M/S Sm Finlease Ltd. vs Sh. Shailendra Datt Raturi & Anr.
- Court
- Delhi High Court
$~58 & 59
* IN THE HIGH COURT OF DELHI AT NEW DELHI
# CNR No. DLHC010370982026
+ FAO (COMM) 233/2026
M/S SM FINLEASE LTD. .....Appellant
Through: Mr. Mishal Johari and Ms.
Divyanshi Khemka, Advs.
versus
SH. SHAILENDRA DATT
RATURI & ANR. .....Respondent
Through: Mr. S.K. Singh, Mr. Manish,
Mr. Ankush Sadh and Ms. Trapta
Kushwaha, Advs.
# CNR No. DLHC010370992026
+ FAO (COMM) 234/2026
M/S SM FINLEASE LTD. .....Appellant
Through: Mr. Mishal Johari and Ms.
Divyanshi Khemka, Advs.
versus
SH. SHAILENDRA DATT
RATURI & ANR. .....Respondent
Through: Mr. S.K. Singh, Mr. Manish,
Mr. Ankush Sadh and Ms. Trapta
Kushwaha, Advs.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
HON'BLE MS. JUSTICE NIVEDITA ANIL SHARMA
JUDGMENT (ORAL)
% 27.10.2026
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C. HARI SHANKAR, J.
1. By two loan agreements dated 31 October 2020, the appellant
advanced financial loans to the respondents. The agreements
envisaged resolution of disputes, in the event of their arising, by
arbitration. Clause 4.5 of both the agreements, which was identical,
read thus:
“4.5 Any dispute between the parties in relation to this
agreement or in relation to any of the transaction under this
agreement shall be amenable to Arbitration by a Tribunal of Sole
Arbitrator Mr. Abhay Sahai, Advocate, whose decision shall be
final and binding. The place of arbitration shall be Delhi, and the
language shall be English, that without prejudice to arbitration,
court in Delhi shall have exclusive jurisdiction”.
2. The appellant raised a dispute, alleging that the respondents had
defaulted in repaying the loans advanced by it. Arbitral proceedings
were initiated by the appellant. The arbitration was conducted by Mr.
Abhay Sahai, Advocate, who was the Arbitrator named in Clause 4.5
of the loan agreements. The arbitration culminated in two awards,
both rendered on 31 July 2024, in favour of the appellant and against
the respondents.
3. The respondents assailed the arbitral awards before the learned
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District Judge (Commercial Court)-01, Patiala House Court by way
of OMP (Comm) 223/2024 and OMP (Comm) 224/2024.
4. Both the OMPs have been allowed by the learned Commercial
Court by separate judgments rendered on 5 June 2026, on the sole
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ground that the appointment of the learned Arbitrator was in the teeth
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of Section 12(5) of the Arbitration and Conciliation Act, 1996 .
5. The judgments are identical in terms. We deem it appropriate to
reproduce paras 17 to 20 of the judgment rendered by the learned
Commercial Court thus:
“17. In the present case on perusal of arbitral record, I could find
relevant loan agreement containing the arbitration clause. Clause
4.5 of the loan agreement provides for arbitration and for
appointment of arbitrator. This agreement is dated 31.10.2020 and
the relevant part is reproduced as under:-
“Clause 4.5 Any dispute between the parties in relation
to this agreement or in relation to any of the transaction
under this agreement shall be amenable to Arbitration by a
Tribunal of Sole Arbitrator Mr. Abhay Sahai, Advocate,
whose decision shall be final and binding. The place of
arbitration shall be Delhi, and the language shall be
English, that without prejudice to arbitration, court in Delhi
shall have exclusive jurisdiction”.
18. The aforesaid clause of the agreement is clearly in the teeth
of law explained by Hon’ble Supreme Court in the case of CORE
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v. ECI SPIC SMO MCML . In that case, Hon’ble Supreme Court
not only declared the practice of unilateral appointment of
arbitrator as illegal and against the norms of equity, the court also
declared that all such kind of agreements providing any unilateral
appointment of sole arbitrator shall be considered as null and void.
19. Therefore, I have no hesitation to say that aforesaid
agreement itself was a void agreement and hence, on the basis of
the same no appointment could have been made unilaterally by the
respondent. The arbitrator was appointed unilaterally, is well
reflected from the award itself. The award and first order passed by
ld. Arbitrator refer to appointment of ld. Arbitrator, but there is no
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“learned Commercial Court” hereinafter
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(5) 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:
Provided that parties may, subsequent to disputes having arisen between them, waive the
applicability of this sub-section by an express agreement in writing.
