Matsya Fincap Pvt. Ltd. v. Mohd Hassinuddin

What happened

Matsya Fincap Pvt. Ltd., a non-banking finance company, advanced a business loan of ₹2,00,000 under a Loan Agreement of 7 May 2019 to a borrower, and the respondent guaranteed repayment. The borrower was to repay ₹2,34,000 in ninety daily instalments, with late payment charges at 36% per annum. After alleged defaults the lender invoked the arbitration clause, and a sole arbitrator, an advocate with his office at Alwar, Rajasthan, proceeded ex parte and made an award dated 12 October 2020 for ₹5,18,600 with interest at 18% per annum and costs, signed at Alwar. The award records that the lender sent a letter of intent appointing the arbitrator and that he accepted, and that "the Claimant appointed the undersigned to adjudicate these disputes vide letter dated 18.08.2020". The respondent says he did not receive the award and learnt of it in execution proceedings. He filed a petition under section 34 before the District Judge, Central District, Tis Hazari, saying that the loan agreement was void for its rate of interest under the Rajasthan Money-Lenders Act, 1963, that the arbitrator was unilaterally appointed and that he was repeatedly appointed by the lender. The lender did not appear despite service, the arbitrator did not produce the record, and the District Judge allowed the petition on 31 August 2024. The lender's appeal argued lack of territorial jurisdiction because the award was made at Alwar, limitation, that the arbitrator was named in the agreement and so not unilaterally appointed, and that the Money-Lenders Act does not apply to an RBI-registered non-banking finance company.

Questions before the court

• Was the arbitral tribunal validly constituted when the lender appointed the arbitrator named in the agreement after the dispute had arisen, with no written waiver by the borrower's guarantor?

Why the court ruled this way

The Court recalled that its jurisdiction under section 37 is supervisory and narrower than under section 34, and that it does not re-appreciate evidence (paragraphs 17–19). The place where the award was signed is not in itself decisive of the seat, and the territorial objection was not pursued before the District Judge, while the lender's office and the guarantee agreement were in Delhi, the respondent lives in Delhi, and the lender itself filed its execution petition in Delhi (paragraphs 20–25). On limitation, section 34(3) runs from receipt of the award, the respondent pleaded that he learnt of it only in execution, and the lender, which stayed away from the proceedings, placed no material to show the date of receipt (paragraphs 26–28). Pre-designation of an arbitrator in the agreement is not itself invalid, but the Court must look at how the tribunal was actually constituted: here the lender sent the letter appointing the named person after the dispute, the borrower side took no part in the constitution and gave no consent afterwards, so the case calls for the statutory safeguards (paragraphs 30–35). Under TRF Limited, Bharat Broadband Network and Bhadra International, a party interested in the outcome cannot unilaterally constitute the tribunal, and the proviso to section 12(5) requires an express agreement in writing made after the dispute, which was absent; non-participation in the arbitration is not a waiver (paragraphs 36–44). That the same arbitrator was appointed by the lender in many matters does not by itself prove ineligibility, but it is relevant with the manner of constitution (paragraphs 41–43). The Court did not independently decide whether the Money-Lenders Act applies to an RBI-regulated non-banking finance company, since the lender had not placed its defence before the District Judge, and held that the finding on the tribunal's constitution was independently sufficient to sustain the setting aside (paragraphs 45–51).

Controlling point

An arbitral tribunal constituted by one party's appointment of the named arbitrator after the dispute has arisen, without an express written waiver of section 12(5) by the other side, is invalidly constituted, and an award passed by it can be set aside on that ground alone.

Order and next steps

The Court found no perversity, patent illegality or jurisdictional error in the order under section 34, dismissed the appeal and upheld the order of 31 August 2024.

Practical implications

A lender or other party that relies on a named arbitrator should obtain the other side's written agreement after the dispute arises, and should appear and put its objections before the court hearing the section 34 petition, since matters not raised there cannot be supplied in appeal.

Limits of this ruling

• The Court did not decide whether the Money-Lenders Act applies to an RBI-regulated non-banking finance company, nor whether the Alwar courts had exclusive jurisdiction, and it noted that the same arbitrator's repeated appointment does not by itself show ineligibility.