01Facts
The appellant advanced loans to the respondents under two agreements dated 31 October 2020, each containing an arbitration clause naming Mr. Abhay Sahai as sole arbitrator.
p. 2 · ¶ 1–2Following alleged repayment defaults, arbitrations resulted in awards for the appellant on 31 July 2024.
p. 2 · ¶ 1–2The respondents successfully challenged the awards under Section 34 before the Commercial Court, which held that the arbitrator’s appointment violated Section 12(5) of the Arbitration and Conciliation Act, 1996 (“1996 Act”).
pp. 2–4 · ¶ 3–5The appellant appealed under Section 37.
Before the High Court, the respondents did not dispute their signatures on the agreements or their acknowledgment of the agreements in their Section 34 petition, but argued that their signatures had been taken on a blank sheet and that the appointment was unilateral.
pp. 5, 7–8 · ¶ 9–10, 14–1502Issues
i.Whether an arbitrator named in an arbitration agreement signed by both parties was appointed unilaterally, contrary to the principles governing Section 12(5) of the 1996 Act.
pp. 7–8 · ¶ 14–18ii.Whether the respondents’ challenge to the arbitration clause and the named arbitrator’s appointment could be sustained where they acknowledged the agreements and did not allege that the arbitrator personally fell within a category in the Seventh Schedule.
pp. 5, 8–9 · ¶ 9–10, 19–2003Law Applied
Section 12(5) of the 1996 Act, read with the Seventh Schedule, renders a person in a specified relationship with the parties or dispute ineligible to act as arbitrator, subject to the statutory waiver by express written agreement after disputes arise.
pp. 3–4, 5–6, 6–7 · ¶ 5, 11–12, 18The Supreme Court decisions in TRF Ltd. v. Energo Engineering Projects Ltd., Bharat Broadband Network Ltd. v. United Telecoms Ltd., and Perkins Eastman Architects DPC v. HSCC (India) Ltd. address the invalidity of appointments made by persons who are themselves ineligible to act as arbitrators; CORE v. ECI SPIC SMO MCML concerns unilateral appointment of arbitrators.
pp. 3–4, 5–6, 6–7 · ¶ 5, 11–12, 18The High Court held that these principles do not prohibit parties from bilaterally naming an arbitrator in an agreement, provided the named arbitrator is not personally ineligible under Section 12(5) read with the Seventh Schedule.
p. 9 · ¶ 20Provisions in the judgment · 3 · Linked ones open on LawLens
Arbitration and Conciliation Act, 1996 Section 12Section 37Section 34
04Reasoning
The High Court found that the respondents’ signatures on the agreements were undisputed and that they had acknowledged the agreements in their Section 34 petition.
pp. 5, 7–8 · ¶ 9–10, 15Their unsupported claim that the signatures were obtained on a blank sheet was rejected as an afterthought, particularly given their participation in the arbitral proceedings.
pp. 5, 7–8 · ¶ 9–10, 15Since both parties signed the clause naming Mr. Sahai, his appointment was bilateral, not a unilateral appointment by the appellant or its Managing Director.
pp. 8–9 · ¶ 14–18The Commercial Court therefore misapplied the principles in CORE and the related authorities.
pp. 8–9 · ¶ 14–18Further, the respondents did not contend that Mr. Sahai himself was ineligible under the Seventh Schedule; accordingly, Section 12(5) did not invalidate the appointment on the grounds advanced.
p. 9 · ¶ 19–2005Holding
The High Court held that the Commercial Court erred in setting aside the awards on the basis that the arbitrator’s appointment was unilateral and contrary to Section 12(5).
p. 9 · ¶ 20–22It quashed and set aside the Commercial Court’s judgments, allowed both appeals, and made no order as to costs.
p. 9 · ¶ 20–22Original Court PDF
M/S Sm Finlease Ltd.vsSh. Shailendra Datt Raturi & Anr.
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