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“the 1996 Act” hereinafter
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2024 SCC OnLine SC 3219, hereinafter referred to as “ CORE”
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mention of any written consent/waiver if given by petitioners, for
appointment of ld. Arbitrator by respondent. The argument that in
the loan agreement itself, petitioners had given consent for
appointment of ld. Arbitrator, does not stand the test of legal
mandate. As per settled law after amendment in the Act w.e.f.
23.10.2015, it is mandatory to have written consent/waiver from
the opposite party after dispute coming into existence. The case
law relied upon by respondent pertains to pre amendment period,
which cannot be applicable to this case. In Bharat Broadband
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Network Limited v. United Telecoms Limited , Supreme Court
rejected the contention that the waiver of a right to object the
ineligibility of an arbitrator, under Section 12(5) of the A&C Act,
could be inferred by conduct. That means that even if petitioners
appeared before ld. Arbitrator or participated in the proceedings,
such conduct cannot be used as an excuse for non-compliance of
mandate u/s 12 (5) of the Act.
DECISION
20. In view of my foregoing observations, discussions and
findings, I do find that appointment of Sole Arbitrator by
respondent, was without compliance of mandate of S. 12 (5) of the
Act, thereby making the appointment illegal and arbitration
proceedings void ab initio. Hence, petition is allowed and award is
set aside.”
6. Aggrieved by the aforesaid judgments passed by the learned
Commercial Court, the appellant has preferred the present appeals
under Section 37 of the 1996 Act.
7. We have heard Mr. Mishal Johari, learned Counsel for the
appellant and Mr. S.K. Singh, learned Counsel for the respondents, at
length.
8. As we were prima facie convinced that the impugned
judgments are not in accordance with law, we called upon Mr. Singh
to justify the decision of the learned Commercial Court.
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(2019) 5 SCC 755
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9. Mr. Singh candidly acknowledges that the signatures of the
parties, as they figure on the body of the loan agreement dated 31
October 2020, are not in dispute. He, however, submits that his clients
had been provide with a blank sheet of paper on which they had
appended their signatures and that, therefore, they could not be treated
as subscribing to the arbitration of the dispute by Mr. Abhay Sahai.
He is, however, unable to substantiate his contention that the
signatures of his clients were taken on a blank sheet of paper.
10. In any case, having consented to, and participated in, the
arbitral proceedings till rendering of the award, it is obviously too late
in the day for the respondent to seek to urge that their signatures had
been obtained on a blank piece of paper, and that they, therefore,
cannot be taken to have consented to Clause 4.5 of the loan
agreements. The plea is an obvious afterthought, and is rejected
outright.
11. Mr. Singh has also placed reliance on the well known decision
of the Supreme Court in Bharat Broadband Network , from which he
has specifically drawn our attention to para 18, which read as under:
“18. On the facts of the present case, it is clear that the
Managing Director of the appellant could not have acted as an
arbitrator himself, being rendered ineligible to act as arbitrator
under Item 5 of the Seventh Schedule, which reads as under:
“Arbitrator's relationship with the parties or counsel
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5. The arbitrator is a manager, director or part of the
management, or has a similar controlling influence, in an
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affiliate of one of the parties if the affiliate is directly
involved in the matters in dispute in the arbitration.”
Whether such ineligible person could himself appoint another
arbitrator was only made clear by this Court's judgment in TRF
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Ltd. v. Energo Engg. Projects Ltd . , on 3-7-2017, this Court
holding that an appointment made by an ineligible person is itself
void ab initio. Thus, it was only on 3-7-2017, that it became clear
beyond doubt that the appointment of Shri Khan would be void ab
initio. Since such appointment goes to “eligibility” i.e. to the root
of the matter, it is obvious that Shri Khan's appointment would be
void. There is no doubt in this case that disputes arose only after
the introduction of Section 12(5) into the statute book, and Shri
Khan was appointed long after 23-10-2015. The judgment in TRF
Ltd . , nowhere states that it will apply only prospectively i.e. the
appointments that have been made of persons such as Shri Khan
would be valid if made before the date of the judgment. Section 26
of the Amendment Act, 2015 makes it clear that the Amendment
Act, 2015 shall apply in relation to arbitral proceedings
commenced on or after 23-10-2015. Indeed, the judgment itself set
aside the order appointing the arbitrator, which was an order dated
27-1-2016, by which the Managing Director of the respondent
nominated a former Judge of this Court as sole arbitrator in terms
of Clause 33( d ) of the purchase order dated 10-5-2014. It will be
noticed that the facts in the present case are somewhat similar. The
APO itself is of the year 2014, whereas the appointment by the
Managing Director is after the Amendment Act, 2015, just as in
TRF Ltd. Considering that the appointment in TRF Ltd . , of a
retired Judge of this Court was set aside as being non est in law, the
appointment of Shri Khan in the present case must follow suit.”
