Arbitrator Appointment By Agreed Arbitral Institution Cannot Be Treated As Unilateral: Rajasthan High Court

The Rajasthan High Court has recently affirmed that the appointment of an arbitrator by an arbitral institution agreed upon by the parties cannot, by itself, be treated as a unilateral appointment, while setting aside orders that had refused to execute an arbitral award obtained by Sundaram Finance Ltd.

A single bench of Justice Bipin Gupta relied on recent judgments of the Madras High Court and the Kerala High Court. The court unequivocally held that MCCI was mutually agreed upon by the parties, and hence the appointment cannot be characterised as unilateral.

“Further, in view of the consistent view taken by the other High Courts with regard to the credibility of the arbitral institution namely MCCI, this Court is of the opinion that such appointment of Arbitrator by an arbitral institution, per se cannot be construed as unilateral appointment of an Arbitrator.”

It emphasised on the record that the parties had already contractually agreed to appoint an institution to facilitate its arbitration, which falls well within Section 11(2) and Section 20(1) of the Arbitration and Conciliation Act, 1996.

The court was hearing a writ petition filed by Sundaram Finance challenging orders passed by the Commercial Court, Ajmer, which had dismissed its execution petition and a review petition after treating the appointment of the sole arbitrator as unilateral.

The dispute arose from a loan transaction entered into in November 2019. Hanuman Prasad and Anita obtained a loan of ₹6.8 lakh from Sundaram Finance for the purchase of a Hyundai i20, which was hypothecated in favour of the lender as security. According to the company, although the borrowers were granted the benefit of a moratorium during the Covid-19 period, they subsequently defaulted in repayment.

Consequently, Sundaram Finance invoked arbitration and approached the MCCI for the appointment of a sole arbitrator. The borrowers did not appear for the proceedings, resulting in an ex parte award being passed.

However, the Commercial Court dismissed the execution petition of the Lender, holding the appointment of the arbitrator as unilateral. The review petition was also dismissed, following which the lender preferred a civil writ petition before the High Court.

Before the High Court, Sundaram Finance contended that the Commercial Court had wrongly treated the appointment as unilateral despite the fact that the arbitrator had been appointed by MCCI in accordance with the contractual mechanism agreed upon by the parties. It argued that MCCI was an independent institution and that the executing court could not re-examine the validity of the award in the manner it had done.

The High Court first rejected the Commercial Court's reasoning concerning the place of arbitration. Referring to the principle of party autonomy, the Court noted that the parties had expressly agreed that Chennai would be the venue of arbitration proceedings.

Turning to the principal issue, the Court observed that the arbitration clause contemplated appointment of a sole arbitrator through MCCI and that, in the present case, the institution had made the appointment after being approached by the lender.

“Thus, it is clear from the record that the appointment was not made by the petitioner in its individual capacity but through an agreed institutional mechanism," it noted. 

The Court noted that the lender had requested MCCI to appoint an arbitrator and that the appointment was ultimately made by the institution in accordance with the agreed procedure.

It further observed that amendments introducing provisions relating to designation of arbitral institutions by courts have not yet been notified.

The Court noted that the lender had requested MCCI to appoint an arbitrator and that the appointment was ultimately made by the institution in accordance with the agreed procedure.

It further observed that amendments introducing provisions relating to designation of arbitral institutions by courts have not yet been notified.

Relying on the Madras High Court's decision in Thomas Varghese v. Sundaram Finance Ltd., as well as decisions of the Kerala and Bombay High Courts, the Court observed that appointments made through an agreed institutional mechanism stand on a different footing from appointments made directly by one of the contracting parties.

The Court noted that MCCI was established in 1836, is affiliated with the Indian Council of Arbitration, and is recognized among arbitral institutions in India by the International Council for Commercial Arbitration.

Referring to the reasoning adopted in Thomas Varghese, the Court noted that had the arbitrator been appointed by the Managing Director of the lender, issues relating to ineligibility could have arisen. However, the appointment in the present case had been made by MCCI.

The Court also reiterated the settled principle that an executing court cannot go behind a decree or re-examine its merits except where the decree is a nullity or suffers from a jurisdictional defect.

Holding that the Commercial Court had erred in treating the appointment as unilateral and in refusing to execute the award, the High Court allowed the writ petition, set aside the orders dated May 9, 2024, and July 6, 2024, and directed the Commercial Court, Ajmer, to proceed with the execution case expeditiously.

For Petitioner: Senior Advocate R.K. Agarwal, assisted by Adhiraj Modi

For Respondent:  Naman Yadav