Calcutta High Court Declares Unilateral Arbitrator Appointment Void in Loan Agreement Dispute

Court Appoints Substitute Arbitrator and Grants Interim Protection to Lender in Beevee Enterprises v. L & T Finance Limited Case

In a significant ruling, the Calcutta High Court has declared the unilateral appointment of an arbitrator by L & T Finance Limited, under a Small and Medium Enterprises (SME) Business Loan Agreement, as void. The judgment was delivered by Justice Arindam Mukherjee, who emphasized that such appointments violate the principles established in landmark Supreme Court cases, TRF Ltd. v. Energo Engg. Projects Ltd. and Perkins Eastman Architects DPC v. HSCC (India) Ltd.

Beevee Enterprises and other appellants challenged the legitimacy of the arbitrator appointed solely by the lender, L & T Finance Limited. The court held that this unilateral appointment contravenes the amendments to the Arbitration and Conciliation Act, 1996, post-2015, making the arbitrator ineligible to act in the matter due to inherent bias.

Justice Mukherjee, exercising the court's powers under Sections 14 and 15 of the Arbitration Act, terminated the mandate of the invalidly appointed arbitrator and appointed Mr. Raj Ratna Sen, a barrister and advocate, as the substitute arbitrator to conduct the arbitration proceedings afresh.

In a move to protect the lender's interests, the court also granted interim protection under Section 9 of the Arbitration and Conciliation Act, 1996. The appellants were restrained from operating their bank accounts without maintaining a balance of Rs. 2,50,000/-, ensuring security for the respondent's claims during the arbitration proceedings.

The judgment underscores the court's commitment to upholding fair arbitration practices and provides a pathway for the resolution of disputes with minimal court interference, highlighting the judiciary's role in safeguarding equitable procedural conduct in arbitration agreements.

Bottom Line:

Arbitration - Appointment of arbitrator by one party unilaterally as per the loan agreement is void under the Arbitration and Conciliation Act, 1996, post-2015 amendments - Court has the power to appoint a substitute arbitrator and grant interim protection under Section 9 of the Act. 

Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 12(5), 14, 15, 17, 37(2)(b), Code of Civil Procedure, 1908 Order 41

Beevee Enterprises v. L & T Finance Limited, (Calcutta) : Law Finder Doc Id # 2781867