IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAV FRIDAY, THE TWENTY EIGHTH DAY OF FEBRUARY TWO THOUSAND AND TWENTY FIVE ^ PRESENT HON’BLE SRI JUSTICE DHIRAJ SINGH THAKUR, THE CHIEF JUSTICE ARRITRATION APPLICATION No.63 of 2023 <r Between: 1. Saravan Agritech Private Limited, Rep. by Its Managing Director. Saidarao Vattikuti, 26/8/87 Sri Srinivasam Apartment, Mastan Darga, Vijaywada Road, Andhra Pradesh 522004. 2. Saidarao Vattikuti, H-No-1-103, Lagadapadu, Guntur, Andhra Pradesh- 522402. 3. Sandeepa Vattikuti, H.No-1-103, Lagadapadu, Guntur, Andhra Pradesh - 522402, 4. Saravan Spices, Dr.No.26-8-8 Flat No 2b, Sri Srinivasam Apartment, Behind Mastaniah Darga, Nagarampalem, Guntur, Andhra Pradesh- 522004. ...Applicants AND 1. Protium Finance Limited, (erstwhile M/s Growth Source Financial Technologies Ltd.), corporate office at Nirlon Knowledge Park (NKP), B 2, Floor, Pahadi Village, Office, The Western Express Highway, Cama Industrial Estate, Goregaon(E), Mumbai, Maharastra-400063. 2. The Sole Arbitrator, Rep by Mr. Rushabh Thacker, Office 301 A,76/78, Sai Sadan, Modi Street, Fort, Mumbai. ...Respondents X ■■ ARplication filed under Section 11 (5) & (6) of the Arbitration and Concil'fatipn Act, 1996 for the aforesaid reasons stated in the * ;acc|^f?anying affidavit the applicant therefore prays that this Honourable Court may be pleased to Set aside the impugned order dated 23.08.2023 passed by the Ld. Sole Arbitrator, and Declare all proceedings filed by the Respondent No.1 against the Applicant before the Ld. Sole Arbitrator, as non-est and all orders passed pursuant to them unenforceable; and Injunct the Respondent No.1 from taking possession of any of the assets financed by the Respondent No.1 and To appoint a Sole Arbitrator under sections 11 (5) and (6) of the Arbitration and Conciliation Act, 1996 for adjudicating the disputes between the Applicant and the respondent to award costs of this application. lA NO: 1 OF 2023 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to stay operation of impugned order dated 28.03.2023 passed by the Respondent No.2 and to stay all further proceedings pending disposal of the above Arbitration Application Counsel for the Petitioners : Sri Challa AJay Kumar, representing on behalf of Sri Khaja Khutubuddin Shaik Counsel for the Respondents: Sri N Naveen Kumar The Court made the following: ■A APHC010483772023 Bench Sr.No:-52 [3441] IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI ARBITRATION APPLICATION NO: 63 of 2023 ...Applicants Saravan Agritech Private Limited and others Vs. ...Respondents Protium Finance Limited and others ********** Advocate for Applicants: Mr. Challa Ajay Kumar appearing vice Mr. Khaja Khutubuddin Shaik Advocate for Respondents: Mr. N. Naveen Kumar CORAM :THE CHIEF JUSTICE DHIRAJ SINGH THAKUR : 28^*^ February, 2025. DATE PC ; This is an application filed under Section 11(5) read with Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator for purposes of adjudicating the disputes arising out of and in connection with Loan Agreement No.GS032LAP736127. 2. The petitioners, it is stated, had taken a loan facility from respondent No.1 and an Agreement was executed in that regard on 30.03.2022, for an amount of Rupees Two Crores, which had to be paid within a period of 96 2 A. HCJ ARBAPPL 63 2023 months and the rate of interest which was applicable to the loan amount was 14% per annum. The rate of interest, it is stated, was unilaterally changed from 14% to 16% by respondent No.1. It is stated that while the petitioners were trying to negotiate with respondent No.1 in regard to the repayment of the amount, to its surprise, respondent No.1 initiated the process to take over possession of the mortgaged assets, on the basis of an order, dated 23.08.2023, passed by respondent No.2, who was appointed as an arbitrator by respondent No.1 unilaterally. 3. 