D S Textiles vs. Iifl Finance Limited

2026:BHC-OS:11545
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION (L) NO. 12097 OF 2026
D S Textiles …Petitioner
Versus
IIFL Finance Limited …Respondent
WITH
ARBITRATION PETITION (L) NO. 12128 OF 2026
Madhuram Fabrics Pvt Ltd …Petitioner
Versus
IIFL Finance Limited …Respondent
WITH
ARBITRATION PETITION (L) NO. 12154 OF 2026
P R Packing Service …Petitioner
Versus
IIFL Finance Limited …Respondent
Mr. Pratik Barot a/w Adv Angel Pandey i/b Adv. Kruti Bhavsar, for the
Petitioner in ARBP(L)/12097/2026, ARBP(L)/12128/2026 &
ARBP(L)/12154/2026.
Ms. Mitali More, Officer of IIFL, is present.
CORAM : SOMASEKHAR SUNDARESAN, J.
DATE : APRIL 30, 2026
Oral Judgement:
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1. Each of the captioned Petitions is yet another case of a non-banking
finance company unilaterally appointing an arbitrator who has proceeded to
pass urgent interlocutory orders without any description as to how the arbitral
tribunal came to be constituted.
2. Learned Advocate for the Respondent submits that she has no
instructions in the matter other than to state that arbitration proceedings are
being withdrawn and the Petition may be disposed of as infructuous.
3. An increasing trend is being seen in a number of matters, in
particular by non-banking financial companies and even scheduled
commercial banks that are themselves listed companies, requiring them to be
mindful of having greater intensity of promise to be compliant with the law,
where a unilateral arbitrator is appointed but purporting to appoint the
arbitrator through an “institution” or an algorithm-based selection of
arbitrator, it is hoped that the inherent illegality in unilateral-appointment is
magically cleansed.
4. I have to take judicial notice from the trend of these cases. What is
evident is that the modus operandi is to conduct arbitration in this process
and hope that in most cases the affected party may not challenge the
arbitration and may instead come up with settlement terms, with the strategy
resulting in recoveries. However, whenever a counterparty challenges the
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unilateral appointment, the unilaterally-appointing party simply comes to
Court and volunteers to have the arbitration proceedings withdrawn. In this
manner, it is apparent that such parties are hoping to circumvent the law
declared by the Supreme Court with impunity.
5. It is made clear that such an attempt merely presents a veneer or a
fig-leaf to contend that the arbitrator is “ independent ” but such an arbitrator
would still be a unilaterally-appointed arbitrator. As is typical in such cases,
an order under Section 17 of the Act, attaching various bank accounts gets
passed rapidly by such arbitrators. In these orders, there is invariably no
mention at all about the process of appointment of the arbitrator. In most
cases, such orders are also devoid of material particulars of compliant
invocation of arbitration. While this itself would be a giveaway about the
quality of the independence and impartiality brought to bear, even the citation
of particulars of invocation can never cure what is fundamentally and
substantially a unilateral appointment.
6. There are only two known methods in law to appoint an arbitrator –
(i) the consent of the parties; and (ii) appointment by a Section 11 Court
having jurisdiction in the matter. Any third appointment cannot be
whitewashed as being a compliant appointment.
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7. The law on unilateral appointment has been explicitly declared by
1
the Supreme Court in Central Railway making it abundantly clear that the
manner of appointment is an integral and foundational facet of independence
and impartiality of the arbitrator. However, it must be remembered that this
is a reiteration of what was first declared by the Supreme Court in Perkins
2
Eastman .
3
8. More recently, in the case of Bhadra International , the Supreme
Court has provided a seminal explanation of the principles involved and traced
the history of the declared law on the subject. The Supreme Court noted that
even before the amendments effected in 2015, the Supreme Court had always
considered the facet of appointment of arbitrator as a foundational element.
