Allowed

Mkmg Jewel Developers Pvt. Ltd. v. Bliss Equity Pvt. Ltd.

Delhi HC9 Jul 2024O.M.P. (COMM)/158/2024

Case brief

AI extract

What is this about?

The High Court set aside an arbitration award passed by a sole arbitrator independently appointed by the respondent's director. The petitioner argued the appointment violated the independent arbitrator mandate under the Arbitration and Conciliation Act, 1996.

What did the court decide?

The petition is allowed and the award dated 13.02.2024 is set aside pending applications are disposed of.

Mkmg Jewel Developers Pvt. Ltd. Vs Bliss Equity Pvt. Ltd. — Arbitration | Delhi HC (2024)

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$~27

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IN THE HIGH COURT OF DELHI AT NEW DELHI

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- O.M.P. (COMM) 158/2024 & I.A. 8158/2024

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MKMG JEWEL DEVELOPERS PVT. LTD.

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.....Petitioner

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Through: Mr. Raghav Marwah, Adv.

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versus

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BLISS EQUITY PVT. LTD.

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.....Respondent Through: Mr. Naveen Kumar, Adv.

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CORAM: HON'BLE MR. JUSTICE JASMEET SINGH O R D E R % 09.07.2024

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This is a petition filed under section 34 of the Arbitration and Conciliation Act, 1996 seeking to set aside of the impugned Award dated 13.02.2024 passed by the learned Sole Arbitrator.

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The brief facts are that on 14.01.2018, a Loan Agreement was executed between the petitioner and respondent. On 14.08.2019, Addendum Loan Agreement was executed between the parties herein.

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The petitioner company was admitted into Corporate Insolvency Resolution Process ( “CIRP” ) vide order dated 12.01.2022 passed by the NCLT, Delhi.

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On 22.02.2022, the respondent filed its claim before the learned IRP for a sum of Rs. 19.21 crores approximately which was admitted by the IRP.

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This is a digitally signed order.

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The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/07/2024 at 12:03:28

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On 22.08.2023, Resolution Professional sent an email stating that the moratorium period under section 14 of Insolvency and Bankruptcy Code, 2016 was operational. However, on the same day at 8:27 PM, the Director of the respondent company invoked arbitration clause on the ground that moratorium was no longer operational. The said email was withdrawn subsequently by the Director of the respondent.

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On 23.10.2023 vide its email, the respondent invoked the arbitration as the moratorium period was over and appointed the Sole Arbitrator.

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Learned Sole Arbitrator entered the reference and passed the impugned Award which is under challenge in the present petition filed by the Resolution Professional.

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Mr. Marwah, learned counsel for the petitioner states that the only ground on which the impugned Award is liable to be set aside is that the unilateral appointment made by the respondent is contrary to the law laid down by the Hon’ble Supreme Court in Perkins Eastman Architects DPC vs. HSCC (India) Ltd., (2020) 20 SCC 760 and TRF Limited & Anr. vs. Damodar Valley Corporation & Anr., AIR 2017 SC 3889.

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Paragraphs 1 and 2 of the impugned Award dated 13.02.2024 read as under:-

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“ 1. The present proceedings relates to the dispute arisen between the parties in relation to loan agreement dated 14.01.2018 and dated 14.08.2019 made between the claimant M/s Bliss Equity Private Limited and the Respondent, M/s MKMG Jewel Developers Pvt Ltd wherein the clause 7 of the said agreement provides for the dispute resolution mechanism,

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This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/07/2024 at 12:03:28

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Clause 7 specifically provides as hereunder: “In the event of any disputes, differences or claims arising between the parties in connection with this agreement or the construction, interpretation of any of the clauses hereof or anything does or omitted to be done pursuant hereto, the parties shall first endeavor to amicably settle such disputes, differences or claims, amongst themselves, failing which the same shall be referred to a sole arbitrator appointed by the second party. The arbitration proceedings shall be held at Delhi and be held in English Language and the arbitrator will be subject to the provisions of the Arbitration and Conciliation Act 1996. The award of the arbitrator shall be final and binding upon the parties”.

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2. In view of clause 7 of loan agreement dated 14.01.2018 and dated 14.08.2019, the arbitration proceedings were invoked by the claimant vide communication dated 23.10.2023 wherein it was clarified by the claimant that earlier proceedings initiated by the Claimant were terminated in view of the moratorium in relation the Respondent Company which was undergoing CIRP as communicated by the Respondent and the current proceedings initiated afresh after completion of the CIRP period, accordingly the claimant in view of the clause 7 of the loan agreement appointed this tribunal as Sole Arbitrator to adjudicate the present dispute between the parties. The claimant informed this Tribunal of communication made with the Respondent in relation to invocation of present reference

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This is a digitally signed order.

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The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 18/07/2024 at 12:03:28

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vide its email dated 29.01.2023.”

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A perusal of the above paras show that it was the respondent who had appointed the Sole Arbitrator. In the reply filed by the respondent, the email appointing the Sole Arbitrator has been filed which reads as under:-

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A perusal of the said email shows that the appointment of the Sole Arbitrator has been done by Mr. Rahul Garg, Director of the respondent company.

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As noted above, in the present case, the Sole Arbitrator has been appointed by the Director of the respondent company and the same is contrary to the various judgments of the Hon’ble Supreme Court. The relevant paras of Perkins Eastman Architects DPC (supra) reads as under:-

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“21. But, in our view that has to be the logical deduction from TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] 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

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by nominating an arbitrator of its choice would get counterbalanced 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 person who has 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. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72]”

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In view of the settled law, the appointment of the learned Sole Arbitrator by the respondent is barred under Section 12(5) read with Seventh Schedule of the Arbitration and Conciliation Act, 1996. Therefore, the whole arbitration proceedings are non-est in law.

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