M/S Shivdei Automobiles & Ors. vs Cnh Industrial (India) Pvt. Ltd.
- Court
- Delhi High Court
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 30.09.2026
Judgment pronounced on: 29.10.2026
# CNR No. DLHC010099092020
+ O.M.P. (COMM) 51/2020
M/S SHIVDEI AUTOMOBILES & ORS. .....Petitioner
Through: Sh. R.K. Jain and Mr. Ayush
Behl, Mr. Anirudh Kumar,
Advs.
versus
CNH INDUSTRIAL (INDIA) PVT. LTD. .....Respondent
Through: Mr. Yamandeep Kumar, Ms.
Samiksha Goel, Advs.
CORAM:
HON'BLE MR. JUSTICE OM PRAKASH SHUKLA
JUDGMENT
% 29.10.2026
1. The present petition has been filed under Section 34 of the
1
Arbitration and Conciliation Act, 1996 , seeking to set aside the
2
Arbitral Award dated 09.01.2006 passed by the learned Sole
Arbitrator in disputes arising out of the Dealership Agreement dated
01.01.2002 executed between the parties.
FACTUAL MATRIX
2. Petitioner No. 1, M/s. Shivdei Automobiles, is a partnership
1
“the Act” hereinafter
2
“impugned Award” hereinafter
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firm of which Petitioner Nos. 2 and 3 are partners. The Respondent is
a Private Limited company engaged in the manufacture and sale of
tractors and various agricultural and industrial equipment.
3. In September 1998, Petitioner No. 1 approached the Respondent
seeking appointment as its dealer. Pursuant to this request, the
3
Respondent issued a Letter of Intent dated 23.09.1998, proposing to
appoint Petitioner No. 1 as its dealer for the sale and after-sales
service of its products in the areas of Sirsa and Fatehabad in Haryana.
The said LOI was stated to be valid until 23.03.1999.
4. Thereafter, on 01.01.2002, the parties entered into a Dealership
Agreement appointing Petitioner No. 1 as the Respondent’s dealer for
the aforesaid territories for a period of three years. In terms of the
Dealership Agreement, the Respondent supplied tractors, spare parts
and other products to Petitioner No. 1 on credit from time to time and
raised invoices for such supplies.
5. According to the Respondent, the supplies made to the
Petitioners resulted in outstanding dues, as on 31.03.2003, of
Rs.1,19,25,768/-, inclusive of interest. In this regard, meetings were
held on 22.04.2003 and 23.04.2003 to discuss the accounts and the
outstanding liability.
6. By letter dated 01.11.2003, the Petitioners disputed their
liability under various heads, questioned the accounts maintained by
the Respondent, and raised objections regarding the interest charged
and the expenditure incurred on the infrastructure. The Respondent
3
“LOI” hereinafter
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replied on 28.11.2003, reiterating the correctness of its accounts.
7. The Respondent, thereafter, issued a legal notice dated
15.04.2004, calling upon the Petitioners to pay the outstanding dues
and the liability towards C-Forms, along with interest. The Petitioners
replied on 04.05.2004, disputing the claims.
8. As the dispute remained unresolved, the Respondent, vide letter
dated 01.06.2004, invoked Clause 25 of the Dealership Agreement,
which provided for the resolution of disputes through arbitration, and
appointed Hon’ble Mr. Justice G.T. Nanavati (Retd.) as the Sole
Arbitrator.
9. Before the learned Arbitral Tribunal, the Respondent sought
recovery of Rs.1,29,68,643/- towards the outstanding amount. It also
claimed Rs.38,62,148/- towards C-Forms, Rs.5,00,000/- as
compensation, and Rs.1,00,000/- towards arbitration costs and legal
expenses, in addition to pendente lite and future interest.
10. The Petitioners disputed the amounts claimed by the
Respondent and denied their liability. They also raised a preliminary
objection to the arbitrability of the claims, contending that the claims
substantially pertained to transactions undertaken between 24.03.1999
and 31.12.2001, a period during which no agreement existed between
the parties, and therefore the claims raised are outside the scope of the
arbitration clause contained in Dealership Agreement. The Petitioners
also raised the following counterclaims:
“COUNTER CLAIM
a) Rs. 1,15,50,000/- towards user charges w.e.f. 24.3.1999 to
31.12.2001 @Rs.3.50 lakh p.m as per detail explained above.
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b) Rs. 2,21,321/- as credit balance as on date in Tractor A/cs.
c) Rs. 5,00,000/- towards the Security deposit with interest
@18% p.a.
d) Rs. 10,00,000/- as damages for harassment and filling false
claim and filling the fabricated documents.”
11. By way of the impugned Award, the learned Arbitrator
adjudicated the claims and objections raised by the parties and the
awarded an amount of Rs.1,29,68,643/- in favour of the Respondent
along with interest at 12% p.a. from 01.08.2004 till the date of the
payment.
12. At the outset, learned Counsel for the Petitioners challenged the
validity of the impugned Award on the ground that the Sole Arbitrator
was appointed unilaterally by the Respondent, without the consent of
the Petitioners, in violation of Section 12 of the Act. It was further
contended that no notice invoking arbitration under Section 21 of the
Act was issued and, therefore, the arbitral proceedings were not
validly commenced. On these grounds, it was argued that the
impugned Award was passed without jurisdiction, and liable to be set
aside.
