The Gujarat High Court has set aside the arbitral awards given in three cases, in which the sole arbitrator was appointed unilaterally by non banking financial companies (NBFCs), by invoking its jurisdiction under Articles 226 and 227 of the Constitution of India.
The singe-judge bench of Justice Bhargav D Karia entertained the proceedings under Articles 226 and 227 of the Constitution, noting that in view of the settled legal position, the ex parte award passed by the arbitral tribunal was vitiated as no party could be permitted to appoint unilaterally an arbitrator.
The High Court further acknowledged that the petitioners were required to challenge the ex-parte arbitration awards before the District Court under Section 34 of the Arbitration and Conciliation Act, 1996.
It noted that the Supreme Court has held that a person having an interest in a dispute or in its outcome was ineligible not only to act as an arbitrator, but also to appoint anyone else as arbitrator.
In this background, the Court said,
“It is an admitted position in each of the petition that the arbitration clause gave power and authority to the respondent NBFC unilaterally to appoint the sole arbitrator and accordingly the Sole Arbitrator was appointed unilaterally which is contrary to the decision of the Apex Court in the context of Section 12(5) of the Act read with Seventh Schedule thereof.”
The petitioners had availed financial assistance from the NBFCs and could not repay the outstanding dues leading to initiation of the arbitration. It was argued that arbitrator cannot be appointed without the consent of another party irrespective of any arbitration clause.