Recovery disputes demand speed — and awards that stand
Lending institutions face disputes that are high in volume and repetitive in nature: default in payment of instalments, invocation of guarantees, disputes over loan and hypothecation agreements, and recovery of outstanding dues. Traditional legal avenues are costly, time-consuming and procedurally heavy — a serious burden when the same institution must pursue hundreds of accounts. Every month a dispute remains unresolved, capital stays blocked and provisioning grows.
Arbitration has therefore long been the preferred route in finance agreements. But the manner in which the arbitrator is appointed has now become decisive — because an award made by an invalidly appointed arbitrator may not survive execution.
Unilateral appointment no longer works. Institutional appointment does.
For years, finance agreements empowered the lender to appoint the sole arbitrator of its choice. The Supreme Court has now firmly closed that route. A party interested in the outcome of the dispute — or its nominee — cannot unilaterally appoint the arbitrator; appointments made in that manner are invalid from inception, and awards rendered by such arbitrators face resistance at the stage of enforcement and execution.
A person having an interest in the outcome of the dispute cannot unilaterally appoint a sole arbitrator. Clauses conferring such a power on one party are invalid, and appointments made under them do not confer jurisdiction.
The Constitution Bench has reaffirmed that unilateral control over the appointment of arbitrators offends the guarantee of independence and impartiality that lies at the core of the Arbitration and Conciliation Act, 1996.
The consequence for lenders is practical, not academic: awards obtained through arbitrators named by the lender itself are being set aside or refused execution across the country. The cure recognised by the law is appointment through a neutral arbitral institution. When a Bank or NBFC adopts the DAC clause, the arbitrator is appointed by the Centre — an independent institution controlled by neither party — from its panel of Hon'ble former Judges and experienced professionals, with written disclosures of independence and impartiality under Section 12 of the Act before every reference.
The appointment is institutional. The tribunal is independent. The award is a reasoned, enforceable award — executable as a decree of the court under Section 36 of the Arbitration and Conciliation Act, 1996.
From default to award — the DAC route
The DAC Arbitration Clause for Banks & NBFCs
Banks and NBFCs may insert the following clause in their loan, finance, lease, hypothecation and guarantee agreements:
"Any dispute or difference whatsoever arising between the parties out of or relating to the construction, meaning, scope, operation or effect of this contract/agreement, or the validity or breach thereof, shall be referred to and finally resolved by arbitration administered by the Delhi Arbitration Centre ("DAC"), Tis Hazari, Delhi, in accordance with the DAC Rules of Arbitration for the time being in force, which Rules are deemed to be incorporated by reference into this clause.
The reference shall be initiated by an application in writing to the Registrar, DAC. The seat of arbitration shall be New Delhi, India. The tribunal shall consist of a sole arbitrator appointed in accordance with the DAC Rules from the panel of arbitrators maintained by DAC. The language of the arbitration shall be [English/Hindi]. The law governing this arbitration agreement shall be the law of India, and the award made in pursuance hereof shall be final and binding on the parties."
For the full set of model clauses — including optional provisions on confidentiality, expedited timelines and interim measures, and the submission agreement for existing disputes — see the DAC Clauses page. For customised clauses across a lending programme, write to the Registrar, DAC.
Bring your lending disputes to a neutral institution
For empanelment of your institution's standard agreements, bulk references, the subsidised Banking/NBFC fee schedule, or a customised dispute-resolution framework for your loan portfolio, contact the Registrar, DAC.
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