4. It is stated that in terms of the Agreement, dated 30.03.2022 and in particular Clause 27.1, disputes and differences were required to be referred to arbitration by a sole arbitrator, appointed by the lender. For purposes of reference. Clause 27.1 is reproduced hereunder: 27. DISPUTE RESOLUTION: 27.1 Without prejudice to the rights of the Lender under any Applicable Laws, any disputes, differences and or claims und Agreement shall be referred to arbitration by sole arbitrator nominated /appointed by the Lender. The proceedings o arbitration shall be governed by the provisions of the Arbitration and Conciliation Act of 1996 (as amended from time to and the seat and venue of the arbitration may be held at place chosen by the Lender which may include the place in where branch or office is located. In the event of incapacity or resignation or death of the sole arbitrator so appointed, the process shall be continued as per the provisions of Arbitration and Conciliation Act, 1996. The Parties shall be entitled to apply 3 A. HCJ ARBAPPL 63 2023 competent courts for interim or interlocutory relief in respect of such arbitration. ” The petitioners claim that respondent No.1, without in the least informing the petitioners and contrary to the established legal position, appointed respondent No.2 as an arbitrator, unilaterally, by invoking Clause 27.1 of the Agreement, which appointment as also the award passed by it non-esf in the eyes of law. Reference in this regard was made to various judgments including Perkins Eastman Architects DPC vs. HSCC (India) LimitedV 5. IS In the objections filed by the respondents, the stand taken is that respondent No.2 was appointed as a sole arbitrator according to the terms of the contract and that even when the arbitrator had issued a notice to the petitioners informing it about the commencement of arbitration proceedings, it chose not to participate in the same. 6. 7. In Perkins Eastman Architects DPC (supra), the Apex Court held: “20. We thus have two categories of cases. The first, similar to the one dealt with in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 see 377] where the Managing Director himself is named arbitrator with an additional power to appoint any other person arbitrator. In the second category, the Managing Director Is not to act an arbitrator himself but is empowered or authorised to appoint any other person of his choice or discretion as an arbitrator. If, in the first category of cases, the Managing Director was found incompetent, it was because as an as an as ' (2020) 20 see 760 HCJ ARBAPPL 63 2023 of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar Invalidity would always arise and spring even in the second category of cases. If the interest that he has in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present Irrespective of whether the matter stands under the first or second category of cases. We are conscious that if such deduction is drawn from the decision of this Court in TRF Ltd. , all having clauses similar to that with which we are presently concerned, a party to the agreement would be disentitled to make any appointment of an arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an arbitrator. cases 21. But, in our view that has to be the logical deduction from TRF Ltd. Para 50 of the decision shows that this Court was concerned with the Issue, "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator"’ The ineligibility referred to therein, was as a result of operation of law. In that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter-balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity In determining or charting the course for dispute resolution. Naturally, the HCJ ARBAPPL_63_2023 person who hes an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd. ” This principle was subsequently affirmed by a judgment of the Constitution Bench of the Apex Court in Central Organisation for Railway Electrification v. ECl SPIC SMO MCML (JV) A Joint Venture Co.^ wherein 8. it was held; "129. Equal treatment of parties at the stage of appointment of an arbitrator ensures impartiality during the arbitral proceedings. A clause that allows one party to unilaterally appoint a sole arbitrator is exclusive and hinders equal participation of the other party in the appointment of arbitrators. Further, arbitration is a quasi-judicial and process adjudicative process where both parties ought to be treated equally and given an equal opportunity to persuade the decision-maker of the merits of the case. An arbitral process where one party or its proxy has the power to unilaterally decide who will adjudicate on a dispute is fundamentally contrary to the adjudicatory function of arbitral tribunals. 