Delhi Court Sets Aside Rs. 90 Lakhs Award Granted in Favor of BMW India Financial Services: Unilateral Appointment of Arbitrator is Patently Illegal

Delhi Court Sets Aside Rs. 90 Lakhs Award Granted in Favor of BMW India Financial Services: Unilateral Appointment of Arbitrator is Patently Illegal

The Patiala House Court by its single judge Justice Anurag Sain while setting aside the Arbitral award granted in favor of BMW India Financial Services Pvt. Ltd., observed that the award being patently illegal, was in contravention to the principles of Natural Justice and settled principles of law provided under Section 34 of the Arbitration and Conciliation Act, 1996.

The brief background of the case is that a petition was filed by petitioner under Section 34 of the Arbitration and Conciliation Act, 1996 seeking to set aside the award dated 9 April, 2019 on the ground that sole Arbitrator had misconstrued himself and carried out the proceedings without any jurisdiction with the view to extend favors to BMW India Financial Services Pvt. Ltd.- Respondent No.1 (‘hereinafter ‘BMW India’).

The petitioner had availed a loan of Rs. 94,15,000/- from BMW India but had failed to pay the debt liability under the agreement making the BMW India to appoint the Sole Arbitrator as per the Loan -cum- hypothecation agreement for the adjudication of the disputes between the parties.

When the petitioner failed to represent before the arbitrator, the arbitrator passed an impugned order Ex-Parte which made the petitioner liable to pay a sum of Rs. 89,68,666/- along with the interest of 24% p.a. from 11 February, 2019 till the payment and/or realization thereof along with all costs, charges, and expenses in 60 monthly installments.

Before deciding the validity of the impugned Award, the Court delved into the scope of inquiry in Section 34 of the Arbitration and Conciliation Act, 1996 proceedings are restricted to consideration and whether any one of the grounds mentioned in Section 34(2) of the Arbitration and Conciliation Act, 1996 existed for setting aside the Award in the present case.

The Court affirmed, “the scope of the interference by the Court under Section 34(2) of the Arbitration and Conciliation Act, 1996 has been time and again restricted in catena of judgments by the Hon’ble Superior Courts and it has been held that in proceedings under Section 34 of the Arbitration and Conciliation Act, 1996, the re­appreciation of the facts, evidence or interpretation of the terms of contract is not permissible.”

What is permissible is, if there is a patent illegality, apparent error on the face of the record, perversity in the Award or misconduct by the Ld. Arbitrator, stated the judge.

The Court elucidated that the general principles are that Arbitrator is a Judge of the choice of the parties and his decision, unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even if the Court as a Court of law would come to a different conclusion on the same facts.

Appositely, the judge remarked that the Court cannot reappraise the evidence and it is not open to the Court to sit in appeal over the conclusion of the arbitrator. It is not open to the Court to set aside a finding of fact arrived at by the arbitrator and only grounds on which the award can be cancelled are those mentioned in the Arbitration Act. Where the arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the Court in exercise of the power vested in it.

The Court clarified that where the arbitrator is a qualified technical person and expert, who is competent to make assessment by taking into consideration the technical aspects of the matter, the Court would generally not interfere with the award passed by the arbitrator.

Averting to the present case the Court noted that the arbitral proceedings were initiated in terms of Loan­cum­hypothecation agreement dated 18 February, 2018 whereby respondent no.2 was appointed as a Sole Arbitrator in the present matter by respondent no.1.

Further, the Court noted that as per Clause 24 of the Agreement, it was mentioned that in case of any dispute arose between the parties, the same shall be referred to the Sole Arbitrator to be nominated by the Lender, respondent no.1.

In this regard, the Court discerned that, “however, post 2015 amendment in the Act, this clause is ex­facie bad and is in contravention of the provision of the Arbitration and Conciliation Act which goes to the root of the matter and arbitrator become de jure ineligible to act as an arbitrator by operation of law.”

The Court referred to Perkins Eastman Architects DPC vs. HSCC (India) Ltd., (2020) wherein it was held that the person who has any interest in the outcome of the proceedings must not have the power to appoint a sole arbitrator.

The Court further referred to Lite Bite Foods Pvt. Ltd. vs. Airports Authority of India, 2019 in which the Court held that the appointment of the Arbitral Tribunal can be either with the consent of both the parties or by an order of the Court.

In light of the facts and circumstances of the case, the Court held that the Sole Arbitrator was appointed without the consent of the petitioner which made the entire arbitral proceedings void ab initio.

Accordingly, the Court allowed the petition and set aside the impugned arbitral award.