whether the procedure that is followed in appointing arbitrator is in accordance with law?

whether the procedure that is followed in appointing arbitrator is in accordance with law?

it is very clear

that, if the parties agreed upon a particular procedure for appointment

of an Arbitrator as contemplated under Clause 17 of the Loan

Agreement, the disputes between the parties, more particularly with

regard to appointment of arbitrator, have to be in accordance with the

said procedure. Therefore, the argument of the learned Counsel for the

Appellants that, no opportunity was given to the Appellants in

proposing the name of an arbitrator, has no merit.AP HIGH COURT 

1

THE HON’BLE SRI JUSTICE C. PRAVEEN KUMAR

AND

THE HON’BLE SRI JUSTICE BATTU DEVANAND

C.M.A. No. 25 of 2020

ORDER: (Per Hon’ble Sri Justice C.Praveen Kumar)

1) Heard both sides and perused the record.

2) Challenging the Order, dated 26.09.2019, passed in A.O.P.

No.124 of 2016, by the I Additional District Judge, Kurnool, wherein,

the application filed under Section 34 of the Arbitration and

Conciliation Act, 1996 [the ‘Act’], praying the court to set-aside the

Award, dated 27.02.2016, passed in Arbitration Application [A.A.] No.

122 of 2015 by the Arbitral Tribunal, Kurnool, was dismissed, the

present Civil Miscellaneous Appeal came to be filed under Section 37 of

the Act.

3) As seen from the proceedings, pursuant to an agreement entered

into by both the parties, the sole arbitrator was appointed and a claim

petition came to be filed before him on the ground that the 1st

Petitioner/Appellant availed loan of Rs.4,00,000/- for development of

his business on 26.04.2014 and executed an Agreement vide Ex.A4 to

which the 2nd and 3rd Petitioners/Appellants stood as guarantors. The

parties agreed to repay the same with interest at 20% per annum in 36

equal monthly instalments at Rs.17,778/- each, but paid only an

amount of Rs.1,42,446/- thereby committed default in payment of

money.

4) It is said that, in-spite of issuing legal notice, dated 09.09.2015,

there was no response from the Appellants. The sole Arbitrator came to

be appointed, for which no objection was raised at the initial stage, but, 

2

however, the Appellants/Petitioners did not participate in the

proceedings nor they appeared before the Arbitrator. Thereafter, an

Award came to be passed. Challenging the same, A.O.P. No. 124 of

2016 came to be filed before the learned I Additional District Judge,

Kurnool. The objection raised was that the appointment of sole

arbitrator is illegal and contrary to mandatory procedure contemplated

under law and that the sole arbitrator failed to follow the procedure as

required under law. The counsel for the Appellants/Petitioners further

pleads that, without giving notice, an ex parte award came to be

passed, as such, the same is illegal, improper and incorrect.

5) A counter came to be filed by 1st Respondent denying the

averments made in the application contending that there is an

arbitration clause in the agreement and accordingly Sri. Y. Reddeppa

Reddy, was appointed as sole Arbitrator. It is further urged in the

counter that, in-spite of giving several opportunities, the

Appellants/Petitioners herein did not respond, as such, they were set

ex parte and the 4th Respondent herein i.e., the sole Arbitrator

concluded the proceedings by following the procedure.

6) Taking into consideration the grounds raised, the learned I

Additional District Judge, Kurnool, in the impugned proceedings

dismissed the request of the Appellants/Petitioners herein. Challenging

the same, the present Civil Miscellaneous Petition came to be filed.

7) Reiterating the grounds urged in A.O.P. No. 124 of 2016,

Sri.J.U.M. V. Prasad, learned Counsel for the Petitioners would contend

that the entire procedure that is followed by the sole Arbitrator is

incorrect. In other words, his plea is not giving any option to the 

3

Petitioners in choosing an Arbitrator in adjudicating the matter is

incorrect.

8) On the other hand, Sri. Maheshwara Rao Kuncheam, learned

Counsel for the Respondents would submit that, in view of the law laid

down by the Hon’ble Apex Court in The Iron and Steel Company

Limited v. M/s. Tiwari Road Lines1 case, the order impugned

requires no interference.

9) The short point that arises for consideration is, whether the

procedure that is followed in appointing arbitrator is in

accordance with law?

