By Annie Mittal, Advocate

Kotak Mahindra Bank Ltd. v. Narendra Kumar Prajapat, 2023 SCC OnLine Del 3148 (Decided on 17 May 2023)

Relevant Facts:

Disputes arose between Kotak Mahindra Bank Ltd (“Appellant”) and D.H. Finance Company. D.H. Finance Company unilaterally appointed a sole Arbitrator and an ex-parte arbitral award was rendered in favor of D.H. Finance Company, awarding a sum of Rs. 4,66,103.3/- along with interest. The Appellant, claiming to be the assignee of D.H. Finance Company, sought to enforce the arbitral award by filing a Petition under Section 36 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). However, the Commercial Court dismissed the said Petition on the ground that the arbitral award was rendered ex parte by an Arbitrator who was unilaterally appointed by D.H. Finance Company without any recourse or consent of Narendra Kumar Prajapat (“Respondent”). The Commercial Court held that an award rendered by a person who is ineligible to act as an Arbitrator by virtue of the provisions of Section 12(5) of the Arbitration Act is a nullity and, therefore, cannot be enforced. The Court imposed a cost of ₹25,000/- on the Appellant.

Therefore, the Appellant filed an Appeal before the High Court of Delhi challenging the Order passed by the Commercial Court.

Issues:

1. Whether the ex-parte arbitral award, rendered by an arbitrator unilaterally appointed by D.H. Finance Company, is enforceable?
2. Whether Appellant’s delay of 68 days in filing the Appeal before the High Court of Delhi should be condoned?

Judgment:

Issue 1

The Appellant argued that the Respondent’s failure to object to the appointment of the Arbitrator constituted a waiver of their right to challenge the award. On the other hand, the Respondent contended that the arbitral award was null and void due to the arbitrator’s ineligibility.

The Delhi High Court, relying on previous judgments, including TRF Ltd. v. Energo Engineering Projects Ltd. and Perkins Eastman Architects DPC v. HSCC (India) Ltd., emphasized that an arbitrator who becomes ineligible by operation of law cannot nominate another arbitrator. It was further held that the appointment of an arbitrator by a party without the consent of the other party is impermissible.

The Court highlighted that the waiver of objection to the ineligibility of an arbitrator can only be made through an express agreement in writing, entered into after the disputes have arisen. Conduct alone cannot be construed as a waiver. Referring to Bharat Broadband Network Limited v. United Telecoms Limited, the Court reiterated that waiver of the right to object to the ineligibility of an arbitrator must be by an express agreement in writing, not by inferred conduct.

Therefore, the Court concluded that the Arbitrator’s ineligibility and the unilateral appointment without the consent of the Respondent rendered the ex-parte arbitral award a nullity. The court further explained that the ineligibility of an arbitrator goes to the root of their jurisdiction, and an award rendered by an arbitrator lacking inherent jurisdiction is invalid. As per HRD Corporation v. GAIL (India) Ltd. and Govind Singh v. Satya Group Pvt. Ltd., an award rendered by an ineligible arbitrator lacks jurisdiction and cannot be considered valid. Consequently, the Delhi High Court upheld the decision of the Commercial Court, stating that the award rendered by the ineligible arbitrator cannot be enforced.

Issue 2

The Appellant provided an explanation for the delay, stating that it was due to the delay in obtaining necessary documents from the bank. However, the Court found the explanation insufficient to justify condoning the delay.

The Court observed that there was no evidence to demonstrate any impediment faced by the Appellant in retrieving the available documents. Additionally, mere delay or procrastination in taking steps to recover documents from the appellant’s own office could not be considered as a valid ground for condoning the delay, unless there were extenuating circumstances present. The Court noted that apart from a few documents already filed, the necessary documents were readily available with the Appellant.

Considering these factors, the Court expressed confusion regarding the need for additional time to retrieve further documents, which resulted in a delay of 68 days in filing the appeal. Furthermore, there was an additional 20-day delay in refiling the appeal. Consequently, the Court dismissed the appeal both on the grounds of delay and on merits.

Comments:

The Judgment sheds light on the crucial aspect of appointing eligible arbitrators with the mutual consent of all parties involved. The Court’s ruling reinforces the principle that an award rendered by an ineligible arbitrator lacks jurisdiction and is deemed invalid. This decision serves to protect the integrity of the arbitration process, ensuring that parties are granted a fair and impartial resolution of their disputes. It highlights the importance of adhering to the provisions of the Arbitration Act, promoting transparency and fairness in arbitration proceedings. The Court has clarified that a written agreement explicitly waiving the right to object to an arbitrator’s ineligibility is necessary, as mere conduct or failure to object does not constitute a waiver.

While the Judgment provides certainty and upholds the sanctity of arbitration, the strict interpretation of waiver requirements may limit parties’ flexibility in certain scenarios. A more balanced approach, taking into account the intent and conduct of the parties, could be explored to prevent unintended consequences. It highlights the need for parties to exercise due diligence in ensuring that the appointment of an arbitrator complies with the law to avoid potential challenges to the validity of the award. Additionally, the dismissal of the appeal on the ground of delay underlines the importance of timely filing and providing justifiable explanations in accordance with legal procedures.

In summary, the Judgment reinforces the credibility of the arbitration process and safeguards the rights of the parties involved. By ensuring that awards are rendered by eligible arbitrators, it fosters confidence in the fairness and efficacy of arbitration as an alternative dispute resolution mechanism. Ultimately, this decision is expected to bring about a new era of transparency and adherence to the principles of natural justice in the Indian arbitral regime, thereby strengthening public trust in arbitration as a reliable option for resolving disputes.