The Bombay High Court in the case of Naresh Kanayalal Rajwani v. Kotak Mahindra Bank Limited, while dealing with a primary question of whether a party who participates in the arbitration proceedings can challenge the arbitral award on the ground of “unilateral appointment of the arbitrator” raised in the context of Section 12(5) of the Arbitration and Conciliation Act, 1996 (“Act”), held that, merely because a party participates in the arbitration proceedings, it does not create a bar on such party to challenge the arbitral award on the ground of Section 12(5) of the Act.
Facts in Brief: -
A home loan agreement was executed between the Respondent bank and the petitioners, in terms of which certain amounts were advanced by the respondent bank to the petitioners. The said home loan agreement contained an arbitration clause which authorised the respondent bank to appoint a sole arbitrator for resolving the disputes between the parties. During the subsistence of loan, certain disputes arose between the parties leading to initiation of arbitration proceedings by the respondent bank. An award was passed by the arbitral tribunal in favour of the respondent bank, which was challenged by the petitioners under Section 34 of the Act, before the Bombay High Court. The said award was set aside by the Bombay High Court in favour of the petitioners.
Thereafter, the respondent bank again invoked the arbitration clause and unilaterally appointed an arbitrator in respect of other disputes which subsequently arose between the parties. The petitioners participated in the arbitration proceedings and filed their statement of defence. Eventually, an award was passed by the learned arbitrator in favour of the respondent bank. The said award was challenged by the petitioners by filing a petition under Section 34 of the Act.
Whether a party who participates in the arbitration proceedings can challenge the arbitral award on the ground of Section 12(5) of the Act?
Submissions by the Petitioners: -
The entire arbitration proceedings stood vitiated as the learned arbitrator was unilaterally appointed by the respondent bank and such appointment was hit by Section 12(5) of the Act read with Seventh Schedule thereof.
Submissions by the Respondent: -
Observations by the Bombay High Court:-
Please find attached a copy of the judgment.
This update has been contributed by Murtaza Kachwalla (Partner) and Shreyas Lavekar (Associate).
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