Delhi High Court: Arbitrator Exceeds Jurisdiction If Not Appointed As Per Arbitration Clause

Delhi High Court: Arbitrator Exceeds Jurisdiction If Not Appointed As Per Arbitration Clause

Justice Prateek Jalan of the Delhi High Court has ruled that an arbitrator who was appointed unilaterally, contrary to the arbitration clause, lacks jurisdiction to make determinations on the merits of claims or award costs. This decision underscores the importance of adhering to agreed-upon arbitration procedures.

The dispute arose from a partnership deed between Ram Chander Aggarwal (Petitioner) and Ram Kishan Aggarwal & Anr. (Respondents). Following a conflict, the Petitioner appointed an arbitrator on July 2, 2018, without mutual agreement from all parties. The Respondents objected to this unilateral appointment and later sought to terminate the arbitrator's mandate under Sections 14 and 15 of the Arbitration and Conciliation Act, 1996. However, their petition was dismissed for lacking valid grounds.

The arbitrator proceeded to address several issues, including the validity of the tribunal’s formation and the claimant’s entitlement to various financial claims. Although the arbitrator ruled that the unilateral appointment violated the arbitration clause, she still awarded the Petitioner costs amounting to Rs. 3,44,450, which the Respondents were instructed to pay within 15 days, with interest if delayed.

The Delhi High Court evaluated whether an arbitrator appointed unilaterally could lawfully conduct proceedings and issue an award. Citing precedents from the Supreme Court, including TRF Limited v. Energo Engineering Projects Limited and Perkins Eastman Architects DPC v. HSCC (India) Limited, the Court affirmed that arbitration proceedings led by an ineligible arbitrator are invalid. This principle, supported by previous High Court rulings such as Ram Kumar v. Shriram Transport Finance Co. Ltd. and others, holds that such proceedings are void ab initio.

The High Court noted that even if a Section 34 challenge is not raised, an award from an improperly appointed arbitrator remains unenforceable. The Court emphasized that jurisdictional issues like improper appointment should be addressed as preliminary matters to avoid unnecessary litigation. Given that the arbitrator admitted to not being appointed as per the arbitration clause, this provided a substantial basis to set aside the award.

With this ruling, the Delhi High Court nullified the arbitrator's award and appointed Mr. Vinay K. Gupta, a former Principal District and Sessions Judge, to resolve the disputes in accordance with proper procedural requirements.