The Supreme Court held that facet of unilateral appointment, even if
contained in the agreement, is foundationally in conflict with the core
requirements of the Act. The following extracts are noteworthy:
36. The principle of equal treatment of parties is not new to the arbitration regime
in India. It has long been recognised that equal participation in the constitution of the
arbitral tribunal is integral in ensuring impartiality and preserving fairness of the
arbitral process. Even prior to the Amendment Act, 2015, this Court in Dharma
Prathishthanam v. Madhok Construction (P) Ltd., (2005) 9 SCC 686, held that a

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unilateral appointment, without the consent of the other party is illegal and alien to
law. The relevant observations read thus:—
“12. On a plain reading of the several provisions referred to hereinabove,
we are clearly of the opinion that the procedure followed and the methodology
adopted by the respondent is wholly unknown to law and the appointment of
the sole arbitrator Shri Swami Dayal, the reference of disputes to such
arbitrator and the ex parte proceedings and award given by the arbitrator are
all void ab initio and hence nullity, liable to be ignored. In case of arbitration
without the intervention of the court, the parties must rigorously stick to the
agreement entered into between the two. If the arbitration clause names an
arbitrator as the one already agreed upon, the appointment of an arbitrator
poses no difficulty. If the arbitration clause does not name an arbitrator but
provides for the manner in which the arbitrator is to be chosen and appointed,
then the parties are bound to act accordingly. If the parties do not agree then
arises the complication which has to be resolved by reference to the provisions
of the Act. One party cannot usurp the jurisdiction of the court and proceed to
act unilaterally.A unilateral appointment and a unilateral reference — both
will be illegal. It may make a difference if in respect of a unilateral
appointment and reference the other party submits to the jurisdiction of the
arbitrator and waives its rights which it has under the agreement, then the
arbitrator may proceed with the reference and the party submitting to his
jurisdiction and participating in the proceedings before him may later on be
precluded and estopped from raising any objection in that regard . […]”
(Emphasis supplied)
37. What flows from the aforesaid is that the principle of equal treatment of
parties which has always formed part of the Act, 1996, has been articulated with
greater clarity and precision by the legislature through the Amendment Act, 2015. The
Amendment Act, 2015, just crystallizes what was previously implicit. It makes the
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statutory guarantee of equal treatment in the process of appointment of the arbitrator
explicit.
38. One another good reason to hold the aforesaid is that, although Section 11(2)
of the Act, 1996, stipulates that the parties are free to agree on a procedure for
appointing the arbitrator or arbitrators, yet this freedom is not unbridled. The exercise
of party autonomy must operate within the framework of the Act, 1996. In case of
conflict, mandatory provisions of the Act, 1996, prevail over the arbitration
agreement.
39. The principle of party autonomy does not obliterate the principle of equal
treatment of the parties, either in the procedure for appointment of arbitrators or in the
arbitral proceedings. The exercise of party autonomy has to be in consonance with the
principles of equal treatment of parties, which impliedly include the independence and
impartiality of arbitrators.
[Emphasis Supplied]
9. The law declared in Perkins Eastman too was noticed in Bhadra
International . The following extract from Perkins Eastman is noteworthy to
point out that even a third party who is seemingly independent, being
unilaterally appointed by one of the parties to the arbitration agreement, is
bad in law:

the decision shows that this Court was concerned with the issue, “whether the
Managing Director, after becoming ineligible by operation of law, is he still eligible
to nominate an arbitrator” The ineligibility referred to therein, was as a result of
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operation of law, in that a person having an interest in the dispute or in the outcome or
decision thereof, must not only be ineligible to act as an arbitrator but must also not
be eligible to appoint anyone else as an arbitrator and that such person cannot and
should not have any role in charting out any course to the dispute resolution by having
the power to appoint an arbitrator.The next sentences in the paragraph, further show
that cases where both the parties could nominate respective arbitrators of their choice
were found to be completely a different situation. The reason is clear that whatever
advantage a party may derive by nominating an arbitrator of its choice would get
counter-balanced by equal power with the other party. But, in a case where only one
party has a right to appoint a sole arbitrator, its choice will always have an element of
exclusivity in determining or charting the course for dispute resolution. Naturally, the
person who has an interest in the outcome or decision of the dispute must not have the
power to appoint a sole arbitrator. That has to be taken as the essence of the
amendments brought in by theArbitration and Conciliation (Amendment) Act, 2015
(3 of 2016) and recognised by the decision of this Court in TRF Ltd. [TRF Ltd.

[Emphasis Supplied]
10. Endorsing a view expressed by a Learned Single Judge of this Court
4
in Lite Bite , and that too based on the Perkins Eastman , the Supreme Court,
in Bhadra International , held thus:
55. The Bombay High Court, inLite Bite Foods Pvt. Ltd.v.AAI, dealt with a
submission similar to the one arising from Clause 75 of the License Agreement before
us. It was contended that only when an employee of the respondent is the named
arbitrator does such person become ineligible to act, and equally ineligible to
nominate another arbitrator.
4 Lite Bite Foods Pvt. Ltd.v.AAI,2019 SCC OnLine Bom 5163
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The Court held that the embargo under sub-section (5) of Section 12 is against
granting any single party a unilateral or one-sided authority in constituting the arbitral
tribunal. We are in complete agreement with the observations of\G. S. Patel, J., that,
“The guiding principle is neutrality, independence, fairness and transparency even in
the arbitral-forum selection process”. The relevant observations read thus:—
“23. The present case may not be within the confines of TRF Ltd., i.e. the
tender approving authority is not both arbitrator and, if disqualified, the sole
repository of arbitrator-appointing power. He is only the latter. But that now
matters at all.Perkins Eastman clearly holds the field and it covers a situation
precisely such as the present one where AAI — and only AAI — has the
exclusive right of appointed (not merely nominating) an arbitrator. The
question is not, as Ms. Munim would have it, the perceived bias or impartiality
of the arbitrator. He may well be an unknown entity. The question is of one-
sidedness in the arbitral tribunal appointment procedure itself. This is the
destination to which Perkins Eastman takes us for it requires that there be
neutrality in the dispute resolution process throughout. If I might be permitted
a license, in my reading of it, what Perkins Eastman says is this : that you
cannot have an impartial arbitration free from all justifiable doubt if the
manner in which the arbitral tribunal is constituted itself is beset by justifiable
doubt.”
xx
25. Ms. Munim's last submission is that the only prohibition is against a
named person being the arbitrator or empowered to appoint an arbitrator. This
is clearly incorrect. The interdiction runs against any one party being given
unilateral or one-sided power in the matter of constitution of the arbitral
tribunal.”
