Court Rules that Arbitrator Appointment Must Comply with Statutory Requirements of Impartiality and Independence; Rejects Appeal by Matsya Fincap Pvt Ltd Challenging Jurisdiction and Applicability of Money-Lenders Act
In a significant judgment delivered on September 16, 2026, the Division Bench of the Delhi High Court, comprising Justices Anil Kshetarpal and Shail Jain, dismissed an appeal filed by Matsya Fincap Pvt Ltd against the setting aside of an arbitral award dated October 12, 2020. The underlying dispute arose from a business loan agreement between Matsya Fincap Pvt Ltd (Appellant) and Mohd Hassinuddin (Respondent), wherein the Respondent had executed a deed of guarantee for repayment of a Rs. 2,00,000 loan.
The arbitral award had been passed in favor of Matsya Fincap Pvt Ltd for Rs. 5,18,600 along with interest and costs, following ex parte proceedings before Sole Arbitrator Manohar Lal Saini. However, the Respondent challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 ("A&C Act"), asserting that the arbitrator was unilaterally appointed by the Appellant after disputes arose, violating the statutory mandate of impartiality and independence as per Section 12(5) of the A&C Act. Furthermore, the Respondent contended that the loan agreement was void due to the imposition of an interest rate exceeding the maximum permitted under the Rajasthan Money-Lenders Act, 1963.
The District Judge at Tis Hazari Courts, Delhi, allowed the Section 34 petition, setting aside the arbitral award on grounds including the unilateral appointment of the arbitrator without the Respondent's express written waiver and the invalidity of the loan agreement due to contravention of the Money-Lenders Act.
Matsya Fincap challenged this order on multiple grounds: territorial jurisdiction of the court, limitation period for filing the Section 34 petition, the nature of arbitrator appointment, and the applicability of the Money-Lenders Act to a Non-Banking Financial Company (NBFC) regulated by the Reserve Bank of India (RBI).
The Delhi High Court, while acknowledging that territorial jurisdiction ordinarily lies with courts at the juridical seat of arbitration (here, Alwar, Rajasthan), held that the mere place of signing the award does not conclusively determine jurisdiction. The Court observed that the Appellant's office and the Respondent's residence were in Delhi, and the Guarantee Agreement was executed there. Importantly, the Respondent did not contest jurisdiction below and the Appellant failed to raise the objection before the District Judge. Therefore, the Court refused to entertain a belated jurisdictional objection on appeal.
Regarding limitation, the Court clarified that the limitation period under Section 34(3) commences from the date the party receives the arbitral award, not the date of the award itself. Since the Respondent averred non-receipt until the execution proceedings, and the Appellant did not produce evidence to the contrary, limitation could not be upheld as a ground for dismissal.
The Court's principal focus was on the constitution of the arbitral tribunal. It emphasized the mandatory statutory requirements under Section 12(5) of the A&C Act, which prohibits unilateral appointment of an arbitrator by one party after disputes have arisen without an express written waiver by the other party. The Court noted that although the arbitration agreement named the arbitrator, the appointment after disputes arose was effected solely by the Appellant through a Letter of Intent and acceptance by the arbitrator. The Respondent neither participated in nor consented to this appointment subsequently.
Citing the Supreme Court's precedents, including TRF Limited v. Energo Engineering Projects Ltd., Bharat Broadband Network Ltd. v. United Telecoms Ltd., and Bhadra International (India) Pvt. Ltd. v. Airport Authority of India, the Court reiterated that party autonomy cannot override statutory safeguards ensuring impartiality and independence of arbitrators. The absence of any post-dispute written waiver by the Respondent rendered the appointment invalid.
On the applicability of the Rajasthan Money-Lenders Act, the Court noted that whether the Act applies to NBFCs depends on detailed regulatory frameworks. However, since the arbitral award was invalidated on independent grounds related to the tribunal's constitution, the Court declined to undertake a detailed inquiry into this issue in the appeal, especially as the Appellant had not participated in the Section 34 proceedings to place relevant material before the District Judge.
The Court also rejected the Appellant's submission that the Respondent's failure to participate in arbitration amounted to waiver of objections, holding that the statutory waiver under Section 12(5) must be express and in writing, which was absent.
Concluding that the appointment of the arbitrator was unilateral and contrary to mandatory statutory requirements, the Court upheld the setting aside of the arbitral award. The appeal was dismissed for lack of merit, with the Court finding no jurisdictional error, patent illegality, or perversity in the impugned order.
This judgment underscores the critical importance of compliance with procedural safeguards in arbitral appointments and reaffirms the limited scope of appellate interference under Section 37 of the A&C Act. It also highlights that party autonomy in arbitration is subject to the mandatory provisions of the statute designed to ensure fairness and impartiality in dispute resolution.
Bottom Line:
Arbitration and Conciliation Act, 1996 - An arbitral award rendered by a tribunal constituted contrary to the statutory requirements of impartiality and independence cannot be sustained, even on grounds of party autonomy.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Sections 12(5), 34, 37; Rajasthan Money-Lenders Act, 1963; Indian Contract Act, 1872 Sections 23, 24.
Matsya Fincap Pvt Ltd v. Mohd Hassinuddin, (Delhi)(DB) : Law Finder Doc Id # 2979774
