Awards by unilaterally appointed arbitrators are not executable: Delhi HC

The Commercial Court had held unilateral appointment of arbitrators’ by the NBFCs is nothing but a blatant violation and disregard of law laid down by the SC.

In a significant decision, the Delhi High Court has upheld a commercial court judgement that stated that awards passed by unilaterally appointed arbitrators are not executable.

It is seen as an important development in arbitration and alternate dispute resolution in India as execution of such an award was refused by Commercial Court even though there was no objection or challenge to such unilateral appointment of arbitrator by NBFC and Bank.

A division bench of Justices Vibhu Bakhru and Amit Mahajan agreed with the view taken by the Commercial Court that when appointment itself is in violation of Section 12(5) and Schedule 7 of the Arbitration & Conciliation Act, 1996, any award passed by such an arbitrator is a nullity and can't be executed.

Kotak Mahindra Bank Ltd challenged the validity of the order passed by Surinder S Rathi, District Judge, Commercial Court on November 23, 2022 whereby the appellant’s application for enforcement of an ex parte arbitral award of July 21, 2021 by C Prasanna Venkatesh, sole arbitrator in favour of D H Finance Company, was rejected.

The HC, however, found no infirmity with the view of the Commercial Court which has held that an award rendered by a person who is ineligible to act as an arbitrator by virtue of the provisions of Section 12(5) of the A & C Act is nullity and, therefore, cannot be enforced. The Commercial Court has accordingly dismissed the enforcement petition under Section 36 of the A&C Act with the cost quantified as Rs 25,000.

"A person who is ineligible to act an Arbitrator, lacks the inherent jurisdiction to render an Arbitral Award under the A&C Act. It is trite law that a decision, by any authority, which lacks inherent jurisdiction to make such a decision, cannot be considered as valid. Thus, clearly, such an impugned award cannot be enforced," the HC said.

The Commercial Court had held unilateral appointment of arbitrators’ by the NBFCs is nothing but a blatant violation and disregard of law laid down by the Supreme Court.

"Filing a petition seeking execution of such ex-parte awards obtained through such unilateral appointments is nothing but a classic example of abuse of the process of Courts by award holders to extract money out of the hapless respondents who more often than do not have any clue about the very initiation, holding of proceeding and passing of such like ex-parte arbitral awards before the chosen sole arbitrators in an assembly line like fashion," it had said.