13. Reliance was placed on Bhadra International (India) (P) Ltd.
4
v. Airports Authority of India , M/s ABL Biotechnologies Ltd. v. M/s
5
Technology Development Board & Anr. , M/s Supreme
6
Infrastructure India Limited v. Freyssinet Menard India Pvt. Ltd. ,
7
Bharat Forge Limited v. Tarsem Jain & Anr. , Dharma
4
2026 SCC OnLine SC 7
5
O.M.P. 607/2010
6
O.M.P. (COMM) 395/2024
7
O.M.P. (COMM) 378/2019
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8
Prathishthanam v. Madhok Construction Pvt. Ltd. and M/s
9
Mahavir Prasad Gupta and Sons v. Government of NCT of Delhi .
14. Learned Counsel for the Petitioners further contended that
disputes pertaining to the period preceding 01.01.2002 were not
covered by any valid arbitration agreement. According to the
Petitioners, no agreement governed the relationship between the
parties from 24.03.1999 to 31.12.2001, as the Dealership Agreement
was executed only on 01.01.2002 and, in terms of Clause 3.1 thereof,
took effect from that date. It, was, therefore, contended that Clause 25
of the Dealership Agreement could not be invoked to refer disputes
arising out of transactions undertaken before the Dealership
Agreement came into effect.
15. It was further contended that Clause 1.4 could not be relied
upon to bring the earlier transactions within the scope of the
Dealership Agreement, because, according to the Petitioners, the
clause merely preserved accrued and outstanding financial obligations
under previous agreements, whereas no agreement subsisted between
the parties during the relevant period for which claims were raised.
16. Per contra , learned Counsel for the Respondent submitted that
Section 12(5) of the Act could not be applied to the present case, as
the learned Sole Arbitrator had been appointed and the arbitral
proceedings had commenced well before the provision was introduced
8
2005 9 SCC 686
9
FAO (COMM) 170/2023
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by the Arbitration and Conciliation (Amendment) Act, 2015.
17. Learned Counsel further submitted that Clause 1.4 of the
Dealership Agreement expressly preserved the accrued and
outstanding financial liabilities under the earlier agreement. It was
further contended that the Petitioners’ own counterclaim for user
charges for the period from 24.03.1999 to 31.12.2001 supported the
Respondent’s case that the parties’ dealings continued during that
period and therefore, the learned Arbitrator had rightly rejected the
Petitioners’ objection that the claims relating to the said period fell
outside the scope of the arbitration agreement.
18. I have heard learned Counsel for both parties and perused the
material on record.
19. The principal grievance of the Petitioners pertains to the
unilateral appointment of the learned Arbitrator by the Respondent.
According to the Petitioners, such appointment was in violation of
Section 12(5) of the Act and, therefore, the learned Arbitrator was
ineligible to act as the arbitrator and adjudicate the disputes between
the parties.
20. Before considering this objection, it is necessary to note the
dates relevant to the applicability of Section 12(5) of the Act. Section
12(5) was introduced by the Arbitration and Conciliation
10
(Amendment) Act, 2015 and came into force on 23.10.2015. In the
present case, the arbitral proceedings commenced in 2004 and the
10
“2015” Amendment Act hereinafter
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impugned award was passed in 2006. Therefore, the appointment of
the learned Arbitrator and the passing of the impugned Award both
preceded the date on which Section 12(5) came into force.
21. The issue as to the applicability of the 2015 Amendment Act to
arbitral proceedings commenced prior to its coming into force is no
longer res integra . The Supreme Court in Board of Control for
11
Cricket in India v. Kochi Cricket Pvt. Ltd. , has held that the 2015
Amendment is prospective in nature. The same position has been
reiterated in subsequent decisions, including Kamal Kumar v.
12
Municipal Corporation of Delhi , Rajasthan Small Industries
13
Corporation Ltd. v. Ganesh Containers Movers Syndicate and D.V.
14
Anand v. Hindustan Petroleum Corporation Ltd .
22. Recently, this Court in Hanson Agro Ltd. v. Gail (India)
15
Ltd. examined the identical issue i.e. the validity of unilateral
appointment of an arbitrator in proceedings commenced prior to the
2015 Amendment Act and held that the validity of the constitution of
the Arbitral Tribunal must be examined with reference to the law
applicable on the date of commencement of the arbitral proceedings.
The relevant observations are as follows:
“2. During the course of hearing, learned counsels for the parties
submitted that, for the purposes of adjudication, the petitions may
conveniently be classified into distinct categories depending upon
the stage at which the Arbitral proceedings, the Arbitral Award
and the court proceedings occurred vis-à-vis the coming into force
11
(2018) 6 SCC 287
12
2023 SCC OnLine Del 6515
13
(2019) 3 SCC 282
14
FAO(OS) (COMM) 139/2018
15
2026 SCC OnLine Del 6894
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of the Arbitration and Conciliation (Amendment) Act, 2015 (“ 2015
Amendment Act ”) on 23.10.2015. Accordingly, the petitions have
been grouped as under:
Category A: Cases where both the commencement of Arbitral
proceedings and the Arbitral Award preceded 23.10.2015,
whereas the proceedings under Section 34 were instituted after
the 2015 Amendment Act came into force.
Category B: Cases where the Arbitral proceedings
commenced prior to 23.10.2015, but the Arbitral Award and the
proceedings under Section 34 of the Act were instituted after the
commencement of the 2015 Amendment Act.