12. Mr. Singh submits that the Supreme Court has expanded the
scope of Section 12(5) of the 1996 Act, which, facially only bars a
person who falls within one of the prohibited categories enumerated in
the VII Schedule to the 1996 Act from acting as an arbitrator. He
submits, quite correctly, that, starting from the judgment in TRF,
through later decisions in Bharat Broadband Network and Perkins
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Eastman Architects DPC v. HSCC (India) Ltd. and other decisions
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(2017) 8 SCC 377
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(2020) 20 SCC 760
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which followed it, the Supreme Court has held that a person who was
ineligible to act as an arbitrator is also equally ineligible to appoint an
arbitrator. He submits that, therefore, as the appointment of Mr.
Abhay Sahai as Arbitrator was by the Managing Director of the
appellant, the appointment was ex facie invalid and the arbitral award
rendered consequent on arbitration was equally vitiated.
13. We are unable, quite frankly, to appreciate the submission
advanced by Mr. Singh.
14. The appointment of the learned Arbitrator in the present case is,
quite clearly, not unilateral, or by the Managing Director of the
appellant as Mr. Singh would seek to urge, but bilateral, as specifically
provided in Clause 4.5 of the Loan Agreement, which is signed by
both parties. Mr. Singh does not dispute the signatures of his clients as
they figure on the body of the loan agreement.
15. Further, as has been pointed out correctly to us by Mr. Johari,
the execution of the loan agreement stands candidly acknowledged by
the respondents in paras 1 to 3 of the Section 34 petition filed by the
respondents before the learned Commercial Court, in which the
impugned order has come to be passed. We may reproduce, for ready
reference, the said paragraphs, as under:
“1. That the applicants approached the respondent company in
the year 2020, and sought loan/advance of Rs.30,00,000/- (Rupees
thirty lakh only) for meeting their financial requirements. Based on
Applicants' positive representations and multiple promises,
respondent agreed to advance Rs.30,00,000/- as loan upon the
terms set forth in the loan agreement dated 31/10/2020 and in other
loan/security documents.
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2. That in consideration of the aforesaid agreement respondent
agreed to grant the loan under the loan agreement dated
31/10/2020.
3. That the applicants breached the terms and conditions of the
said agreement by making defaults in tendering their EMIs as per
schedule 1 of the aforesaid agreement, the respondent sent notice
of loan recall dated 07/02/2023.”
16. The submission of Mr. Singh, which is also reflected in the
impugned order of the learned Commercial Court that, the
appointment was unilateral is, therefore, not sustainable in law. They
proceed on a basic misunderstanding of the concept of unilateral
appointment of an arbitrator.
17. Once the execution of the loan agreement bilaterally by both
parties stand acknowledged, the learned Commercial Court is clearly
in error in holding that the appointment of the Arbitrator was
unilateral. There is no bar on the parties bilaterally naming, in the
arbitration agreement, the arbitrator who would arbitrate on the
dispute between them. In such an event, the named arbitrator cannot
be said to have been appointed unilaterally.
18. The learned Commercial Court has held, quite strangely, that
Clause 4.5 is violative of the judgment rendered by the Supreme Court
in CORE which prohibits unilateral appointment of Arbitrators.
Inasmuch as the appointment of the learned arbitrator in the present
case was not unilateral but bilateral, the finding of the learned
Commercial Court is obviously incorrect on facts as well as in law.
19. We may also note that it is not the case of the respondents that
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Mr. Abhay Sahai personally fell within any of the clauses of the VII
Schedule to the arbitration agreement so as to render him ineligible to
act as an arbitrator. Indeed, that is not even the ground on which the
impugned judgment has come to be passed by the learned Commercial
Court.
20. We are, therefore, of the considered opinion that that the learned
Commercial Court is seriously in error in holding that Clause 4.5 of
the loan agreement was illegal and hit by the judgment of the Supreme
Court in CORE. The appointment of a named arbitrator, bilaterally by
the parties in the agreement, is clearly permissible in law, so long as
the arbitrator himself does not fall within any prohibited degree as
envisaged by Section 12(5) of the 1996 Act read with the VII
Schedule thereto.
21. We, therefore, are unable to sustain the impugned judgments of
the learned Commercial Court which are, therefore, quashed and set
aside.
22. The present appeals stand allowed accordingly with no order as
to costs.
C. HARI SHANKAR, J.
NIVEDITA ANIL SHARMA, J.
OCTOBER 27, 2026 /aky
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