In a recent landmark development in the realm of arbitration law in India, the Supreme Court has expressed its alignment with a crucial judgment. The apex court dismissed a Special Leave Petition filed by Kotak Mahindra Bank, challenging the Delhi High Court's decision to uphold the Commercial Court's judgment that refused the execution of an award passed by a unilaterally appointed arbitrator.

The Supreme Court bench, consisting of Justices AS Oka and Dipankar Dutta, made its observations on December 12, 2023, in the Special Leave Petition titled "Kotak Mahindra Bank Ltd. v. Narendra Kumar Prajapat, 2023." The court noted that the arbitrator unilaterally appointed by the petitioner was ineligible under Section 12(5) of the Arbitration and Conciliation Act, 1996. Consequently, the court found no grounds for interference under Article 136 of the Constitution of India and dismissed the Special Leave Petition.

The case originated from a judgment by the Commercial Court, presided over by Sh. Surinder S Rathi, District Judge. The Commercial Court's decision was later affirmed by a Division Bench of the Delhi High Court, comprising Justices Vibhu Bakhru and Amit Mahajan. The judgment was detailed in a sternly worded 46-page document, emphasizing the prevalent malpractice of unilaterally appointing sole arbitrators.

Judge SS Rathi criticized the practice of non-banking financial companies (NBFCs), stating, "Unilateral Appointment of Arbitrators by the NBFCs is nothing but a blatant violation and disregard of Law laid by Full Bench of Hon’ble Supreme Court and is akin to Contempt of Court." He characterized it as an abuse of the process of courts and termed awards obtained through such unilateral appointments as "void ab initio, non-est, and a nullity."

The District Judge relied on Section 12(5) read with Schedule 7 of the A&C Act, citing precedents set by the Supreme Court and the Delhi High Court in cases such as TRF Ltd. v. Energo Engineering Projects Ltd. (2017), Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. (2020), and Bharat Broadband Network Limited v. United Telecoms Limited (2019).

The Delhi High Court, in its decision, concurred with the Commercial Court's view that a person ineligible to act as an arbitrator lacks the inherent jurisdiction to render an arbitral award under the A&C Act. The court emphasized that decisions lacking inherent jurisdiction cannot be considered valid, and consequently, such awards cannot be enforced.

This Supreme Court affirmation marks a significant and much-needed development in arbitration law. The decision reinforces the stance against the unilateral appointment of arbitrators and underscores the importance of upholding legal provisions to protect the integrity of the arbitration process. The court's invocation of powers under Section 47 of the Civil Procedure Code to safeguard the interests of vulnerable parties adds a layer of accountability to the execution of arbitral awards.

Case: KOTAK MAHINDRA BANK LIMITED vs NARENDRA KUMAR PRAJAPAT,

SPECIAL LEAVE PETITION (CIVIL) Diary No(s). 47322/2023.

Click to read/download order.