$~34

* IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of decision: 23.02.2024

+ O.M.P. (COMM) 399/2022

M/S UPPER INDIA TRADING CO. PVT. LTD
..... Petitioner
Through: Mr. Jaswinder Singh, Adv.

versus

M/S HERO FINCORP LTD

..... Respondent
Through: Mr. Aditya Prasad, Mr. Amit Kr.
Sinha, Advs.
CORAM:
HON'BLE MR. JUSTICE JASMEET SINGH

: JASMEET SINGH, J (ORAL)

1. This is a petition filed under Section 34 of the Arbitration and

Conciliation Act, 1996 seeking setting aside of the ex parte award
dated 17.05.2022 passed by the Sole Arbitrator awarding a sum of Rs.
6,05,46,413.80/- in favour of the respondent and against the petitioner.
2. It is stated by Mr. Singh, learned counsel appearing for the petitioner
that in the present case, the appointment of the Arbitrator is itself
faulty.
3. The brief facts are as under:
a. The petitioner company namely M/s Upper India Trading Co. Pvt.
Ltd., sought working capital limit from the respondent.
b. Pursuant to sanction of the Facility Agreement vide letter dated

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 26.04.2018, a formal agreement dated 11.05.2018 was executed
between the parties.
c. The agreement dated 11.05.2018 contained the arbitration
agreement which reads as under:-
“DISPUTE RESOLUTION
All claims, disputes, differences or question of any nature
arising between the parties, whether during or after the
termination of this Agreement, in relation to the
construction, meaning or interpretation of any term used or
clause of this Agreement or as to the rights, duties,
liabilities of the parties arising out of this Agreement or in
relation to this Agreement, shall be referred to the sole
arbitrator appointed by the HFCL.
The arbitration proceedings shall be conducted in
accordance with the Arbitration and Conciliation Act, 1996
and the proceedings shall be held at New Delhi. Pending
the giving of the award including interim award, the
Borrower shall be liable to perform its obligation under this
Agreement in keeping with the provisions of this Agreement.
The arbitral award shall be final and binding on the
parties.”
d. Since M/s Upper India Trading Co. Pvt. Ltd. defaulted in
payments of its obligations, the respondent vide notice dated
15.06.2021 recalled the loan advanced to M/s Upper India Trading
Co. Pvt. Ltd. and sought recovery of Rs. 6,05,46,413.80/-.
e. On 29.06.2021, the respondent vide legal notice dated 29.06.2021
invoked proceedings under Section 21 of the Arbitration and
Conciliation Act, 1996.
f. On 24.12.2021, the respondent vide a letter dated 24.12.2021

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 unilaterally appointed Ms. Divya Raj, Adv. as an Arbitrator for
adjudication of the disputes regarding the loan account of M/s
Upper India Trading Co. Pvt. Ltd. The letter is reproduced as
under:-

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 4. It is stated by the learned counsel for the respondent that thereafter the
learned Sole Arbitrator so appointed by the respondent issued notices to
the petitioner, but the petitioner did not appear.
5. At this stage, Mr. Singh, learned counsel for the petitioner company has
drawn my attention to a letter dated 12.04.2022, wherein the Director
of the petitioner company visited the office of the Sole Arbitrator, but
the same was locked and thereafter no further notice for proceedings
was given to the petitioner.
6. Mr. Singh, learned counsel has primarily rested his submissions on the
fact that the unilateral appointment of the Arbitrator by the respondent
is hit by the judgments of the Hon’ble Supreme Court in “Perkins
Eastman Architects DPC vs. HSCC (India) Ltd.” [(2020) 20 SCC
760] and “TRF Limited & Anr. vs. Damodar Valley Corporation &
Anr. [AIR 2017 SC 3889] and judgment passed by this court in ARB.P.
133/2019 in “Geeta Poddar vs. Satya Developers Private Limited”.
7. Per contra, Mr. Prasad, learned counsel for the respondent states that
the petitioner has not participated in the arbitration proceedings despite
repeated notices. The objection raised by the petitioner today could
have very well been raised at an early stage and the objection to the
jurisdiction of the Arbitrator at this belated stage cannot be entertained.
8. In this regard, he relies upon the judgment passed by the Hon’ble
Division Bench of this court in FAO (COMM) 31/2021 dated
23.01.2024 titled “Arjun Mall Retail Holdings Pvt. Ltd. & Ors. vs.
Gunocen Inc.” The operative portion reads as under:-
“35. The aforesaid dictum in Airport Metro Express (Supra)
makes it clear that under Section 34 of the Act, scope of