Category C: Cases where the Arbitral proceedings and the
challenge thereto arose prior to the 2015 Amendment Act, but the
arbitration agreement expressly stipulated that any statutory
modification or re-enactment of the arbitration law would govern
the Arbitral proceedings, thereby raising the issue whether the
provisions introduced by the 2015 Amendment Act would
nevertheless become applicable by virtue of such contractual
stipulation.
*
124. The validity of appointments prior to cut off date has to be
examined with reference to the law applicable on the date on which
the appointment was made. The subsequent introduction of Section
12(5) and the Seventh Schedule cannot, merely by characterising
the underlying principles as having existed implicitly,
retrospectively convert an appointment which was not statutorily
prohibited when made into one which is now void in law. Such an
interpretation would effectively give retrospective operation to a
statutory disqualification which Parliament expressly made
applicable from 23.10.2015.
*
127. The contrary interpretation would lead to an anomalous
consequence. An appointment validly made under the statutory
regime existing on the date of appointment could subsequently be
rendered void solely because Parliament, several years later,
introduced an express disqualification. Such an approach would
not merely apply the 2015 Amendment to pending proceedings; it
would retrospectively alter the legal character of an act completed
before the amendment came into force. In the absence of clear
legislative language evincing such an intention, such retrospective
operation cannot be attributed to the 2015 Amendment Act.
128. To read Bhadra International (supra) otherwise would be to
read isolated observations dehors their context and to attribute to
the Supreme Court a conclusion which it did not expressly reach.
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129. The correct approach, therefore, is to examine the
applicability of the 2015 Amendment with reference to the statutory
regime governing the arbitration and, in particular, the date on
which the relevant appointment was made. Where the appointment
of the Arbitral Tribunal was made prior to 23.10.2015, the
subsequent insertion of Section 12(5) cannot, by itself, render that
appointment invalid. If the appointment was liable to challenge
under the unamended Act on the ground of lack of independence,
impartiality or other statutory infirmity, the remedy had to be
pursued in accordance with the law then prevailing. What cannot
be done is to retrospectively substitute the post-amendment
statutory consequence for the legal position which existed on the
date of appointment.
130. Accordingly, Bhadra International (supra) does not lay down
that every Arbitral Tribunal constituted prior to 23.10.2015, but
whose constitution would have been impermissible under Section
12(5) read with the Seventh Schedule, stood rendered illegal by the
2015 Amendment.
131. In this view of the matter, in terms of Category A and B it is
clear that Section 34 filed raising the ground of unilateral
appointment, filed after the cutoff date will be analysed on the
pre amendment regime and not the post amended regime.”
23. Recently, the Division Bench of this Court in DMRC Ltd. v.
16
Pankaj , also considered the issue of whether the appointment of the
arbitrator prior to the commencement of the 2015 Amendment Act can
be rendered invalid on account of the subsequent insertion of Section
12(5) read with the Seventh Schedule by the 2015 Amendment Act. In
this regard, the following observations were made:
“II. The position prior to 23-10-2015:
33. Prior to 23-10-2015, the A&C Act accorded considerable
weight to party autonomy in matters relating to the constitution of
the Arbitral Tribunal. Section 11(2) of the A&C Act expressly
recognised the parties' freedom to agree upon a procedure for the
appointment of arbitrators. At that stage, the Act did not contain
the statutory prohibition subsequently introduced by Section 12(5),
read with the Seventh Schedule. Consequently, the mere fact that
one party was contractually entrusted with a role in the
16
2026 SCC OnLine Del 7513
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appointment of the arbitrator did not, by itself, render such
appointment statutorily impermissible under the law then in force.
34. This does not mean that every unilateral appointment was
valid under the pre-2015 regime. The distinction is between a
unilateral appointment which was not authorised by the
arbitration agreement and a unilateral appointment which was
expressly contemplated by the arbitration agreement but is
subsequently challenged merely because the appointee was an
employee of one of the parties.
35. The first situation is governed by the principle stated
in Dharma Prathishthanam v. Madhok Construction (P) Ltd. The
Supreme Court emphasised that where the arbitration agreement
prescribes the manner in which the arbitrator is to be appointed,
the parties are bound by that agreed procedure. A party cannot,
therefore, unilaterally constitute the Arbitral Tribunal in a manner
which is not contemplated by the arbitration agreement. The defect
in such a case lies in the absence of contractual authority for the
appointment and reference, and not in any statutory
disqualification of the arbitrator on account of his relationship
with either party. The latter concept, in its present statutory form,
was introduced only subsequently through Section 12(5) read with
the Seventh Schedule. It is pertinent to refer to the relevant extracts
of the said decision, which are as under:
“ 11. In the background of the abovesaid provisions, the
question which arises for consideration is whether, in the light
of a general provision as in Clause 35, the respondent could
have unilaterally appointed an arbitrator without the consent
of the appellant and could have made a reference to such
arbitrator again without the reference of disputes having been
consented to by the appellant.
