Court Emphasizes Independence and Impartiality in Arbitration, Dismisses Enforcement Petition by Cholamandalam Investment
In a significant ruling, the Calcutta High Court, under the stewardship of Justice Gaurang Kanth, has dismissed an execution petition filed by M/s Cholamandalam Investment and Finance Company Limited. The petition sought enforcement of an ex parte arbitral award rendered on May 13, 2025, by a sole arbitrator unilaterally appointed by the petitioner.
The dispute stemmed from a loan agreement dated May 25, 2023, between Cholamandalam Investment and the respondents, Sayan Goswami and another party. When the respondents defaulted on loan repayment, the petitioner invoked the arbitration clause in the agreement. However, the appointment of the arbitrator was made unilaterally by Cholamandalam through SICCI-Centre for ADR, without the respondents' consent.
The court scrutinized the unilateral appointment of the arbitrator, Sh. Shivaji Mitra, and found it violated the foundational principles of independence, impartiality, and equality enshrined in the Arbitration and Conciliation Act, 1996. The court referred to landmark Supreme Court judgments, including Perkins Eastman Architects DPC v. HSCC (India) Ltd., and TRF Ltd. v. Energo Engineering Projects Ltd., which prohibit interested parties from unilaterally appointing arbitrators.
Justice Kanth highlighted that the appointment process should have been conducted through Section 11 of the Act, allowing for a neutral judicial authority to appoint an independent arbitrator. The court declared the arbitral award void ab initio, emphasizing that the tribunal lacked jurisdiction due to the improper appointment of the arbitrator.
The judgment underscores the necessity for fair arbitration processes, reinforcing that any clause allowing unilateral appointment by an interested party is unenforceable. The court concluded by granting Cholamandalam Investment the liberty to initiate fresh arbitral proceedings with a validly constituted tribunal, adhering to the principles of independence and impartiality.
Bottom line:-
Unilateral appointment of an arbitrator by an interested party without the consent of the other party violates the principles of independence, impartiality, and equality enshrined in the Arbitration and Conciliation Act, 1996, rendering the arbitral award void ab initio and non-enforceable.
Statutory provision(s): Arbitration and Conciliation Act, 1996 - Sections 11, 12(5), 14(1)(a), 18, 36
