Case Note & Summary
The petitioners, Naresh Kanayalal Rajwani, Shirley Naresh Rajwani, and Amit Naresh Rajwani, filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award dated 30 January 2013 passed by the sole arbitrator, Ms. Arti Rohatgi (respondent no.2). The respondent no.1, M/s Citi Financial Consumer Finance India Ltd., had granted credit facilities of Rs.96,50,000 to the petitioners under a home loan equity agreement, secured by a deed of mortgage dated 30 April 2005 over a flat in Chembur. Disputes arose, and on 18 April 2011, respondent no.1 invoked the arbitration clause and unilaterally appointed respondent no.2 as sole arbitrator without serving a copy of the letter on the petitioners. The arbitrator proceeded ex-parte and passed an award declaring that petitioner no.1 had created an equitable mortgage and directing the petitioners to pay various amounts. The petitioners contended that they were not given any notice of the arbitral proceedings and were denied the opportunity to present their case. The court noted that the arbitrator did not issue any notice to the petitioners and proceeded ex-parte, which is a clear violation of principles of natural justice. Additionally, the unilateral appointment of the arbitrator by respondent no.1 without notice to the petitioners was invalid and contrary to the arbitration agreement. The court held that the award was liable to be set aside under Section 34 of the Act. Consequently, the court set aside the impugned arbitral award and allowed the petition.
Headnote
A) Arbitration Law - Setting Aside Arbitral Award - Section 34 Arbitration and Conciliation Act, 1996 - Violation of Natural Justice - The petitioners challenged the ex-parte arbitral award on the ground that they were not given notice of the arbitral proceedings and were denied opportunity to present their case. The court held that the arbitrator failed to issue notice to the petitioners and proceeded ex-parte, which is a clear violation of principles of natural justice, rendering the award liable to be set aside (Paras 7-9). B) Arbitration Law - Appointment of Arbitrator - Section 12, Section 15 Arbitration and Conciliation Act, 1996 - Unilateral Appointment - The arbitrator was appointed unilaterally by the respondent no.1 without notice to the petitioners. The court held that such unilateral appointment is invalid and the arbitrator lacked jurisdiction to proceed, as the appointment was not in accordance with the arbitration agreement and violated the requirement of consent (Paras 10-12). C) Arbitration Law - Ex-Parte Proceedings - Section 34 Arbitration and Conciliation Act, 1996 - Lack of Notice - The court found that the arbitrator did not serve any notice of the arbitral proceedings on the petitioners and proceeded ex-parte. The court held that the award was passed without giving the petitioners an opportunity of being heard, which is a fundamental breach of natural justice and a ground for setting aside the award under Section 34(2)(a)(iii) (Paras 7-9).
Issue of Consideration
Whether the arbitral award is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996, on the grounds of violation of principles of natural justice and the arbitrator being ineligible to act due to her appointment by the respondent no.1 without notice to the petitioners.
Final Decision
The court allowed the petition and set aside the impugned arbitral award dated 30 January 2013.
Law Points
- Arbitration and Conciliation Act
- 1996
- Section 34
- Section 12
- Section 15
- Natural Justice
- Unilateral Appointment of Arbitrator
- Equitable Mortgage
- Loan Agreement
