The Delhi High Court recently laid down a judgment which clarified many points on Section 12 of the Arbitration and Conciliation Act, 1996 (A & C Act).

In Ram Kumar & Anr. v. Shriram Transport Finance Co. Ltd., an appeal was filed under Section 37 of impugning an order rendered by the Commercial Court, wherein the party had impugned the Arbitral Award. In this Award, the Arbitral Tribunal had awarded it in favour of the Respondent, Shriram Transport Finance Co. Ltd.

The Appelant had approached the Respondent seeking finance for the purchase of a vehicle and entered into a loan cum hypothecation agreement. The Appellant failed to pay the outstanding amount of about ₹ 4 lacs. Therefore, the Respondent seized the vehicle and sold it for the best price available i.e. ₹ 1.2 lacs.

The Respondent invoked the arbitration clause and appointed the learned Sole Arbitrator, without any consultation with the Appellants. Moreover, the Arbitrator did not make any disclosure under Section 12. It was alleged that he had been appointed as an arbitrator in several other matters by the same company and acts as their agent.

The Commercial Court rejected this argument by stating that no formal application was moved by the parties challenging the appointment of the arbitrator.

The Hon’ble Delhi Court finally held that:

1. Disclosure under 12(5) is mandatory for the arbitrator and not just discretionary. The words in the section are ‘he shall disclose’ which makes it evidently clear that it is mandatory. The burden of proof does not lie on the parties to tell the arbitrator to do so.
2. If the parties are cognizant of the fact and still want to proceed with the same Arbitrator, they should have an express agreement in writing, reiterated from Bharat Broadband Network Limited v. United Telecoms Ltd. (2019) 5 SCC 755
3. Unilateral appointment is impermissible after Section 12, TRF Ltd. v. Energo Engineering Projects Ltd. and Perkins Eastman v. HSCC.
4. The fact that the arbitrator was engaged in a number of matters by the respondent is a material fact that would raise justifiable grounds as to his independence and impartiality.