Delhi HC upholds 2006 tractor dealership award: Section 12(5) cannot undo an arbitrator appointed in 2004

Justice Om Prakash Shukla dismissed a Section 34 challenge by a Sirsa dealer to a Rs 1.3 crore award, holding that the 2015 bar on unilateral appointments does not reach back to a retired judge named by the manufacturer under the contract, that no separate Section 21 notice was needed, and that dues from the letter-of-intent years were arbitrable.

The Delhi High Court has upheld a January 2006 arbitral award against a Haryana tractor dealer, rejecting the argument that the arbitrator was ineligible because the manufacturer chose him. Justice Om Prakash Shukla held on 29 October that Section 12(5) of the Arbitration and Conciliation Act, inserted in 2015, cannot reach back to a 2004 appointment under the agreed clause.

Tractors on credit for Sirsa and Fatehabad

M/s Shivdei Automobiles is a partnership firm; the second and third petitioners are its partners. The respondent, CNH Industrial (India) Pvt Ltd, named in the contract as New Holland Tractors (India) Pvt Ltd, makes and sells tractors and agricultural and industrial equipment.

In September 1998 the firm asked to be made a dealer. The company issued a letter of intent on 23 September 1998 proposing to appoint it for sales and after-sales service in Sirsa and Fatehabad, stated to be valid until 23 March 1999. A formal Dealership Agreement followed only on 1 January 2002, for three years.

Under that agreement the company supplied tractors, spares and other products on credit and raised invoices. By 31 March 2003, on the company’s accounts, the firm owed Rs 1,19,25,768 including interest. Meetings on 22 and 23 April 2003 went over the figures.

On 1 November 2003 the firm disputed its liability under various heads, questioning the accounts, the interest charged and the infrastructure expenditure. The company stood by its books on 28 November 2003 and sent a legal notice on 15 April 2004 demanding the dues and C-Form liability with interest. The firm replied on 4 May 2004, disputing the claims.

On 1 June 2004 the company invoked Clause 25 of the Dealership Agreement, the arbitration clause, and appointed Justice G.T. Nanavati (retired) as sole arbitrator.

Rs 1.3 crore claimed, Rs 1.15 crore counterclaimed

Before the arbitrator the company sought Rs 1,29,68,643 as outstanding dues, Rs 38,62,148 towards C-Forms, Rs 5,00,000 as compensation and Rs 1,00,000 for arbitration costs and legal expenses, with pendente lite and future interest.

The firm denied liability and raised a preliminary objection. The claims, it said, substantially concerned transactions between 24 March 1999 and 31 December 2001, when no agreement existed between the parties, so they fell outside the arbitration clause of the 2002 agreement.

It also counterclaimed: Rs 1,15,50,000 as user charges at Rs 3.5 lakh a month for that same period, Rs 2,21,321 as the credit balance in the tractor accounts, Rs 5,00,000 as security deposit with 18 per cent interest, and Rs 10,00,000 as damages for harassment and fabricated documents.

The award of 9 January 2006 rejected the objection and granted the company Rs 1,29,68,643 with interest at 12 per cent a year from 1 August 2004 until payment.

Two grounds against the award

Mr R.K. Jain led for the petitioners. Mr Yamandeep Kumar appeared for the company.

The petitioners’ first ground was that the sole arbitrator was appointed unilaterally by the company without their consent, in violation of Section 12 of the Act, and that no notice invoking arbitration under Section 21 was ever issued, so the proceedings never validly commenced. The award, they said, was passed without jurisdiction.

They relied on Bhadra International (India) (P) Ltd v. Airports Authority of India, 2026 SCC OnLine SC 7, and on ABL Biotechnologies, Supreme Infrastructure India, Bharat Forge, Dharma Prathishthanam v. Madhok Construction and Mahavir Prasad Gupta and Sons.

The second ground was that no arbitration agreement covered 24 March 1999 to 31 December 2001. Clause 3.1 made the Dealership Agreement effective from 1 January 2002, and Clause 1.4 merely preserved accrued obligations under previous agreements, when no agreement at all subsisted in that window.

