Allowed¶53

Sandeep Mahajan v. Mahindra and Mahindra Financial Services

Delhi HC10 Jul 2025O.M.P. (COMM)/161/2021

Case brief

AI extract

What is this about?

Delhi High Court, O.M.P. (COMM) 161/2021 & I.A. 5711/2021, Sandeep Mahajan v. Mahindra and Mahindra Financial Services, Jasmeet Singh, J, decided 10.07.2025: Section 34 petition allowed and award dated 13.12.2019 set aside on ground of unilateral appointment of sole arbitrator by the lender under clause 7.8 of the Loan Agreement dated 24.04.2015; reliance on Perkins Eastman Architects DPC v. HSCC (India) Ltd., 2019 SCC OnLine SC 1517; TRF Ltd. referred within quoted extract; guarantor to loan of Rs. 3,60,00,000/-; ex parte arbitral proceedings; objection entertainable at arguments stage as going to the root; legal heirs brought on record 16.05.2024.

What did the court decide?

Petition under Section 34 allowed; arbitral award dated 13.12.2019 set aside; pending application(s), if any, disposed of. ¶53

Sandeep Mahajan Vs Mahindra and Mahindra Financial Services — Arbitration | Delhi HC (2025)

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$~21

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* IN THE HIGH COURT OF DELHI AT NEW DELHI

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Date of decision: 10.07.2025

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- O.M.P. (COMM) 161/2021 & I.A. 5711/2021

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SANDEEP MAHAJAN .....Petitioner

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Through: Ms. Prachi Johri, Mr. Sharad Agnihotri, Advs.

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versus

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MAHINDRA AND MAHINDRA FINANCIAL SERVICES

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.....Respondent

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Through: Ms. Sonali Joon, Adv.

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CORAM: HON'BLE MR. JUSTICE JASMEET SINGH

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JASMEET SINGH, J ( ORAL )

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This is a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 seeking to challenge the Award dated 13.12.2019 passed by the learned Sole Arbitrator.

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The facts are that the petitioner was appointed as a director in Sandeep Axles Pvt. Ltd. on 20.09.1989, and later in SPM Auto Pvt. Ltd. on 10.08.2004. On 23.04.2015, a loan facility of Rs. 3,60,00,000/- was sanctioned to SPM Auto Pvt. Ltd. by the respondent vide Sanction Letter No. SME/VP/SPMPL-01/1516. Pursuant to the sanction, a Loan Agreement dated

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Page 1 of 7

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O.M.P. (COMM) 161/2021

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Digitally Signed By:MAYANK Signing Date:23.07.2025 20:44:02

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24.04.2015 was executed between SPM Auto Pvt. Ltd. as the borrower and the petitioner, along with Mr. Vimal Mahajan and Mr. Vikrant Mahajan, as Personal and Corporate Guarantors for securing the said facility.

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The petitioner resigned from the directorship of SPM Auto Pvt. Ltd. on 24.08.2015, and from Sandeep Axles Pvt. Ltd. on 18.02.2016. After his resignation, the petitioner had no further association with either company or its directors. Owing to personal differences with his brothers, who were also directors, he completely dissociated himself and remained unaware of any subsequent events or decisions related to the companies.

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Vide order dated 17.10.2017, the Hon'ble National Company Law Tribunal, ( “NCLT” ) Delhi, initiated the Corporate Insolvency Resolution Process ( “CIRP” ) against Sandeep Axles Pvt. Ltd., and subsequently, a liquidation order was passed on 13.09.2018. Similarly, vide order dated 18.11.2020, the Hon'ble NCLT, Delhi, also initiated CIRP against SPM Automotive Components Private Limited.

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On 11.01.2021, the petitioner received an email from the respondent showing copies of arbitral awards dated 13.12.2019, passed against the petitioner and two other respondents. Subsequently, summons issued by the Delhi High Court in the execution petitions were emailed to the petitioner on 12.03.2021. He appeared before the Court on 16.03.2021 and received copies of the petitions and consequently filed the present petition.

