The High Court of Delhi dismissed an appeal challenging the setting aside of an arbitral award on grounds of unilateral appointment of the arbitrator and non-compliance with Section 12(5) of the Arbitration and Conciliation Act, 1996. The Court held that merely naming an arbitrator in the agreement does not cure a post-dispute unilateral appointment absent an express written waiver by the other party. Consequently, the impugned order upholding the award’s invalidity was affirmed.
Background & Facts
The Dispute
The appellant, Matsya Fincap Pvt Ltd, an NBFC registered with the RBI, advanced a business loan of Rs.2,00,000/- to Mr. Allahuddin under a Loan Agreement dated 7 May 2019. The respondent, Mohd Hassinuddin, executed a Deed of Guarantee undertaking to repay the outstanding amount in case of default by the borrower. Disputes arose over alleged defaults, prompting the appellant to invoke the arbitration clause and refer the matter to Sh. Manohar Lal Saini, Advocate, as the sole arbitrator.
Key Facts
- Loan Agreement executed on 07.05.2019 for principal amount of Rs.2,00,000/-.
- The agreement stipulated repayment of Rs.2,34,000/- in ninety (90) daily instalments.
- Late payment charges were prescribed at the rate of 36% per annum on default.
- The appellant sent a Letter of Intent to appoint Sh. Manohar Lal Saini as arbitrator on 18.08.2020; the arbitrator issued an acceptance letter (date not specified).
- The arbitral proceedings were conducted ex parte (respondent absent) and the award was made, sealed and signed at Alwar, Rajasthan on 12.10.2020.
- The Award granted Rs.5,18,600/- in favour of the appellant, together with interest at 18% per annum from 01.07.2020 till realization, plus costs of the arbitral proceedings.
- The respondent contended that the loan agreement was void as the interest rate exceeded the maximum prescribed under the Rajasthan Money-Lenders Act, 1963, and that the arbitrator’s appointment was unilateral without a post-dispute express written waiver of Section 12(5) of the Arbitration and Conciliation Act, 1996.
- The respondent filed a Section 34 petition before the learned District Judge, Central District, Tis Hazari Courts, Delhi; notices of the petition were served on the respondent on 29.01.2024 and again on 14.02.2024.
- The respondent did not enter appearance or file a reply; on 12.03.2024 the learned district judge proceeded ex parte and closed the respondent’s right to file a reply.
- The learned sole arbitrator (respondent no.2) was served on 30.01.2024 but failed to appear or produce the arbitral record despite repeated directions; orders recording non-appearance were passed on 24.04.2024, 18.05.2024, 04.06.2024 and 24.07.2024.
- The learned district judge passed the impugned order on 31.08.2024, setting aside the award on the grounds of excessive interest under the Money-Lenders Act and unilateral appointment of the arbitrator without a waiver.
- Prior to the section 34 proceedings, the appellant had filed an execution petition before the Delhi Court, which was dismissed on 08.05.2024 on the ground that the arbitrator had been unilaterally appointed.
- The present appeal (FAO (COMM) 221/2024) was filed challenging the impugned order.
- Judgment reserved on 08.09.2026, pronounced and uploaded on 16.09.2026.
Procedural History
- 07.05.2019: Execution of Loan Agreement between Matsya Fincap Pvt Ltd and Mr. Allahuddin.
- 18.08.2020: Appellant’s Letter of Intent to appoint Sh. Manohar Lal Saini as arbitrator.
- 12.10.2020: Arbitral award passed at Alwar, Rajasthan (Rs.5,18,600/- with 18% interest from 01.07.2020).
- 29.01.2024 & 14.02.2024: Service of notices of Section 34 petition on the respondent.
- 12.03.2024: Learned district judge proceeds ex parte against respondent; right to reply closed.
- 30.01.2024: Service of notice on the learned sole arbitrator (respondent no.2).
- 24.04.2024, 18.05.2024, 04.06.2024, 24.07.2024: Orders recording continued non-appearance of the arbitrator and non-production of arbitral record.
- 08.05.2024: Delhi Court dismisses appellant’s execution petition on ground of unilateral arbitrator appointment.
- 31.08.2024: Impugned order dated, setting aside the award.
- 16.09.2026: Judgment of the High Court of Delhi pronounced (reserved 08.09.2026).
