L&T Finance's Ex Parte Arbitral Award Declared Void Due to Procedural Violations
In a significant ruling, the Calcutta High Court has dismissed the execution petition filed by L&T Finance Limited seeking enforcement of an ex parte arbitral award against Amina Fuels and others. The decision, delivered by Justice Gaurang Kanth, underscores the judiciary's commitment to uphold the principles of impartiality and equality in arbitration proceedings.
The court found that the unilateral appointment of the sole arbitrator by L&T Finance, an interested party in the dispute, contravened the Arbitration and Conciliation Act, 1996, specifically Section 12(5). This section, along with the Seventh Schedule, prohibits parties with a vested interest from appointing arbitrators due to the inherent risk of bias and partiality.
The dispute arose from a loan agreement dated April 30, 2024, between L&T Finance and Amina Fuels. Upon default in loan repayment by Amina Fuels, L&T Finance invoked the arbitration clause, leading to the appointment of Sh. Shyam Bihari Sharma, a retired judge, as the sole arbitrator through the LWTODR institution. However, the court held that this appointment was legally unsustainable as it lacked the consent or participation of the other party, thereby violating statutory provisions and principles of natural justice.
The court relied on precedents set by the Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd. and TRF Ltd. v. Energo Engineering Projects Ltd., which emphasize the importance of neutrality and equality in the appointment process. Justice Kanth reiterated that the arbitral tribunal's constitution was void ab initio due to the unilateral nature of the appointment, rendering the award unenforceable under Section 36 of the Act.
The judgment further clarified that the award holder's bypassing of statutory remedies for the appointment of an arbitrator, such as seeking judicial intervention under Section 11, contributed to the award's invalidity. Consequently, the court dismissed the execution petition, allowing L&T Finance the liberty to initiate fresh arbitration proceedings through a duly constituted tribunal.
Bottom line:-
Arbitration - Unilateral appointment of sole arbitrator by an interested party is legally unsustainable and contrary to the provisions of the Arbitration and Conciliation Act, 1996, particularly Section 12(5). Awards rendered by such arbitrators are void ab initio and unenforceable under Section 36 of the Act.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 12(5), 18, 36, 11, and the Seventh Schedule
L And T Finance Limited v. Amina Fuels, (Calcutta) : Law Finder Doc id # 2900100