12. On a plain reading of the several provisions referred to
hereinabove, we are clearly of the opinion that the procedure
followed and the methodology adopted by the respondent is
wholly unknown to law and the appointment of the sole
arbitrator Shri Swami Dayal, the reference of disputes to such
arbitrator and the ex parte proceedings and award given by the
arbitrator are all void ab initio and hence nullity, liable to be
ignored. In case of arbitration without the intervention of the
court, the parties must rigorously stick to the agreement
entered into between the two. If the arbitration clause names
an arbitrator as the one already agreed upon, the
appointment of an arbitrator poses no difficulty. If the
arbitration clause does not name an arbitrator but provides
for the manner in which the arbitrator is to be chosen and
appointed, then the parties are bound to act accordingly. If
the parties do not agree then arises the complication which
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has to be resolved by reference to the provisions of the
Act. One party cannot usurp the jurisdiction of the court and
proceed to act unilaterally. A unilateral appointment and a
unilateral reference — both will be illegal. It may make a
difference if in respect of a unilateral appointment and
reference the other party submits to the jurisdiction of the
arbitrator and waives its rights which it has under the
agreement, then the arbitrator may proceed with the reference
and the party submitting to his jurisdiction and participating in
the proceedings before him may later on be precluded and
estopped from raising any objection in that regard. According
to Russell (Arbitration, 20th Edn., p. 104)—
“An arbitrator is neither more nor less than a private judge of
a private court (called an Arbitral Tribunal) who gives a
private judgment (called an award). He is a judge in that a
dispute is submitted to him; … He is private insofar as (1) he is
chosen and paid by the disputants (2) he does not sit in public
(3) he acts in accordance with privately chosen procedure so
far as that is not repugnant to public policy (4) so far as the
law allows he is set up to the exclusion of the State courts (5)
his authority and powers are only whatsoever he is given by the
disputants' agreement (6) the effectiveness of his powers
derives wholly from the private law of contract and accordingly
the nature and exercise of these powers must not be contrary to
the proper law of the contract or the public policy of England,
bearing in mind that the paramount public policy is that
freedom of contract is not lightly to be interfered with.”
*
31. Three types of situations may emerge between the parties
and then before the court. Firstly, an arbitration agreement,
under examination from the point of view of its enforceability,
may be one which expresses the parties' intention to have their
disputes settled by arbitration by using clear and unambiguous
language, then the parties and the court have no other choice
but to treat the contract as binding and enforce it. Or, there
may be an agreement suffering from such vagueness or
uncertainty as is not capable of being construed at all by
culling out the intention of the parties with certainty, even by
reference to the provisions of the Arbitration Act, then it shall
have to be held that there was no agreement between the
parties in the eye of the law and the question of appointing an
arbitrator or making a reference or disputes by reference to
Sections 8, 9 and 20 shall not arise. Secondly, there may be an
arbitrator or arbitrators named, or the authority may be
named who shall appoint an arbitrator, then the parties have
already been ad idem on the real identity of the arbitrator as
appointed by them beforehand; the consent is already spelled
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out and binds the parties and the court. All that may remain
to be done in the event of an occasion arising for the purpose,
is to have the agreement filed in the court and seek an order
of reference to the arbitrator appointed by the parties. Thirdly,
if the arbitrator is not named and the authority who would
appoint the arbitrator is also not specified, the appointment
and reference shall be to a sole arbitrator unless a different
intention is expressly spelt out. The appointment and reference
— both shall be by the consent of the parties. Where the parties
do not agree, the court steps in and assumes jurisdiction to
make an appointment, also to make a reference, subject to the
jurisdiction of the court being invoked in that regard. We
hasten to add that mere inaction by a party called upon by the
other one to act does not lead to an inference as to implied
consent or acquiescence being drawn. The appellant not
responding to the respondent's proposal for joining in the
appointment of a sole arbitrator named by him could not be
construed as consent and the only option open to the
respondent was to have invoked the jurisdiction of court for
appointment of an arbitrator and an order of reference of
disputes to him. It is the court which only could have compelled
the appellant to join in the proceedings.”
( Emphasis supplied. )
36. The present case, however, stands on a materially different
footing from Dharma Prathishthanam (supra). Clause 45 did not
merely provide for arbitration in the event of disputes. It
specifically contemplated reference to a Sole arbitrator
nominated by DMRC. More significantly, the clause expressly
stipulated that no objection would be raised if the Conciliator or
Sole arbitrator so nominated or appointed was an employee of
DMRC. The appointment of a DMRC employee was, therefore,
not an act undertaken contrary to the agreed contractual
mechanism. It was an eventuality expressly contemplated and
accepted by the parties when they entered into the agreement.”
24. In view of the above, Section 12(5) of the Act cannot be applied
retrospectively to invalidate the appointment in the present case and
the objection of the Petitioners has to be examined in the light of the
law as it stood at the time of the appointment of the learned Arbitrator.
The mere fact that the learned Arbitrator was appointed by the
Respondent is therefore not, by itself, sufficient to hold that the
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constitution of the Arbitral Tribunal was invalid or that the impugned
Award was passed without jurisdiction.
25. The judgment of DMRC Ltd. (supra) also makes it clear that
prior to the 2015 Amendment Act, the parties were entitled to agree
upon the manner in which the Arbitrator was to be appointed, and the
agreed procedure was required to be given effect to. The Supreme
Court itself in Datar Switchgears Ltd. v. Tata Finance
17
Ltd. , recognised the significance of the agreed procedure for
appointment of an arbitrator and considered it while examining the
validity of the appointment. It was held as follows:
“23. When parties have entered into a contract and settled on a
procedure, due importance has to be given to such procedure.
Even though rigor of the doctrine of “freedom of contract” has
been whittled down by various labour and social welfare
legislation, still the court has to respect the terms of the contract
entered into by parties and endeavour to give importance and
effect to it. When the party has not disputed the arbitration clause,
normally he is bound by it and obliged to comply with the
procedure laid down under the said clause.”