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Page 2 of 7

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O.M.P. (COMM) 161/2021

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Digitally Signed By:MAYANK Signing Date:23.07.2025 20:44:02

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Learned counsel for the petitioner has submitted that the petitioner was not served with any notice of the arbitral proceedings nor was informed of the appointment of the learned Sole Arbitrator. Consequently, the petitioner was proceeded exparte and did not have the opportunity to participate or present his case. It is further submitted that the signed copy of the Arbitral Award has not been received by the petitioner.

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The learned counsel for the respondent states that due to payment defaults, arbitration was initiated, excluding the borrower company as it was under insolvency. The petitioner appeared through counsel in 2019, filed a vakalatnama , and sought documents but later failed to participate, resulting in an ex-parte award dated 13.12.2019. A Board Resolution dated 30.09.2012 authorized the petitioner to execute the loan documents. Despite allegedly exiting the company, the petitioner neither notified the respondent nor revoked his guarantee.

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I have heard the learned counsels for the parties.

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The arbitration clause 7.8 contained in the Loan Agreement is as under:

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“ All disputes, differences and/or claim arising out of these presents or in any way touching or concerning the same or as to constructions, meaning or effect hereof or as to the right and liabilities of the parties hereunder shall be settled by arbitration to be held in accordance with the provision of the Arbitration and Conciliation Act, 1996 or any statutory amendments

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Page 3 of 7

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O.M.P. (COMM) 161/2021

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Digitally Signed By:MAYANK Signing Date:23.07.2025 20:44:02

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thereof and shall be referred to the sole arbitrator to be nominated by the lender.”

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A perusal of the above arbitration clause clearly reveals that the authority to appoint the sole arbitrator was vested exclusively with the respondent, i.e. the lender. The clause empowers the lender to unilaterally nominate a sole arbitrator to adjudicate disputes arising out of or in connection with the Loan Agreement. In exercise of this contractual right, the respondent appointed a sole arbitrator, who thereafter conducted the arbitral proceedings ex parte. Pursuant to the said proceedings, the arbitrator passed the impugned arbitral award which is now under challenge in the present petition. The operative part of the award reads as under:

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“10. That, whereas as per the terms mentioned in the clause of the said Loan Agreement any notice to be given by the Claimant shall be effective and deemed to have been duly and sufficiently served on the Borrower and guarantor seventh days after the same shall have been delivered to the post office /courier properly addressed to the address provided by the borrower/guarantor in the loan Agreement. In these proceeding, it is clear from the copy of the notice dated:24.10.2017 sent by the Claimant to the Respondents under Speed Post/ Regd. Ad Post/ Regd. Post, expressing therein their desire/intention to refer the matter to Sole arbitration of adjudication. Proof has been provided by the Claimant for sending the notice dated: 24.10.2017 by Speed Post I Regd. Ad Post/ Regd. Post. There being sufficient compliance of the provisions of law by the Claimant before making the reference to me, I have accepted the Reference made to me by their

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Page 4 of 7

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O.M.P. (COMM) 161/2021

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Digitally Signed By:MAYANK Signing Date:23.07.2025 20:44:02

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Letter of reference dated: 22.03.2018.”

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Further, the letter dated 22.03.2018 sent by the respondent appointing the learned Sole Arbitrator reads as follows:

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Page 5 of 7

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O.M.P. (COMM) 161/2021

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Digitally Signed By:MAYANK Signing Date:23.07.2025 20:44:02

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The legal position regarding the unilateral appointment of an arbitrator is now well-settled in light of the judgment of the Hon’ble Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd., 2019 SCC OnLine SC 1517 , wherein it was held that a unilateral appointment of an arbitrator by one of the parties, particularly by the party that is interested in the outcome of the dispute, is impermissible under the scheme of the Arbitration and Conciliation Act, 1996. The relevant portion at para 20 reads as under:

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“ 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 SCC 377 : (2017) 4 SCC (Civ) 72] where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second category, the Managing Director is not to act as 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 of the interest that he would be said to be having in the outcome or result 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

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Page 6 of 7

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O.M.P. (COMM) 161/2021

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Digitally Signed By:MAYANK Signing Date:23.07.2025 20:44:02

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are conscious that if such deduction is drawn from the decision of this Court in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] , all cases 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.”