10) Clause 17 of the Loan Agreement [Ex.A4] states that ‘all the

disputes, differences or claims arising out of the said agreement shall be

settled by an Arbitrator, duly appointed by the 1st Respondent

Company’. Therefore, the argument that there is no arbitration clause

in the agreement entered into by both the parties cannot be accepted.

Further, a reading of the above “clause” clearly indicates that, all the

differences or disputes arising between the parties shall be settled by

an Arbitrator duly appointed by the 1st Respondent Company. It

nowhere indicates any choice being given to the loanees or the

Appellants herein in selecting an Arbitrator. Existence of this clause in

the agreement was never objected to by the Appellant herein at any

point of time.

11) Sub-section 2 of Section 11 of the Act postulates that subject to

sub-section 6, the parties are free to agree on the procedure relating to

appoint of an Arbitrator or Arbitrators.

1

 AIR 2007 SC 2064 

4

12) Referring to Section 11 of the Act, more particularly, sub-section

2 of Section 11, the Hon’ble Apex Court in The Iron and Steel

Company Limited v. M/s. Tiwari Road Lines [supra] held as under:-

“7. In the present case the agreement executed between the parties contains

an arbitration clause and clause 13.1 clearly provides that all disputes and

differences whatsoever arising between the parties out of or relating to the

construction, meaning and operation or effect of the contract or the breach

thereof shall be settled by arbitration in accordance with the Rules of

Arbitration of the Indian Council of Arbitration and the award made in

pursuance thereof shall be binding on the parties. This clause is in

accordance with sub-section (2) of Section 11 of the Act. There being an

agreed procedure for resolution of disputes by arbitration in accordance with

the Rules of Arbitration of the Indian Council of Arbitration sub-sections (3),

(4) and (5) of Section 11 can have no application. The stage for invoking subsection (6) of Section 11 had also not arrived. In these circumstances, the

application moved by the respondent before the City Civil Court, Hyderabad,

which was a designated authority in accordance with the scheme framed by

the Chief Justice of the Andhra Pradesh High Court, was not maintainable

at all and the City Civil Court had no jurisdiction or authority to appoint an

arbitrator. Thus the order dated 31.03.2004 passed by the Chief Judge, City

Civil Courts, Hyderabad, appointing a retired juridical officer as arbitrator is

clearly without jurisdiction and has to be set aside.

8. The legislative scheme of Section 11 is very clear. If the parties have

agreed on a procedure for appointing the arbitrator or arbitrators as

contemplated by sub-section (2) thereof, then the dispute between the

parties has to be decided in accordance with the said procedure and

recourse to the Chief Justice or his designate cannot be taken straightaway.

A party can approach the Chief Justice or his designate only if the parties

have not agreed on a procedure for appointing the arbitrator as

contemplated by sub-section (2) of Section 11 of the Act or the various 

5

contingencies provided for in sub-section (6) have arisen. Since the parties

here had agreed on a procedure for appointing an arbitrator for settling the

dispute by arbitration as contemplated by sub-section (2) and there is no

allegation that anyone of the contingencies enumerated in clauses (a) or (b)

or (c) of sub- section (6) had arisen, the application moved by the respondent

herein to the City Civil Court, Hyderabad, was clearly not maintainable and

the said court had no jurisdiction to entertain such an application and pass

any order. The order dated 27.12.2004, therefore, is not sustainable”.

13) From a reading of the judgment referred to above, it is very clear

that, if the parties agreed upon a particular procedure for appointment

of an Arbitrator as contemplated under Clause 17 of the Loan

Agreement, the disputes between the parties, more particularly with

regard to appointment of arbitrator, have to be in accordance with the

said procedure. Therefore, the argument of the learned Counsel for the

Appellants that, no opportunity was given to the Appellants in

proposing the name of an arbitrator, has no merit.

14) Ergo, we see no merits in the Appeal and the same is accordingly

dismissed. No order as to costs.

15) Consequently, miscellaneous petitions pending, if any, shall

stand closed.

________________________________

JUSTICE C. PRAVEEN KUMAR

_______________________

JUSTICE BATTU DEVANAND

Date: 06.02.2020

SM. 

6

THE HON’BLE SRI JUSTICE C. PRAVEEN KUMAR

AND

THE HON’BLE SRI JUSTICE BATTU DEVANAND

C.M.A. No. 25 of 2020

(Per Hon’ble Sri Justice C.Praveen Kumar)

Date: 06.02.2020

SM.