26. That brings this Court to the arbitration clause agreed between
the parties i.e. Clause 25 of the Dealership Agreement which read as
follows:
“25 Arbitration
Any dispute arising out of or in relation to the breach of the
working of, to the interpretation of to the constructive meaning
effect in relation to, in respect of this agreement shall be referred
to arbitration under a sole arbitrator. The arbitrator shall be a
retired court judge appointed by the Managing Director of New
Holland Tractors (India) Private Ltd. to whom the Dealer has no
objection, and shall not object in the future also to this
appointment of sole arbitrator by the Managing Director of New
17
(2000) 8 SCC 151
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Holland Tractors (India) Private Ltd., including for the reasons
that the said Managing Director is connected to New Holland
Tractors (India) Private Ltd. The costs of Arbitration will be
equally appointed between the company and the dealer.”
27. This clause specifically provides that the dispute shall be
referred to a Sole Arbitrator, who shall be a retired Court Judge, to be
appointed by the Managing Director of New Holland Tractors (India)
Private Limited, i.e., the Respondent. Further, it provides that dealer
can raise no objection to the appointment of the Arbitrator in the
future for the reason that appointing authority is connected with the
Respondent.
28. The parties had expressly agreed to this appointment procedure,
and the Respondent appointed the learned Arbitrator vide letter dated
01.06.2004. The appointment was, therefore, made in accordance with
Clause 25 of the Dealership Agreement. At the time of the
appointment, Section 12(5), read with the Seventh Schedule, had not
come into force.
29. However, the fact that the appointment was made in accordance
with the agreed procedure does not, by itself, conclude the inquiry.
The Court must still consider whether any prohibition or disqualifying
circumstance under the law then applicable has been shown. In the
present case, the Petitioners’ challenge rests only on the unilateral
nature of the appointment and does not identify any independent
circumstance giving rise to justifiable doubts as to the independence
or impartiality of the learned Arbitrator.
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30. In these circumstances, the Petitioners cannot rely on Section
12(5), which came into force more than a decade after the
appointment and commencement of the arbitral proceedings, to
retrospectively invalidate the appointment. This conclusion is
confined to the facts of the present case, having regard to Clause 25,
the date of appointment and the grounds actually raised by the
Petitioners. It does not lay down that unilateral appointments are valid
in every circumstance, nor does it preclude scrutiny of a pre-
amendment appointment for any distinct statutory infirmity or
established lack of independence or impartiality under the law then in
force.
31. Reliance placed on Bhadra International (supra), M/s ABL
Biotechnologies Ltd. (supra), M/s Supreme Infrastructure India
Limited (supra), Bharat Forge Limited (supra) and M/s Mahavir
Prasad Gupta and Sons (supra) is of no avail to the Petitioners, as the
issues involved in these cases are distinguishable from the facts of the
present case.
32. In Bhadra International (supra) , although the Supreme Court
examined the object and scope of Section 12(5) of the Act in great
detail, the issue before it was not whether the provision would apply
to proceedings in which the arbitration had commenced, the Award
had been rendered and proceedings under Section 34 had also been
initiated before the 2015 Amendment Act came into force. The
observations in the said judgment, therefore, have to be read in the
context of the issue that arose for consideration before the Supreme
Court.
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33. In ABL Biotechnologies Ltd. (supra) , this Court set aside the
Award on the ground of unilateral appointment, relying upon Dharma
Prathishthanam (supra) . However, in the present case, Clause 25 of
the Agreement itself provided for appointment of the Arbitrator by the
Managing Director of the Respondent. This distinction was not
considered in ABL Biotechnologies (supra) . The Bombay High
18
Court, in S.E. Investments Ltd. v. Star Bazaar (P) Ltd , while
considering Bhadra International (supra) and Dharma
Prathishthanam (supra) , has also explained why the law laid down in
these decisions cannot be understood as invalidating every unilateral
appointment made before the 2015 Amendment Act came into force.
The relevant observations are reproduced below:
“43. “Analysis of paragraph Nos. 32 to 39 of Bhadra
International (India) Pvt. Ltd. (supra)
(i) The learned Senior Counsel, Mr Kamat has placed heavy
reliance on above paragraphs to contend that by virtue of these
paragraphs all types of unilateral appointment made prior to 23-
10-2015 is without jurisdiction. In my view, the said submission
cannot be accepted for more than one reason.
(ii) The first issue, as per para 29 of the said decision, which
was framed by the Hon'ble Supreme Court, was whether the sole
arbitrator could be said to have become ineligible to be appointed
as an arbitrator by virtue of Section 12(5) of the Act, 1996. The
contention of the appellant was that the sole arbitrator appointed
by the chairman of the respondent was ineligible to act as an
arbitrator as he was appointed unilaterally post 23-10-2015 and
such an appointment was void ab initio by virtue of Section 12(5)
of the Act, 1996.
(iii) While adjudicating the provisions of Section 12(5) of the
Act, 1996 as applicable to the facts before the Court, Hon'ble
Supreme Court analysed the provisions of Section 18 under the
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caption “Interplay Between Equal Treatment of Parties and
Autonomy”.
(iv) In paras 32 to 35, the Hon'ble Supreme Court analyses
Section 18 in the context of Section 12(5) of the Act, 1996 and
relies upon the decision in CORE (supra) which was again a
decision concerning the provisions of Section 12(5) of the Act,
1996. After interpreting Section 18 in the context of Section 12(5)
of the 1996, Act, the Hon'ble Supreme Court states that equal
treatment has long been recognised in the constitution of the
Arbitral Tribunal for ensuring impartiality and preserving fairness
of the arbitral process.
