Supreme Court of India has expressed its agreement with the recent landmark development in the arbitration arena that an award passed by a unilaterally appointed arbitrator is not executable.The Apex Court dismissed the Special Leave Petition filed by Kotak Mahindra Bank impugning the Delhi High Court’s Judgment, which upheld the judgment passed by the Commercial Court, which had refused the execution of an Award passed by a unilaterally appointed arbitrator.The Bench of the Supreme Court, comprising of Justices AS Oka and Dipankar Dutta, observed on 12.12.2023 in SLP titled Kotak Mahindra Bank Ltd. v. Narendra Kumar Prajapat, 2023 Latest Caselaw 935 SC,Earlier, the Division Bench of the Delhi High Court, presided by Justices Vibhu Bakhru and Amit Mahajan, had dismissed the first appeal 2023 Latest Caselaw 709 Del while upholding the sternly worded 46-page judgement of the Commercial Court presided by Sh. Surinder S Rathi, District Judge (attached at the end of this article).Lamenting the malpractice, Judge SS Rathi had observed, “It is strange that the NBFCs like the award holder in the case in hand continue to do a shut-eye to the above legal provision and the binding dicta of the Supreme Court which as per Article 141 of the Constitution of India is Law of the Land and continue to appoint Sole Arbitrators unilaterally.”
The District Judge had relied on Section 12(5) read with Schedule 7 of the A&C Act, duly explained by the Supreme Court in TRF Ltd. v. Energo Engineering Projects Ltd. (2017), Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. (2020), Bharat Broadband Network Limited v. United Telecoms Limited (2019) and several judgments of the Delhi High Court, to conclude that the prevalent practice of unilateral appointment of Sole Arbitrator is void ab initio, non-est, and a nullity.Terming this practice to be “a classic example of abuse of the process of Courts”, Judge SS Rathi had ruled, “‘Unilateral Appointment of Arbitrators’ by the NBFCs is nothing but a blatant violation and disregard of Law laid by Full Bench of Hon’ble Supreme Court and is akin to Contempt of 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.”While deciding the first appeal against the dismissal of the execution petition, the Delhi High Court said, “This Court finds no infirmity with the aforesaid view (of District Judge, Commercial Court). 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 High Court upheld the imposition of the cost also, which the penalised bank tried to object to.
This decision being upheld by the Supreme Court is a significant and much-needed development in the arbitration law whereby the Execution Court suo-moto refused execution of the award without any objection petition filed by the JD before the court. The Judge invoked powers under Section 47 of the Civil Procedure Code to protect the interest of the vulnerable masses.
TAGS: Judge SS Rathi Abuse of process Unilateral Appointment of Arbitrators NBFCs Contempt of Court