The company answered that Section 12(5) could not apply because the arbitrator was appointed and the proceedings began well before the 2015 Amendment Act. Clause 1.4 expressly preserved accrued financial liabilities under the earlier agreement, and the firm’s own counterclaim for user charges for the same period showed that dealings continued.

The 2015 bar is prospective

Section 12(5), with the Seventh Schedule, came into force on 23 October 2015. The arbitration here began in 2004 and the award came in 2006, so both the appointment and the award predate the provision.

The Supreme Court held the 2015 amendment prospective in BCCI v. Kochi Cricket Pvt Ltd, the judge noted, a position repeated in Kamal Kumar v. Municipal Corporation of Delhi, Rajasthan Small Industries Corporation v. Ganesh Containers Movers Syndicate and D.V. Anand v. Hindustan Petroleum Corporation.

Hanson Agro Ltd v. GAIL (India) Ltd had examined the identical question of a unilateral appointment in a pre-2015 arbitration. It held that the validity of a tribunal’s constitution is tested by the law on the date of appointment, and that inserting Section 12(5) later cannot convert an appointment that was not prohibited when made into one now void.

Reading Bhadra International any other way, Hanson Agro said, would attribute to the Supreme Court a conclusion it did not reach, and would give retrospective effect to a disqualification Parliament applied from 23 October 2015.

The Division Bench in DMRC Ltd v. Pankaj drew the distinction that decided this case. Before 2015 the Act gave weight to party autonomy under Section 11(2), and one party having a contractual role in appointing the arbitrator was not by itself impermissible.

A unilateral appointment the arbitration agreement did not authorise was bad under Dharma Prathishthanam. A unilateral appointment the agreement expressly contemplated, later attacked only because the appointee was connected to one side, stood on a different footing.

Section 12(5), the judge held, “cannot be applied retrospectively to invalidate the appointment” (para 24). The objection had to be tested under the law at the time of appointment, and the bare fact that the company appointed the arbitrator was not enough to void the tribunal.

Clause 25 named the Managing Director as appointer

Clause 25 sent disputes to a sole arbitrator who was to be a retired court judge appointed by the Managing Director of New Holland Tractors (India) Pvt Ltd. The dealer declared it had no objection and would raise none in future, including on the ground that the Managing Director was connected to the company. Costs were to be shared equally.

The company appointed the arbitrator by letter of 1 June 2004, in accordance with that clause, at a time when Section 12(5) did not exist. The judge cited Datar Switchgears Ltd v. Tata Finance Ltd: a party that has not disputed the arbitration clause is normally bound by the procedure it lays down.

That did not end the inquiry. The court still had to ask whether any prohibition or disqualifying circumstance under the law then in force had been shown. The petitioners’ challenge rested only on the unilateral nature of the appointment and pointed to no independent circumstance raising justifiable doubts about the arbitrator’s independence or impartiality.

Justice Shukla was careful about the reach of his conclusion: “It does not lay down that unilateral appointments are valid in every circumstance” (para 30). It was confined to Clause 25, the date of appointment and the grounds actually raised, and left open scrutiny of a pre-amendment appointment for any distinct statutory infirmity or established lack of independence.

The petitioners’ authorities were distinguished one by one. Bhadra International examined Section 12(5) in detail but was not about an arbitration commenced, awarded and challenged before 2015. In ABL Biotechnologies the court set aside an award on Dharma Prathishthanam, but had not considered a clause that itself vested appointment in one side’s managing director.

The judge drew on the Bombay High Court’s S.E. Investments Ltd v. Star Bazaar, which explained that Bhadra International does not lay down, as ratio or obiter, that every pre-2015 unilateral appointment outside the Dharma Prathishthanam pattern is void ab initio.

In Bharat Forge the clause provided for appointment under the Act and the issue was consent. S.K. Builders and Mahavir Prasad Gupta involved arbitrations that began after 2015. In Supreme Infrastructure the petitioner was never served or told of the appointment and suffered an ex parte award; here the firm was informed under Clause 25 and took part.

