
commenced prior to the amendment in the year 2015 and therefore, the plea
relating to unilateral appointment cannot be raised in the instant cases.
8.8 Secondly, the amount in respect of all five loans was payable in
various instalments, and if the last instalment is taken into account, the claim
petition falls within the period of three years. The petitioners did not raise the
challenge relating to limitation before the Arbitrator. As such, the plea relating
to limitation is liable to be rejected.
8.9 The respondent/company is entitled to additional financial charges as
per the hypothecation agreement if there is any delay in payment of dues. In
none of the five cases did the petitioners make payments in time and discharge
the loan.
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8.10 The petitioners did not contest the Arbitrator’s bias or impartiality.
For the first time, the petitioners cannot raise the Arbitrator's ineligibility or
inability by way of these petitions under Section 34 of the Act.
8. 11 In support of his submissions, the learned counsel would rely on the
following judgments:
a)Kitiku Imports Trade Pvt. Ltd. v. Savitri Metals Ltd.
[MANU/MH/0417/1998];
b)Vijayakumar Raju v. Indusland Bank Ltd. [MANU/TN/3919/2009;
c)Kanodia Infratech Limited v. Dalmia Cement (Bharat) Limited [2021
SCC Online Del 4883];
d)Rung Lal Kalooram v. Kedar Nath Kesriwal [MANU/WB/0441/1921];
e)Shyamal Kumar Roy v. Sushil Kumar Agarwal
[MANU/SC/8588/2006];
f)ARG Outlier Media Private Limited v. HT Media Ltd.
MANU/DE/4244/2023;
g)Image Infotainment Ltd. v. Labour India Public School and Junior
College [2023 SCC Online Mad 5466];
h)Republic of India v. Augusta Westland International Ltd.
[MANU/DE/0021/2019];
i)Kotak Mahindra Ltd. v. Shalibhadra Cottrade Pvt. Ltd.
[MANU/WB/1245/2024]; and
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j)Dakshin Private Ltd. v. Scm Silks Private Limited [2024 SCC Online
Mad 6761].
8. 12 The learned counsel for the respondent would rely upon the
judgment in Kotak Mahindra Ltd. v. Shalibhadra Cottrade Pvt. Ltd.
[MANU/WB/1245/2024] to contend that the conduct of the petitioners in
participating in the arbitration and conducting the same would amount to a
waiver as contemplated under the proviso to Section 12(5) of the Act and
therefore, after participating in the proceedings wholeheartedly, on merits and
merely because an award has been passed, the awards cannot be challenged
subsequently.
D. Analysis and Findings:
9. I have considered the rival submissions made on either side and
perused the material records of the case.
9.1 Firstly, with reference to the unilateral appointment of an Arbitrator,
the matter is no longer res integra, having been considered by the Hon’ble
Supreme Court of India in Bhadra International (India) Private Limited &
Ors. v. Airports Authority of India, [(2026) SCC Online SC page 7] . By that
judgment, the Hon’ble Supreme Court of India examined the interplay between
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equal treatment of parties and party autonomy, and concluded that the principle
of party autonomy does not obliterate the principle of equal treatment of parties,
either in the procedure for the appointment of arbitrators or in the arbitral
proceedings. The exercise of party autonomy must be in consonance with the
principles of equal treatment of the parties, which, by implication, includes the
independence and impartiality of the arbitrators.
9.2 The Court then held that the unilateral appointment of a Sole
Arbitrator is void ab initio, and that a S ole Arbitrator so appointed is de jure
ineligible to act, in terms of Section 12(5) read with the Seventh Schedule of the
Act. It further held that any waiver must be by way of an express written
agreement, after noting the party's right and voluntarily abandoning it.
9.3 Now, applying the said ratio to the present factual situation, even
though the earlier appointment of the Sole Arbitrator, Mr. Ganesan, was made at
the commencement of the proceedings in the year 2013, prior to the
amendment, it must be seen that in one arbitration, namely Arb.O.P. (Com.Div.)
No. 355 of 2023, the earlier proceedings had already concluded, and the
Arbitrator was appointed afresh unilaterally in 2021. Even in the other
proceedings, when the earlier Arbitrator died on 12.05.2021, the new Arbitrator
was appointed unilaterally only after the amendment.
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9.4 Therefore, the dictum of the Hon’ble Supreme Court of India in the
above judgment is squarely applicable to the instant case. When unilateral
appointment is made by the respondent/company, in which the petitioner never
had any say, and despite the preliminary objection raised, though the petitioners
did not pursue the same by way of filing an application under Section 14, still,
as per the dictum of the Hon’ble Supreme Court, it can be raised even at the
stage of filing the application under Section 34 of the Act. Since the issue goes
to the root of the matter, the appointment is void ab initio, and the consequential
awards are liable to be set aside. Thus, it is not necessary to go into the other
grounds raised in the applications.
E. The Result:
10. Accordingly, all five awards are liable to be set aside, and the petitions
are liable to be allowed. In the result, the Arb.O.P. (Com.Div.) Nos. 354 to 358
of 2023 stand allowed, and the respective awards passed in P.A.A.C.P. Nos. 5 to
9 of 2021, dated 10.10.2022, shall stand set aside. No costs.
26-10-2026
vga
Index:Yes/No
Speaking/Non-speaking order
Internet:Yes
Neutral Citation:Yes/No
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D.BHARATHA
CHAKRAVARTHY J.
vga
Arb.O.P. (Com.Div.)
Nos.354 to 358 of 2023
26-10-2026
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