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Home › Delhi High Court — Arbitration
Delhi High Court · 16 September 2026

The Award That Was Doomed at Appointment: Unilateral Arbitrators in Loan Recoveries

In Matsya Fincap Pvt. Ltd. v. Mohd. Hassinuddin, a Division Bench of Justices Anil Kshetarpal and Shail Jain upheld the setting aside of an ex parte award obtained by a finance company from an arbitrator it had itself appointed — reaffirming that unilateral appointment violates the statutory guarantee of an independent tribunal.

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A large volume of loan-recovery “arbitrations” in India follows a pattern: the lender’s standard-form agreement names or lets the lender nominate the arbitrator; proceedings run ex parte at a venue convenient to the lender; an award issues; and execution arrives at the borrower’s door years later. In FAO (COMM) 221/2024, decided on 16 September 2026, the Delhi High Court dealt with exactly this pattern — and affirmed the order setting aside the award. The appointment letter told the whole story: the claimant itself had appointed the arbitrator, and that single fact was fatal.

The pattern before the court

Matsya Fincap advanced a business loan of ₹2,00,000; the respondent executed a guarantee deed; the agreement stipulated 36% annual late-payment charges. On default, the finance company’s own letter of 18 August 2020 appointed the arbitrator — the award itself recorded that “the Claimant appointed the undersigned to adjudicate these disputes.” Ex parte proceedings at Alwar produced an award of ₹5,18,600 plus interest in October 2020. When the award travelled to Delhi for enforcement-side litigation, the Section 34 court set it aside, and the Division Bench has now dismissed the lender’s appeal under Section 37.

The law on unilateral appointments

Section 12(5) + Seventh Schedule. Since the 2015 amendment, persons bearing the listed relationships to a party — employee, consultant, advisor, or other specified connections — are ineligible to be arbitrators, “notwithstanding any prior agreement to the contrary.”
The nominee falls with the nominator. The Supreme Court’s line of authority culminating in the Constitution Bench ruling on unilateral appointments establishes that a party interested in the dispute can neither act as arbitrator nor unilaterally select one; equality in appointment is part of the guarantee of an independent tribunal.
Waiver is narrow. Only an express written agreement made after disputes arose saves such an appointment. Boilerplate consent in the loan document does not.
Consequence. The award of an ineligible or unilaterally appointed tribunal is set aside under Section 34 — and Delhi courts have repeatedly refused execution of such awards even when the objection surfaces late.

The venue detail in this case — proceedings at Alwar over a Delhi-litigated loan — is characteristic of the genre. Distance suppresses participation, and ex parte awards follow. The judgment shows that non-participation does not cure the appointment defect; it preserves it.

What each side of a loan dispute should take away

Borrowers and guarantors

An arbitral award is not the end of the road. Examine who appointed the arbitrator and how; a unilateral appointment grounds a Section 34 challenge, and the limitation clock runs from receipt of the award — so act on the first communication received.

NBFCs and finance companies

Recovery built on unilaterally appointed tribunals is structurally unsound. Institutional appointment, Section 11 applications, or the commercial courts are slower to start but produce enforceable outcomes.

Drafters

Redraft legacy clauses that name the lender’s nominee. A clause referring appointment to an arbitral institution — or providing a genuinely mutual mechanism — survives; the old pattern does not.

The interest question lurking behind these awards

Awards of this genre frequently compound the appointment defect with penal interest — here, contractual late-payment charges of 36% per annum feeding an award more than two and a half times the principal. While the present decision rests on the appointment defect, challengers should note that exorbitant interest in consumer-facing standard-form awards has independently attracted judicial scrutiny under the public-policy head. A borrower’s Section 34 petition is well advised to plead both.

Core holding: an ex parte award rendered by an arbitrator appointed by the claimant alone violates the independence guarantee of the 1996 Act and was rightly set aside; the lender’s Section 37 appeal fails.

This article is for general information only and is not legal advice. Challenges to arbitral awards are subject to strict limitation and require immediate, case-specific advice.

Frequently Asked Questions

What was the underlying transaction?

A ₹2,00,000 business loan by Matsya Fincap, guaranteed by the respondent, with late-payment charges of 36% per annum. On default, an arbitrator appointed by the finance company itself passed an ex parte award of ₹5,18,600 plus interest in October 2020, at Alwar, Rajasthan. The award was challenged and set aside in Delhi, and the lender’s appeal has now failed.

Why is unilateral appointment fatal?

Because the 2015 amendments — Section 12(5) read with the Seventh Schedule — render a person with the specified relationships to a party ineligible to act as arbitrator, and the Supreme Court has held that a party who is itself ineligible cannot nominate the arbitrator either. An award by such a tribunal is a nullity in substance, vulnerable under Section 34.

Can the borrower waive the objection?

Only by an express agreement in writing made after the dispute has arisen — the proviso to Section 12(5). Signing the original loan agreement, or staying away from the proceedings, is not waiver. That is why even ex parte borrowers succeed in setting such awards aside.

What should lenders do instead?

Use institutional arbitration or seek appointment through the court under Section 11 where the clause’s mechanism has become inoperative — or pursue ordinary civil and commercial remedies. Awards from unilaterally constituted tribunals are wasted money: they invite Section 34 annulment and resistance at execution.

Sources

Note: This article is general information about the law and is not legal advice. It does not create an advocate-client relationship. The position stated is as at 28 September 2026 and may have changed since. Readers should verify any provision or decision referred to against the official text and seek advice on their own circumstances.