No Section 21 notice, no prejudice

On the missing Section 21 notice, the judge went to Bhagheeratha Engineering Ltd v. State of Kerala, (2026) 5 SCC 758. The Supreme Court held there that Section 21 fixes the commencement of arbitral proceedings for reckoning limitation, is not a mandatory prerequisite, and its absence is not fatal to a claim otherwise valid and arbitrable.

The record showed a legal notice of 15 April 2004, a reply of 4 May 2004 and the letter of 1 June 2004 invoking Clause 25 and naming the arbitrator. Even assuming no separate Section 21 notice went out, the omission did not invalidate an arbitrable claim, though it did not dispense with limitation or enlarge the arbitration agreement.

The petitioners had neither pleaded that the claims were time-barred nor shown any procedural prejudice. The objection failed, the more so because the appointment procedure in the clause had been followed.

The letter-of-intent years were arbitrable

The last ground went to the arbitrator’s jurisdiction over dues from 24 March 1999 to 31 December 2001. Justice Shukla framed the question this way:

“The issue, therefore, is whether the parties’ commercial dealings continued after 23.03.1999 so as to establish a subsisting agreement between them and, if so, whether the arbitration clause in the Dealership Agreement extends to disputes concerning dues arising during that period.” (para 42)

The arbitrator had found that the letter of intent, though written by the company, was signed by the firm’s partner as authorised signatory, attested by two witnesses, and recorded as agreed between the parties. Supplies began on 24 September 1998 and the firm paid for them, a course of dealing that continued through the disputed period.

The 23 March 1999 date, in the arbitrator’s reading, went to fulfilling the conditions in the letter of intent, not to ending the relationship. Had the parties meant the relationship to end that day, the company would have stopped supplying tractors and the firm would not have accepted them.

The company’s witnesses, Mr Lalit and Rahul Sanon, Deputy General Manager (Finance and Accounts), accepted there was no other written agreement for the period but said the letter of intent was treated as continuing.

The firm had not objected to pre-agreement dues appearing in statements of account until almost the end of 2003, and its claim to have signed the 2002 agreement without reading it was disbelieved.

Justice Shukla found this a plausible view of the evidence. Continued supplies, acceptance of goods, corresponding payments and the later treatment of the accounts all supported the finding that the agreement subsisted until the 2002 agreement superseded it.

The non-objection until late 2003 supported the inference, though it could not itself amount to acceptance of the arbitrator’s jurisdiction or substitute for the written arbitration agreement Section 7 requires.

A continuing commercial arrangement did not by itself make the dispute arbitrable. Clause 1.4 preserved accrued and outstanding payment liabilities under the earlier agreement but did not itself provide for arbitration; it had to be read with Clause 25. Together, Clause 1.4 preserved the liabilities and Clause 25 supplied the forum, to the extent the disputes fell within its scope.

Clause 3.1, fixing 1 January 2002 as the commencement date, governed only when the new agreement began. Clause 1.4 was a saving provision for specified pre-existing financial obligations. The conclusion was confined to the payment liabilities Clause 1.4 saved and did not extend the arbitration clause to every unrelated dispute predating 2002.

The firm’s own counterclaim for user charges from 24 March 1999 to 31 December 2001 was a relevant circumstance. It showed the petitioners themselves recognised that an agreement subsisted in that window, though it neither made every claim of that period arbitrable nor created a written arbitration agreement where none existed.

Under Section 34, the judge said, the court cannot substitute its own interpretation of the contract for a plausible one taken by the arbitrator merely because another reading is possible. No ground for interference with the finding was made out.

Order

O.M.P. (COMM) 51/2020 was dismissed and the award of 9 January 2006 was upheld. The objections on the appointment of the arbitrator and the absence of a separate Section 21 notice failed, as did the jurisdictional objection over the 1999 to 2001 dues.

There was no order as to costs. The judgment was reserved on 30 September 2026 and pronounced on 29 October 2026.