(v) The Hon'ble Supreme Court, thereafter, in para 36
observes that even prior to Amendment Act, 2015, the Hon'ble
Supreme Court in Dharma Prathishthanam(supra) held that
unilateral appointment without the consent of the other party is
illegal and alien to law. When Bhadra International (India) Pvt.
Ltd. (supra), refers to unilateral appointment by referring to the
decision in the case of Dharma Prathishthanam (supra) one has
to go to the facts of Dharma Prathishthanam(supra) wherein the
arbitration clause did not provide for a named arbitrator or an
arbitrator appointed by designation or authorised a person to
appoint an arbitrator but it simply said disputes will be resolved
as per the Arbitration Act. It is in that context that para 37 has to
be read along with other previous paragraphs, to mean that
unilateral appointments of the nature referred to in Dharma
Prathishthanam (supra) have now been articulated with greater
clarity through the Amendment Act, 2015.
(vi) Therefore, from a reading of paras 30 to 37 one cannot
come to a conclusion that ratio of Bhadra International (India)
Pvt. Ltd. (supra) is that even prior to 2015, unilateral
appointments made in scenarios other than those which was in the
nature of Dharma Prathishthanam (supra) are void ab initio. It is
neither a ratio nor an obiter of the Hon'ble Supreme Court but is a
misreading of the said decision to contend that Bhadra
International (India) Pvt. Ltd. (supra) lays down, through ratio or
through obiter that all types of unilateral appointments made prior
to 2015 of the nature not that of Dharma Prathishthanam (supra)
are also void ab initio.
(vii) Paragraphs 32 to 37 have to be read with para 38 and para
38 states that even though the parties may have unbridled freedom
regarding the procedure for appointing an arbitrator, the exercise
of such freedom must not be in conflict with mandatory provisions
of the Act. When the Hon'ble Supreme Court refers to mandatory
provisions of the Act, it refers to the provisions of Section 12(5) of
the Act, 1996 because these observations are made while dealing
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with first issue with regard to the provision of Section 12(5) of the
Act, 1996.
(viii) Therefore, in my view, the submission made that by virtue
of Bhadra International (India) Pvt. Ltd. (supra) all types of
unilateral appointments which are not even of the nature of
unilateral appointments referred to in Dharma
Prathishthanam (supra) are void ab initio is incorrect.
(ix) When Bhadra International (India) Pvt. Ltd. (supra) refers
to implicit provisions prior to 2015 having been made explicit, it
cannot be treated as obiter in the sense that in all cases of
unilateral appointments contrary to the implicit provisions prior to
2015, are bad in law.”
34. In view of the above, Dharma Prathishthanam (supra) does
not assist the Petitioners on the facts presented here because the
appointment clause in that case did not confer on a named person or
designated office-holder the specific appointment power found in
Clause 25. As far as Bharat Forge Ltd. (supra) is concerned, the
issue before that Court was whether valid consent had been given for
the appointment, as the arbitration clause itself provided for
appointment of a Sole Arbitrator in accordance with the Arbitration
and Conciliation Act, 1996. In S.K. Builders v. CLS Construction
19
Pvt. Ltd. , and Mahavir Prasad Gupta and Sons (supra) , the arbitral
proceedings themselves commenced after the 2015 Amendment came
into force and therefore, they are also no relevance for the present
case. Therefore, none of the decisions relied upon dealt with the
temporal question arising in this case.
35. Supreme Infrastructure India Limited (supra) would also not
assist the Petitioner, as already noted by this Court in Hanson Agro
Ltd. (supra) , the factual position therein was materially different,
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since the Petitioner was neither served with notice nor informed of the
appointment of the Arbitrator, resulting in an ex parte award. In the
present case, the Petitioner was informed of the appointment in terms
of Clause 25 and further participated in the arbitral proceedings.
36. Accordingly, in view of the law applicable in the present case
and considering the procedure agreed between the parties for
appointment of an Arbitrator, the challenge to the impugned Award on
the ground that the learned Arbitrator was unilaterally appointed by
the Respondent is rejected.
37. Further, it is argued on behalf of the Petitioners that no notice
under Section 21 of the Act was ever issued. In this regard, I find it
relevant to first consider the object of such notice and whether its non-
issuance, in itself, would be fatal to the arbitral proceedings.
38. Recently, the Hon’ble Supreme Court in Bhagheeratha Engg.
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Ltd. v. State of Kerala , explained that the purpose of Section 21 is to
determine the commencement of arbitral proceedings, primarily for
the purpose of reckoning limitation. It was further held that the
absence of such notice would not be fatal to a claim which is
otherwise valid and arbitrable. The relevant observations are as
follows:
“39. Secondly, the object of Section 21 of A&C Act, is only for
the purpose of commencement of arbitral proceedings is also well
settled. Section 21 is concerned only with determining the
commencement of the dispute for the purpose of reckoning
limitation. There is no mandatory prerequisite for issuance of a
Section 21 notice prior to the commencement of Arbitration .
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Issuance of a Section 21 notice may come to the aid of parties and
the arbitrator in determining the limitation for the claim. Failure
to issue a Section 21 notice would not be fatal to a party in
Arbitration if the claim is otherwise valid and the disputes
arbitrable.”