[Emphasis Supplied]
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11. Therefore, it is abundantly clear now that merely by contending
that an institution is being appointed by one of the parties unilaterally, the
party making a unilateral appointment cannot cleanse what is essentially a
foundational defect in the constitution of the arbitral tribunal. This is the law
declared in Perkins Eastman and thoroughly endorsed in multiple reiterations
by the Supreme Court.
12. Therefore, the attempt by finance companies and banks to pretend
to have cleansed the arbitrator-appointment process by getting an
“institution” of their choice to make a purportedly “ independent ” appointment
is wholly untenable and completely illegal, and indeed a colourable and
manipulative device to circumvent the law declared by the Supreme Court.
13. Also making it clear that invocation is an important element of
commencing the arbitration, the Supreme Court held that invocation cannot
partake the character of consent, in the following words:
We would like to clarify that a notice under Section 21 of the Act, 1996, is an
expression to set the arbitration agreement into motion upon arising of disputes
between the parties. The section states that the date of commencement of arbitration
would be the date on which the recipient receives the notice from the claimant that the
dispute be referred to arbitration. The notice acts as a communication that the sender
is aggrieved and seeks to invoke the arbitration agreement. It does not, by itself,
operate as consent to any appointment to be made in the future.
[Emphasis Supplied]
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14. Noting that filing of a claim in the arbitration proceedings
conducted by a unilaterally appointed arbitrator; participation in extension of
mandate under Section 29A of the Act; and continued participation in the
arbitration proceedings would still not constitute an “express agreement in
writing” for a waiver to be inferred to an ineligible arbitrator, the Supreme
Court held that the objection can still be raised at the Section 34 stage, and
ruled as follows:
One could argue that a miscreant party may participate in the arbitral proceedings up
to the passing of the award, despite having full knowledge of the arbitrator’s
ineligibility. While after an adverse award is rendered, such a party may then seek to
challenge it with a view to having it set aside. Such an apprehension is reasonable,
however, to obviate the possibility of such misuse, the party making unilateral
appointment must endeavour to enter into an express written agreement as stipulated
in the proviso to Section 12(5), so as to safeguard the proceedings from being
rendered futile.
Thus, all the High Court decisions taking a contrary view to the present judgment
would stand overruled.
[Emphasis Supplied]
15. It would be a completely different matter if the parties had agreed
that the appointment of the arbitrator would be by a named institution. If the
parties have not applied their mind to consent to such an appointment being
made by an agreed institution of their choice, it would only follow that one of
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the parties getting an institution of its choice to make the appointment cannot
bless what is essentially a tainted approach to appointment of the arbitrator.
16. Therefore, I have no doubt in my mind that the practice of
attempting to transpose a semblance of impartiality and independence by
contending that the appointment is being made by an institution is untenable
and is worthy of deprecation.
17. The market practice that is evident to any judge with the arbitration
roster, is that the manipulative device being resorted to is to simply surrender
to the Court in those cases where the counterparty has the strength to
approach the Court. By having the arbitration withdrawn, there would be no
need to have a ruling on the resort to illegality. In all other cases where the
parties do not have the wherewithal to come to Court, resort to such illegal
means could still lead to recoveries of funds. This is precisely the approach
that lends arbitration a bad name and inflicts long-term damage to alternate
dispute resolution as a mechanism.
18. Therefore, in view of such conduct being directly contrary to the law
declared by the Supreme Court, a copy of this Order shall be placed before the
Board of Directors at its next meeting to alert them that, under their watch, an
approach that is directly contrary to the law declared by the Supreme Court is
being adopted.
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19. Therefore, while the submission that the arbitration proceedings
are being dropped is taken note of, to quash and set aside the Impugned
Order, it is directed that this judgement be placed before the Audit Committee
of the Respondent’s Board of Directors by the Chief Compliance Officer, to
ensure that those in the governance of the Respondent are aware of the
practice adopted by them being contrary to law and to ensure that they frame
appropriate policies compliant with the law declared by the Supreme Court, in
their resort to arbitration.
20. The captioned proceedings are finally disposed of with the aforesaid
directions.
21. All actions required to be taken pursuant to this order shall be
taken upon receipt of a downloaded copy as available on this Court’s website.
[ SOMASEKHAR SUNDARESAN, J.]
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