The Delhi High Court has recently observed that the practice of unilaterally appointing an arbitrator is illegal while upholding the decision of a District Commercial Court that refused to execute an arbitral award and imposed a fine of Rs 25,000 on Kotak Mahindra Bank.

The observation came while hearing an appeal filed by Kotak Mahindra Bank, assignee of DH Finance, against an order passed by the District Judge (Commercial) of Shahdara, Karkardooma, dated November 11, 2022.

In their order dated May 17, 2023, the Division Bench of Justice Vibhu Bakhru and Justice Amit Mahajan ordered that any order granted by an authority that does not have jurisdiction to preside over the matter will be null and void and the award cannot be enforced.

The Bank counsel contended that since the respondents were aware and did not raise any objections to the appointment of C. Prasanna Venkatesh as the sole arbitrator, the award cannot be challenged.

However, the Court found no merit in the arguments. Furthermore, the Court reprimanded the appellant for filing the appeal after a delay of 68 days without any justification.

Thus, the High Court dismissed the petition on grounds of merit as well as delay in filing the application.

The bank had appealed against the order passed by the District Judge S. Rathi that disposed of the petition seeking enforcement of an arbitral award of Rs 4,66,103.3 along with 18% per annum awarded in favour of D.H. Finance Company.

The court had held that an award passed by a person who is ineligible to be appointed as the arbitrator under Section 12(5) and Schedule 7 of the Arbitration and Conciliation Act, 1996 is void ab initio.

A Non-Banking Finance Company (MBFC) adopting such a practice is abuse of law and contempt of court, it further remarked.

The court relied on the Supreme Court judgement of Proddatur Cable TV Digi Services vs. Siti Cable Network Limited wherein the top court contended that unilateral appointment of sole arbitrator without the consent of the other party is not permitted.

The waiver of the right to object to the appointment of the arbitrator should be waived through a written agreement rather than an implied conduct, the court had further stated in reference to the verdict of the Supreme Court in Bharat Broadband Network Limited vs. United Telecom Limited.

The District Judge also referred to Section 47 of the Code of Civil Procedure, 1908 and verdict of the Apex Court in Saraswat Trading Agency vs. Union of India that stated that the executing court cannot proceed to execute an order that is null and void.

Judge S. Rathi decided on the execution of the award even when no petition objecting against the award was filed by the three debtors namely Narendra Kumar Prajapat, Kamlesh Devi and Jeen Bhawani Trading Co.

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