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Even though specific objection has not been laid, it is an objection which goes to the root of the matter and can be taken even at the stage of arguments. The objection pertains to the fundamental requirement of a fair and impartial adjudicatory mechanism, which is non-derogable. The Hon’ble Supreme Court in Perkins Eastman (supra) has categorically held that any award passed by an arbitrator unilaterally appointed by an interested party is vitiated. Therefore, in view of the settled legal position and to uphold the sanctity of the arbitral process, the arbitral award dated 13.12.2019 is liable to be and is accordingly set aside.

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The legal heirs of the petitioner have been brought on record vide order dated 16.05.2024.

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The present petition is allowed and disposed of.

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Pending application(s), if any, are disposed of.

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JASMEET SINGH, J

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JULY 10, 2025/sp

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(Corrected and released on 18.07.2025)

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Page 7 of 7

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O.M.P. (COMM) 161/2021

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Digitally Signed By:MAYANK Signing Date:23.07.2025 20:44:02

Procedural history

How this case reached the court

AI extract

Order under challenge
Ex parte arbitral award dated 13.12.2019 passed by the learned Sole Arbitrator, challenged by the petitioner under Section 34 of the Arbitration and Conciliation Act, 1996.¶14
Sole Arbitrator · 13.12.2019
Prior proceeding
Petitioner was appointed director of Sandeep Axles Pvt. Ltd. on 20.09.1989 and of SPM Auto Pvt. Ltd. on 10.08.2004; on 23.04.2015 the respondent sanctioned a loan facility of Rs. 3,60,00,000/- to SPM Auto Pvt. Ltd. vide Sanction Letter No. SME/VP/SPMPL-01/1516.¶15
Prior proceeding
Loan Agreement dated 24.04.2015 executed between SPM Auto Pvt. Ltd. as borrower and the petitioner, along with Mr. Vimal Mahajan and Mr. Vikrant Mahajan, as Personal and Corporate Guarantors.¶19
Prior proceeding
Petitioner resigned from directorship of SPM Auto Pvt. Ltd. on 24.08.2015 and of Sandeep Axles Pvt. Ltd. on 18.02.2016, and thereafter dissociated himself from the companies.¶20
Prior proceeding
NCLT Delhi initiated Corporate Insolvency Resolution Process against Sandeep Axles Pvt. Ltd. vide order dated 17.10.2017.¶21
Prior proceeding
Liquidation order passed against Sandeep Axles Pvt. Ltd. on 13.09.2018; NCLT Delhi initiated CIRP against SPM Automotive Components Private Limited vide order dated 18.11.2020.¶21
Prior proceeding
On 11.01.2021 the petitioner received an email from the respondent showing copies of arbitral awards dated 13.12.2019 passed against him and two other respondents.¶22
Prior proceeding
Summons in execution petitions before the Delhi High Court were emailed to the petitioner on 12.03.2021; he appeared on 16.03.2021 and then filed the present petition.¶22
Prior proceeding
Petitioner's case: he was never served with notice of the arbitral proceedings nor informed of the arbitrator's appointment, and was proceeded ex parte.¶26
Prior proceeding
Petitioner further submitted that he never received the signed copy of the Arbitral Award.¶26
Prior proceeding
Respondent's case: arbitration was initiated on payment defaults (borrower excluded as under insolvency); petitioner appeared through counsel in 2019, filed a vakalatnama and sought documents, but later failed to participate, resulting in the ex-parte award dated 13.12.2019.¶27
Prior proceeding
A Board Resolution dated 30.09.2012 authorized the petitioner to execute the loan documents; despite exiting the company he allegedly neither notified the respondent nor revoked his guarantee.¶27
Prior proceeding
Legal heirs of the petitioner were brought on record vide order dated 16.05.2024.¶52

Sandeep Mahajan v. Mahindra and Mahindra Financial Services

Case brief

What is this about?

What did the court decide?

Sandeep Mahajan v. Mahindra and Mahindra Financial Services

Case brief

What is this about?

What did the court decide?

Why is it important?

What the court decided

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