Arbitral Awards Passed by Unilaterally Appointed Arbitrators Do Not Carry The Privilege of Existence Before The Eyes of Law: Calcutta HC

In a Judgment dated, April 11, 2023, in the case of SREI Equipment Finance Limited v. Sadhan Mandal (EC 137 of 2023), the single judge bench consisting of Justice Shekhar B Saraf of the High Court of Calcutta held that arbitral awards passed by unilaterally appointed arbitrators do not carry the privilege of existence before the eyes of the law and should be regarded as a nullity.

Facts of the Case:

On July 15, 2018,  a Master Lease Agreement was entered into by and between the award holder (Petitioner) and the award debtor (Respondent). By virtue of the agreement, an amount of INR 87,83,410 was advanced by the award holder to the award debtor in order for the award debtor to hire on lease assets in the form of two vehicles. On grounds of the alleged failure of the award debtor to pay either the due amount or make over the possession of the assets, the award holder invoked arbitration on January 24, 2020, and appointed Mr. Samrat Mukherjee as the Sole Arbitrator. The instant application has been filed under Section 36 of the Arbitration & Conciliation Act, 1996 by SREI Equipment Finance Limited seeking execution of an arbitral award dated August 27, 2021, passed by the Sole Arbitrator Mr. Samrat Mukherjee whereby Mr. Sadhan Mandal was directed to pay a sum of INR 65,41,583.12/- to the petitioner. 

Judgment Review:

The Court observed that when the arbitral award is given by an arbitrator unilaterally appointed by a party, the arbitral proceedings and the award itself stands vitiates as the arbitrator lacked inherent jurisdiction to adjudicate disputes between the parties. The Court noted, “It is a settled principle of law that an arbitral award rendered by a person who is ineligible to act as an arbitrator cannot be considered as a valid arbitral award as the ineligibility of the said arbitrator goes to the root of his jurisdiction.” The Court observed that Clause 18 of the Agreement conferred the right on the award holder to unilaterally appoint the arbitrator. The Court held that in terms of the judgments of the Hon’ble Supreme Court in Perkins Eastman v. HSCC, (2019) 17 SCR 275 and HRD Corporation v. GAIL, (2018) 12 SCC 471, the procedure for the appointment as contemplated under Clause 18 is invalid and the arbitrator unilaterally appointed would be lacking jurisdiction to decide the dispute between the parties, therefore, the consequent award would also be a nullity. The Court relied on its earlier judgment in the case of, Cholamandalam Investment and Finance Company LTD. v. Amrapali Enterprises and Another wherein it was concluded that arbitral awards passed by unilaterally appointed arbitrators do not carry the privilege of existence before the eyes of the law and should be regarded as a nullity. In other words, there is nothing to execute in an execution application seeking enforcement of an arbitral award that has been passed by a unilaterally appointed arbitrator. In light of the above, the application was dismissed and the parties are now at liberty to re-agitate their claims in properly constituted arbitration proceedings. 

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