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 interference by the courts is very limited and only if there is
any patent illegality in the Arbitral Award, then only it is
required to be touched upon. In the present case, even if it is
accepted that the appellants had raised objection to the
appointment of learned Arbitrator by sending a letter to him
but the fact remains that the appointment was never
challenged under the provisions of Section 11(6) of the Act,
1996 nor did the appellants participate in arbitral
proceedings, despite having knowledge of the same. Instead
of contesting the respondent’s claim before the learned
Arbitrator, the appellants remained mute spectator and only
after losing the battle in arbitral proceedings, the
appellants preferred appeal under Section 34 of the Act,
challenging the appointment of Arbitrator as well as the
Arbitral Award.
36. Therefore, the challenge against the appointment of the
learned Sole Arbitrator is not tenable in the present case.”
9. I have heard learned counsels for the parties.
10. In the present case, the Arbitrator has been appointed by the respondent
in pursuance to the agreement arrived at between the parties. The
Arbitration Clause in the agreement gives the power to the respondent
to appoint the Sole Arbitrator.
11. The Hon’ble Supreme Court in “TRF” (supra) held as under:-
“49. Regard being had to the same, we have to compare
and analyse the arbitration clause in the present case.
Clause (c), which we have reproduced earlier, states that all

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 disputes which cannot be settled by mutual negotiation shall
be referred to and determined by arbitration as per the Act,
as amended. Clause (c) is independent of Clause (d). Clause
(d) provides that unless otherwise provided, any dispute or
difference between the parties in connection with the
agreement shall be referred to the sole arbitration of the
Managing Director or his nominee.
50. First, we shall deal with Clause (d). There is no quarrel
that by virtue of Section 12(5) of the Act, if any person who
falls under any of the categories specified in the Seventh
Schedule shall be ineligible to be appointed as the
arbitrator. There is no doubt and cannot be, for the
language employed in the Seventh Schedule, the Managing
Director of the Corporation has become ineligible by
operation of law. It is the stand of the learned Senior
Counsel for the appellant that once the Managing Director
becomes ineligible, he also becomes ineligible to nominate.
Refuting the said stand, it is canvassed by the learned
Senior Counsel for the respondent that the ineligibility
cannot extend to a nominee if he is not from the
Corporation and more so when there is apposite and
requisite disclosure. We think it appropriate to make it clear
that in the case at hand we are neither concerned with the
disclosure nor objectivity nor impartiality nor any such
other circumstance. We are singularly concerned with the
issue, whether the Managing Director, after becoming

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 ineligible by operation of law, is he still eligible to nominate
an arbitrator. At the cost of repetition, we may state that
when there are two parties, one may nominate an arbitrator
and the other may appoint another. That is altogether a
different situation. If there is a clause requiring the parties
to nominate their respective arbitrator, their authority to
nominate cannot be questioned. What really in that
circumstance can be called in question is the procedural
compliance and the eligibility of their arbitrator depending
upon the norms provided under the Act and the Schedules
appended thereto. But, here is a case where the Managing
Director is the “named sole arbitrator” and he has also
been conferred with the power to nominate one who can be
the arbitrator in his place. Thus, there is subtle distinction.
In this regard, our attention has been drawn to a two-Judge
Bench decision in State of Orissa v. Commr. of Land
Records & Settlement. In the said case, the question arose,
can the Board of Revenue revise the order passed by its
delegate. Dwelling upon the said proposition, the Court
held :
“25. We have to note that the Commissioner when he
exercises power of the Board delegated to him under
Section 33 of the Settlement Act, 1958, the order
passed by him is to be treated as an order of the
Board of Revenue and not as that of the
Commissioner in his capacity as Commissioner. This