39. In the present case, the material recited above records a legal
notice dated 15.04.2004, a reply dated 04.05.2004, and a subsequent
letter dated 01.06.2004 invoking Clause 25 and communicating the
appointment of the Sole Arbitrator. Even assuming that no separate
notice expressly invoking Section 21 of the Act was issued,
Bhagheeratha Engineering (supra) makes it clear that such omission
does not, by itself, invalidate an otherwise arbitrable claim. Section 21
remains relevant to the commencement of arbitral proceedings and
limitation, and its non-compliance does not dispense with the
applicable limitation requirements or enlarge the scope of the
arbitration agreement.
40. As far as the objection of the Petitioners is concerned, it is
confined to the non-issuance of a separate notice under Section 21.
They had neither contended that the claims were time-barred nor
demonstrated any procedural prejudice arising from the absence of
such notice. Accordingly, the objection to the impugned Award solely
on the ground of non-issuance of a separate notice under Section 21 of
the Act is rejected, particularly when the appointment procedure
prescribed under the arbitration clause was duly followed and
complied with.
41. Another limb of the Petitioners’ contention is that the disputes
relating to the period between 24.03.1999 and 31.12.2001 were not
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covered by any arbitration agreement contained in Dealership
Agreement between the parties and therefore, the learned Arbitrator
lacked jurisdiction to decide those claims. The said preliminary
objection was also raised before the learned Arbitrator who rejected it
and rendered the following findings:
“9. Point/Issue No.7 has been raised for determination in view of
the - second preliminary objection raised by the respondents. It is
their contention that for the period between 24.3.1999 and
31.12.2001, there was no written agreement between the parties
and the amount of Rs.1,15,12,941/- claimed by the Claimant is in
respect of the transactions of that period. The dispute with respect
to the same is therefore not a dispute arising under or in respect of
the agreement dated 1.1.2002 and as such is outside the purview of
the Dealership Agreement and the arbitration clause contained
therein. In. support of this contention, the respondents reply upon
the LOI, the agreement and the admission made by the Claimant's
witnesses. What is admitted by Mr.Lalit is that there .was no other
written agreement between 24,3.1999 and 1 .1.2002. He has stated
that the transactions in between were on the basis of Letter of
Intent and that the Letter of Intent was treated as continuing.
Claimant's other witness Shri Rahul Sanon, Deputy General
Manager (Finance and Accounts) has also stated so. Thus,
according to both the witnesses, the previous agreement as
evidenced by the LOI continued during the period between
24.3.1999 and 31.12.2001. According to the respondents, LOI
having ceased to be valid after 23.3.1999, there was no written
agreement thereafter for the said period.
10. The LOI, though in the form of a letter written by the Claimant
to respondent No.1, is also signed by respondent No.2 as the
authorized signatory of respondent No.1. Two witnesses have also
attested the same. It contains the writing: "AGREED AS
AFORESAID BETWEEN NEW HOLLAND TRACTORS (INDIA)
PVT LTD AND M/s SHIVDEI AUTOMOBILES". This writing and
other contents of the LOT clearly indicate that it was an agreement
between the two parties and there is no dispute on this point.
Pursuant to this agreement, the Claimant had started supplying
tractors to the respondents from 24.9.1998 and the respondents
used to make payments for the same. This course of dealing had
continued between 24.3.1999 and 31 .12.2001. The LOT reflects an
agreement between the parties that on fulfillment of the conditions
mentioned therein, supplies of the tractors was to start and on
compliance with all other requirements, a formal agreement was to
be executed and the terms mentioned therein would supersede the
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terms of the LOI. The conditional offer made therein was to remain
valid upto 23.3.1999 unless withdrawn earlier. Reasonably read
what it means is that if all the requirements which were to be
fulfilled by the respondents after 23.9.1998 but before 23.3.1999
are fulfilled, then the agreement would survive otherwise not. It
does not say that the contractual relationship would come to an
end on 23.3.1999. If that was the intention of the parties, the
Claimant would have stopped supplying tractors to the respondents
from 24.3.1999 and the respondents in their turn would not have
accepted the same and incurred and fulfilled obligations arising as
a result thereof.
11. The Dealership Agreement (C-2) substituted the previous
agreement as stated in Clause 1.4. The said clause further provides
that “all accrued and outstanding rights and liabilities as to any
payment or other financial obligation, arising under such
agreements, shall remain in full force and effect and be fully
enforceable until satisfied. By this Clause of the Dealership
Agreement, this new agreement is substituted for the previous
agreement and like a saving Clause all accrued rights and
liabilities as to payment or other financial obligation are saved
and made enforceable under the new agreement. If that was not the
intention of the parties, this Clause would not have found its place
in the Dealership Agreement. 'Respondents' defence that they had
signed this agreement without reading it cannot be believed. The
respondents had not objected to inclusion of dues for the pre-
dealership agreement period in the statements of account sent by
the Claimant on the ground that they were not covered by that
agreement, till almost the end of 2003.
12 . On consideration of the LOI, dealings between the parties
and Dealership Agreement it would be reasonable to come to the
conclusion that the agreement between the parties as evidenced
by the LOI continued till it was superseded by the Dealership
Agreement of 1. 1 .2002 and whatever amount was due and
payable by the respondents on 31. 12.2001 continued to be their
effective financial obligation and enforceable under the
Dealership Agreement of 1.1.2002. For all these reasons, I hold
that the claim made by the claimant, in other words, the dispute
raised by it, falls squarely within the purview of the Dealership
Agreement and therefore, this Tribunal has jurisdiction to
entertain the same.”