Relief Sought
The appellant sought to have the impugned order dated 31.08.2024 set aside, the arbitral award of Rs.5,18,600/- with interest at 18% per annum from 01.07.2020 restored, and to recover the awarded sum together with interest and costs. The respondent sought upholding of the impugned order and dismissal of the appeal.
The Legal Issue
The core questions before the Court were: (i) whether the mere pre-designation of an arbitrator in the arbitration agreement renders a subsequent appointment by one party after the dispute has arisen non-unilateral for the purposes of Section 12(5) of the Arbitration and Conciliation Act, 1996; (ii) whether the absence of an express written waiver by the non-appointing party after the dispute arose invalidates the arbitral tribunal under Section 12(5); (iii) whether the place where the award is signed (Alwar) confers exclusive territorial jurisdiction on the courts of that place to entertain a Section 34 petition; and (iv) whether the Section 34 petition was barred by limitation given that the respondent claimed to have learned of the award only during execution proceedings.
Arguments Presented
For the Appellant/Petitioner
The appellant contended that the Award was made at Alwar, Rajasthan, thus only courts at Alwar had jurisdiction to entertain the Section 34 petition, relying on BGS SGS SOMA JV v. NHPC Ltd. It argued that the Section 34 petition was filed beyond the limitation period under Section 34(3) of the A&C Act and the learned district judge failed to determine limitation. The appellant further submitted that the learned sole arbitrator was specifically named in the arbitration agreement; the appellant merely invoked the agreed clause and referred the dispute to the arbitrator already named, so the appointment could not be characterised as unilateral. It asserted there was no relationship between the learned sole arbitrator and the appellant falling within any category of the Seventh Schedule to the A&C Act, consequently Section 12(5) was not attracted and no subsequent waiver was required. Finally, as an NBFC registered with the RBI, the appellant contended it lay outside the regulatory field of state money-lending legislation, relying on Nedumpilli Finance Company Limited v. State of Kerala & Ors.
For the Respondent/State
The respondent countered that the award itself records that the appellant appointed the learned sole arbitrator by letter dated 18.08.2020, showing the appointment was made by the appellant after the dispute arose, not by prior consensus. It highlighted that the learned sole arbitrator had been repeatedly appointed by the appellant in similar matters, indicating a pattern that justified the learned district judge’s scrutiny of the tribunal’s constitution. The respondent stressed that the absence of a post-dispute express written agreement waiving the applicability of Section 12(5) is fatal to the appointment, as held in Bharat Broadband Network Limited v. United Telecoms Limited. Finally, it maintained that the learned district judge correctly applied the Rajasthan Money-Lenders Act, 1963, and held the loan agreement unenforceable because the stipulated interest rate exceeded the statutory maximum.
The Court's Analysis
The Court first clarified that appellate interference under Section 37 of the A&C Act is narrow and supervisory, warranted only where the order under Section 34 discloses jurisdictional error, patent illegality, manifest perversity or failure to exercise jurisdiction in accordance with law, citing McDermott International Inc. v. Burn Standard Co. Ltd. & Ors., MMTC Ltd. v. Vedanta Ltd., Punjab State Civil Supplies Corporation Ltd. v. Sanman Rice Mills and UHL Power Company Ltd. v. State of Himachal Pradesh.
On territorial jurisdiction, the Court observed that while parties may designate a juridical seat for arbitration, the place where an award is signed is not, by itself, determinative of jurisdictional authority. It noted the judgment in BGS SGS SOMA JV v. NHPC Ltd. but emphasized that the question must be examined from the terms of the arbitration agreement and the circumstances in which the arbitral proceedings were conducted. Crucially, the appellant had not raised the territorial jurisdiction objection before the learned district judge despite service of the petition, and its office, the guarantee agreement and the respondent’s residence were all in Delhi; moreover, the appellant had filed an execution petition before the Delhi Court, which was dismissed on 08.05.2024 on the ground of unilateral arbitrator appointment.
Regarding limitation, the Court held that Section 34(3) prescribes a period of three months from the date on which the party making the application had received the arbitral award, with a further thirty days where sufficient cause is shown. The commencement of the period is linked to receipt of the award, not merely to the date on which the award was made. The respondent had pleaded that he had not been served with the award and came to know of it during execution proceedings. The appellant had not placed any material before the learned district judge to demonstrate the precise date of receipt of the award by the respondent, and thus could not rely on limitation to defeat the petition.
