Unilateral appointment of a named arbitrator invalidates the award absent post-dispute written waiver under Section 12(5).

The Appellant advanced a business loan of ₹2,00,000 to Allahuddin under a Loan Agreement dated 7 May 2019. The Respondent executed a Deed of Guarantee and was allegedly liable to repay ₹2,34,000 in 90 daily instalments, with late-payment charges at 36% per annum.

Upon default, the Appellant invoked the arbitration clause and a sole arbitrator, Manohar Lal Saini, Advocate, conducted ex parte proceedings. The arbitrator issued an award dated 12 October 2020 at Alwar, Rajasthan, awarding ₹5,18,600 with interest at 18% per annum from 1 July 2020 until realization.

The Respondent challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, contending, inter alia, that the loan agreement was void under the Rajasthan Money-Lenders Act, 1963 and that the arbitrator had been unilaterally appointed. The District Judge allowed the Section 34 petition and set aside the award. The Appellant challenged that decision under Section 37 of the A&C Act.

The High Court noted that the Appellant had been served in the Section 34 proceedings but neither appeared nor filed a reply, and that the arbitrator failed to produce the arbitral record despite repeated directions.

1. Whether the Delhi District Court had territorial jurisdiction to entertain the Section 34 petition when the award was signed and made at Alwar, Rajasthan.

2. Whether the Section 34 petition was barred by limitation under Section 34(3) of the A&C Act.

3. Whether the appointment of the sole arbitrator was invalid because it was made unilaterally by the Appellant, notwithstanding that the arbitrator’s name was allegedly contained in the arbitration agreement.

4. Whether the Rajasthan Money-Lenders Act, 1963 applied to the Appellant and rendered the loan transaction unenforceable because of the stipulated rate of interest.

5. Whether the District Judge’s order setting aside the award disclosed any jurisdictional error, patent illegality, or perversity warranting interference under Section 37 of the A&C Act.

The Court applied the limited and supervisory scope of appellate jurisdiction under Section 37 of the A&C Act, permitting interference only for jurisdictional error, patent illegality, manifest perversity, or failure to apply the law correctly, relying on McDermott International Inc. v. Burn Standard Co. Ltd., MMTC Ltd. v. Vedanta Ltd., Punjab State Civil Supplies Corporation Ltd. v. Sanman Rice Mills, and UHL Power Company Ltd. v. State of Himachal Pradesh.

Under Section 34(3), limitation begins from receipt of the arbitral award, not merely from the date on which it was made.

Section 12(5), read with the Seventh Schedule, renders a person ineligible for appointment where the statutory requirements of independence and impartiality are violated; waiver of Section 12(5) is valid only through an express written agreement made after disputes have arisen.

The Court relied on TRF Ltd. v. Energo Engineering Projects Ltd., Bharat Broadband Network Ltd. v. United Telecoms Ltd., and Bhadra International (India) Pvt. Ltd. v. Airport Authority of India.

A prior designation of an arbitrator is not automatically invalid, but the actual post-dispute constitution of the tribunal must comply with the A&C Act.

The Court also considered the Rajasthan Money-Lenders Act, including the definition of “money-lender” and restrictions on interest, as well as the principle in Nedumpilli Finance Company Ltd. v. State of Kerala concerning the regulatory field governing RBI-regulated NBFCs.

The Court held that the place where an award is signed does not, by itself, conclusively establish the juridical seat of arbitration; the arbitration agreement and the conduct of proceedings must be examined.

Since the Appellant had not raised or substantiated the territorial-jurisdiction objection before the District Judge, and had itself pursued execution proceedings in Delhi, the objection could not be successfully advanced for the first time in the Section 37 appeal.

The limitation objection also failed because the Appellant produced no material showing when the Respondent received the signed award, while the Respondent asserted that he learned of it only during execution proceedings.

On the principal issue, the award itself recorded that the Appellant had appointed the arbitrator by a letter dated 18 August 2020 and that the arbitrator had thereafter issued an acceptance letter.

Thus, the appointment was effected by the Appellant alone after the dispute had arisen.

The mere inclusion of the arbitrator’s name in the agreement did not establish bilateral consent to the actual appointment, particularly when the Respondent neither participated in the constitution of the tribunal nor expressly waived Section 12(5) in writing after the dispute arose.

The Court further held that the Appellant’s argument regarding the absence of a specific Seventh Schedule relationship did not answer the broader requirement of an independent and impartial tribunal.

Although the Court did not independently undertake the entire Money-Lenders Act/NBFC analysis, it held that the invalid constitution of the tribunal independently justified setting aside the award.

It held that the Appellant failed to demonstrate any jurisdictional error, patent illegality, or perversity warranting interference under Section 37.

The unilateral constitution of the arbitral tribunal, coupled with the absence of a post-dispute express written waiver under Section 12(5), was independently sufficient to invalidate and sustain the setting aside of the award.