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 position is clear from two rulings of this Court to
which we shall presently refer. The first of the said
rulings is the one decided by the Constitution Bench
of this Court in Roop Chand v. State of Punjab
[Roop Chand v. State of Punjab, AIR 1963 SC 1503]
. In that case, it was held by the majority that where
the State Government had, under Section 41(1) of
the East Punjab Holdings (Consolidation and
Prevention of Fragmentation) Act, 1948, delegated
its appellate powers vested in it under Section 21(4)
to an “officer”, an order passed by such an officer
was an order passed by the State Government itself
and “not an order passed by any officer under this
Act” within Section 42 and was not revisable by the
State Government. It was pointed out that for the
purpose of exercise of powers of revision by the
State under Section 42 of that Act, the order sought
to be revised must be an order passed by an officer
in his own right and not as a delegate of the State.
The State Government was, therefore, not entitled
under Section 42 to call for the records of the case
which was disposed of by an officer acting as its
delegate.”
(emphasis in original)
12. The Hon’ble Supreme Court in “Perkins” (supra) held as under:-
“21. But, in our view that has to be the logical deduction

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 from TRF Ltd. Para 50 of the decision shows that this Court
was concerned with the issue, “whether the Managing
Director, after becoming ineligible by operation of law, is
he still eligible to nominate an arbitrator” The ineligibility
referred to therein, was as a result of operation of law, in
that a person having an interest in the dispute or in the
outcome or decision thereof, must not only be ineligible to
act as an arbitrator but must also not be eligible to appoint
anyone else as an arbitrator and that such person cannot
and should not have any role in charting out any course to
the dispute resolution by having the power to appoint an
arbitrator. The next sentences in the paragraph, further
show that cases where both the parties could nominate
respective arbitrators of their choice were found to be
completely a different situation. The reason is clear that
whatever advantage a party may derive by nominating an
arbitrator of its choice would get counter-balanced by equal
power with the other party. But, in a case where only one
party has a right to appoint a sole arbitrator, its choice will
always have an element of exclusivity in determining or
charting the course for dispute resolution. Naturally, the
person who has an interest in the outcome or decision of the
dispute must not have the power to appoint a sole
arbitrator. That has to be taken as the essence of the
amendments brought in by the Arbitration and Conciliation
(Amendment) Act, 2015 (3 of 2016) and recognised by the

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 decision of this Court in TRF Ltd. .”
13. Following the judgment of Perkins (supra) and TRF (supra), this court
in Geeta Poddar (supra) has further held as under:-
“7. In view of the foregoing settled position of law, there
exists no doubt in the mind of the Court that unilateral
appointment of the second sole arbitrator by the Managing
Director of the Respondent was non-est in law, being in
conflict with Section 12(5) read with Seventh Schedule of
the Act, and thus void ab initio.”

14. The facts in the present case are similar. The Sole Arbitrator has been
appointed by the respondent unilaterally. The same is clearly hit by the
judgments of “Perkins Eastman Architects DPC” (supra) and “TRF
Limited” (supra) As the appointment is barred u/s 12(5) read with the
Seventh Schedule of the Arbitration and Conciliation Act, 1996 , the
whole arbitration proceedings are non-est in law.
15. For the said reasons, the petition is allowed and the Award dated
17.05.2022 is hereby set aside.
16. Pending applications, if any, are disposed of.

JASMEET SINGH, J
FEBRUARY 23, 2024 / (MS)

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