169. c. A clause that allows one party to unilaterally appoint a sole arbitrator gives rise to justifiable doubts as to the independence and impartiality of the arbitrator. Further, such a unilateral clause is exclusive and hinders equal participation of the other party in the appointment process of arbitrators; d. In the appointment of a three-member panel, mandating the other party to select its arbitrator from a curated panel of potential ^2024 see Online SC 3219 6 HCJ ARBAPPL 63 2023 arbitrators is against the principle of equal treatment of parties. In this situation, there is no effective counterbalance because parties do not participate equally in the process of appointing arbitrators. ” 9. The issue that arises for consideration is, whether, in the light of the fact that an arbitrator had already been appointed by respondent No.1, should the applicants be left to challenge the award passed, in appropriate proceedings in terms of the remedies available in law? 10. This issue was considered by the Apex Court in Walter Bau AG vs. Municipal Corporation of Greater Mumbai^, wherein it was held; “10. Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11 (6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law. In the present case, the agreed upon procedure between the parties contemplated the appointment of the arbitrator by the second party within 30 days of receipt of a notice from the first party. While the decision in Datar Switchgears Ltd.[(2000) 8 see 151] may have introduced some flexibility in the time frame agreed upon by the parties by extending it till a point of time anterior to the filing of the application under Section 11(6) of the Arbitration Act, it cannot be lost sight of that in the present case the appointment of Shri Justice A.D. Mane is clearly contrary to the provisions of the Rules governing the appointment of arbitrators by 1CADR, which the parties had agreed to abide by in the matter of such appointment. The option given to the respondent Corporation to go beyond the panel submitted by ICADR and to appoint any person of its choice was clearly not in the contemplation of the parties. If that be so, obviously, the appointment of Shri Justice ^(2015) 3 see 800 7 HCJ 'V. ARBAPPL 63 2023 A.D. Mane is non est in law. Such an appointment, therefore, will not inhibit the exercise of jurisdiction by this Court under Section 11(6) of the Arbitration Act. It cannot, therefore, be held that the present proceeding is not maintainable in law. The appointment of Shri Justice A.D. Mane made beyond 30 days of the receipt of notice by the petitioner, though may appear to be in conformity with the law laid down in Datar Switchgears Ltd., is clearly contrary to the agreed procedure which required the appointment made by the respondent Corporation to be from the panel submitted by ICADR. The said appointment, therefore, is clearly Invalid in law. ” Learned counsel for respondent No.1, however, conceded the settled 11. legal position. Be that as it may, I hold that the appointment of respondent No.2 as an 12. arbitrator as also the award rendered thereto, is non-esf in the eyes of law. Accordingly, the present arbitration application is allowed. Justice B. Syamsunder, former Judge of the High Court of Andhra Pradesh, is appointed as an Arbitrator, who shall enter upon the reference and adjudicate upon the disputes arising out of and in connection with the Agreement, dated 30.03.2022, and render the Award within the statutory period. The parties shall be free to file detailed claims and counterclaims, before the learned Arbitrator. The learned Arbitrator shall also be entitled to claim the fee in consultation with the parties or as per the provisions of the Fourth Schedule of the Arbitration and Conciliation Act, 1996. No order as to costs. Pending miscellaneous applications, if any, in this petition, shall stand closed. 8 HCJ ARBAPPL_63 2023 A copy of this order be communicated to the learned Arbitrator on the address mentioned herein below: Justice B.Syamsunder, Villa No. 10, Misty the First Avenue, Karakatta Road, Opp; ISKCON Temple, Undavalli, Guntur, Andhra Pradesh. Sd/- E KAWIESWARA RAO JOINT REGISTRAR //true copy// SECTION OFFICER ,, s,i—B w— Pradesh, R/o.Villa No.lO, ^ d\sM Andhra Pradesh, (along with Arbitration Application) of Andhra Pradesh, Amaravathi. To with a copy papers filed along 2. The Registrar (Judicial), High Court 3 one CC to Sri Khaja Khutubuddin Shark. Advocate [OPUC] a One CC to Sri N Naveen Kumar, Advocate [OPUCl Sai Sadan Modi Street, Fort, Mumbai. , 0 5. S.*., »• ■=<.«..-»«. .. Amaravathi. 8. Three CD Copies TK vna HIGH COURT DATED:28/02/2025 ORDER ARBAPPL.No.63 of 2023 h n MAR 2025 Current Section m Co. ALLOWING THE ARBITRATION APPLICATION