42. A perusal of the aforesaid findings shows that the learned
Arbitrator considered the LOI dated 23.09.1998, the subsequent
conduct of the parties, and Clauses 1.4 and 25 of the Dealership
Agreement dated 01.01.2002. The Petitioners contend that the LOI
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expired on 23.03.1999 and that no agreement subsisted between the
parties until the Dealership Agreement was executed. The issue,
therefore, is whether the parties’ commercial dealings continued after
23.03.1999 so as to establish a subsisting agreement between them
and, if so, whether the arbitration clause in the Dealership Agreement
extends to disputes concerning dues arising during that period.
43. The learned Arbitrator reasoned that the date of 23.03.1999
mentioned in the LOI related to the fulfilment of the conditions
stipulated therein and did not necessarily bring the parties’
commercial relationship to an end. This finding was based not merely
on the LOI read in isolation, but also on the parties’ conduct
thereafter. The Respondent continued to supply tractors to the
Petitioners after 23.03.1999, and the Petitioners continued to accept
the supplies and discharge their corresponding payment obligations.
These dealings continued until the Dealership Agreement was
executed on 01.01.2002. Such conduct supports the finding that the
parties’ commercial relationship and corresponding obligations
continued beyond the stated validity date of the LOI.
44. The learned Arbitrator also noted that, until almost the end of
2003, the Petitioners did not object to the inclusion of dues relating to
the intervening period in the statements of account on the specific
ground that such dues fell outside the Dealership Agreement. This
circumstance further supports the inference drawn from the parties’
course of dealing, though it cannot, by itself, amount to a acceptance
of jurisdiction of the Arbitrator or substitute for the written arbitration
agreement required under Section 7 of the Act.
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45. In view of the above, the learned Arbitrator found that the
agreement between the parties continued to subsist even after
23.03.1999 and remained in operation until it was superseded by the
Dealership Agreement dated 01.01.2002. This finding is supported by
the continued supplies, acceptance of goods, corresponding payments
and subsequent treatment of outstanding accounts. In the opinion of
this Court, the finding represents a plausible view of the evidence on
record and does not warrant interference under Section 34 of the Act.
46. However, the continuation of the commercial arrangement does
not, by itself, establish that the dispute arising from it can be referred
to arbitration. It remains necessary to examine whether the arbitration
agreement contained in Dealership Agreement extends to the financial
liabilities arising during the intervening period.
47. In this regard, Clause 1.4 expressly provides that accrued and
outstanding rights and liabilities relating to payment and other
financial obligations arising under the earlier agreement shall remain
in force and enforceable until satisfied, notwithstanding its
substitution by the Dealership Agreement. Although Clause 1.4
preserves these financial liabilities, it does not, by itself, provide for
arbitration. It must, therefore, be read with Clause 25, which provides
for arbitration of disputes arising under or in connection with the
Dealership Agreement.
48. Read together, Clause 1.4 preserves the specified financial
liabilities, while Clause 25 provides the mechanism for resolving
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disputes falling within its scope. Accordingly, disputes concerning
financial liabilities preserved under Clause 1.4 can be referred to the
arbitration to the extent that they fall within the scope of Clause 25.
49. The Petitioners also rely on Clause 3.1, which provides that the
Dealership Agreement takes effect from 01.01.2002. However, Clause
3.1 merely governs the commencement date of the Dealership
Agreement and must be read alongside Clause 1.4, which expressly
preserves accrued and outstanding financial liabilities under the earlier
agreement. The two provisions can be reconciled by giving effect to
Clause 3.1 as governing the commencement of the new agreement,
while treating Clause 1.4 as a saving provision for the specified pre-
existing financial obligations. This conclusion is confined to the
payment and other financial liabilities expressly saved by Clause 1.4
and does not extend the arbitration clause to every unrelated dispute or
claim predating 01.01.2002.
50. It is also relevant that the Petitioners themselves raised a
counterclaim for user charges for the period from 24.03.1999 to
31.12.2001. While this counterclaim does not, by itself, establish that
every claim arising during the same period is arbitrable or create a
written arbitration agreement where none exists, it is a relevant
circumstance showing that the Petitioners themselves recognised the
subsistence of an agreement between the parties during the intervening
period. This further supports the finding that the parties’ contractual
relationship did not automatically cease upon expiry of the LOI’s
stated validity.
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51. For these reasons, and on a combined reading of the LOI, the
parties’ subsequent conduct, and Clauses 1.4 and 25 of the Dealership
Agreement, the learned Arbitrator’s conclusion that the financial
liabilities accrued during the relevant period were preserved and could
be adjudicated under the arbitration clause contained in Dealership
Agreement represents a plausible interpretation of the contractual
arrangement. The scope of interference under Section 34 is limited,
and this Court cannot substitute its own interpretation for a plausible
view taken by the learned Arbitrator merely because another
interpretation may also be possible. No ground warranting interference
with this finding has been made out.
52. In view of the foregoing discussion, this Court finds no merit in
the present petition. The Petitioners have failed to establish any
ground for setting aside the impugned Award under Section 34 of the
Act. The objections concerning the appointment of the learned
Arbitrator and the non-issuance of a separate notice under Section 21
of the Act also fail for the reasons set out above.
53. Accordingly, the present petition is dismissed, and the
impugned Award dated 09.01.2006 is upheld.
54. There shall be no order as to costs.
OM PRAKASH SHUKLA, J
OCTOBER 29, 2026/at/pa/gunn
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