The Court then turned to the principal issue: the constitution of the arbitral tribunal. Section 12(5) of the A&C Act provides that, notwithstanding any prior agreement to the contrary, a person whose relationship with the parties, counsel or the subject matter of the dispute falls within any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. The proviso permits the parties, subsequent to disputes having arisen, to waive the applicability of Section 12(5) by an express agreement in writing.
The Court found that the award itself records that the appellant sent a Letter of Intent to appoint the learned sole arbitrator and that the arbitrator thereafter issued an acceptance letter; the award further specifically records that “the Claimant appointed the undersigned to adjudicate these disputes vide letter dated 18.08.2020”. This demonstrates that the appointment was brought about by an act of the appellant after the dispute had arisen. The mere fact that the name of the learned arbitrator was contained in the agreement does not, by itself, establish that the subsequent appointment was bilateral, particularly when the respondent neither participated in the constitution of the tribunal nor consented to the appointment after the dispute had arisen. The Court cited TRF Limited v. Energo Engineering Projects Limited, Bharat Broadband Network Limited v. United Telecoms Limited and Bhadra International (India) Pvt. Ltd. & Ors. v. Airport Authority of India to underscore that party autonomy cannot be exercised in a manner permitting one party to retain exclusive control over the constitution of the arbitral tribunal. It further noted that the learned district judge had taken note of the material placed before it in connected execution proceedings concerning the appointment of the same arbitrator, and that this Court had previously considered a matter concerning the same appellant and the same learned sole arbitrator in EFA (COMM) No.8/2024.
The Court concluded that, on the material before it, the constitution of the arbitral tribunal after the dispute had arisen was brought about solely by the appellant, with no express written waiver by the respondent subsequent to the dispute. Consequently, the appointment fell within the prohibition of Section 12(5) and the award could not be sustained. The Court added that even if the contentions on the applicability of the Money-Lenders Act or territorial jurisdiction were considered independently, the finding on the constitution of the arbitral tribunal furnished an independent basis for sustaining the setting aside of the award.
The Verdict
The High Court of Delhi dismissed the appeal, upholding the impugned order dated 31.08.2024. The Court held that the arbitral tribunal was constituted unilaterally in violation of Section 12(5) of the Arbitration and Conciliation Act, 1996, absent an express written waiver by the respondent after the dispute arose. Consequently, the award of Rs.5,18,600/- with interest at 18% per annum from 01.07.2020 remains set aside, and the appellant is entitled to no relief. The impugned order is affirmed.
What This Means For Similar Cases
Unilateral Appointment Requires Post-Dispute Written Waiver
The Court clarified that merely naming an arbitrator in the arbitration agreement does not cure a later unilateral appointment by one party. To avoid attracting the disqualification under Section 12(5) of the A&C Act, the non-appointing party must execute an express written waiver after the dispute has arisen. Practitioners should ensure that any post-dispute consent to arbitrator appointment is documented in writing to safeguard the award from being set aside.
- Obtain a signed waiver or consent letter from the other party after any disagreement surfaces.
- Record the waiver as part of the arbitral record to demonstrate compliance with the proviso to Section 12(5).
Territorial Jurisdiction Follows the Arbitration Agreement
The place where the award is signed is not determinative of jurisdictional authority under Part I of the A&C Act. Jurisdiction to entertain a Section 34 petition lies with the courts having supervisory jurisdiction over the juridical seat designated in the arbitration agreement, irrespective of where the physical signing occurs. Parties should therefore designate a clear juridical seat in their arbitration clause and be prepared to challenge any petition filed outside that seat.
- Verify the juridical seat stipulated in the arbitration agreement before contesting a Section 34 petition.
- If the petition is filed before a court lacking supervisory jurisdiction over the designated seat, raise the objection at the earliest opportunity.
Limitation Period Commences on Receipt of the Award
The limitation period under Section 34(3) of the A&C Act begins when the party seeking to challenge the award actually receives a copy of the award, not merely on the date the award is made. A party claiming ignorance must prove the date of receipt; mere assertion of non-service is insufficient to extend the period without evidence.
- Maintain proof of service or acknowledgment of receipt of the award to accurately compute the limitation window.
- If relying on delayed knowledge, furnish concrete evidence (e.g., correspondence, execution proceedings) showing when the award was first known.
