Clauses foreclosing arbitration upon failure of a unilateral appointment are void and severable from the substantive agreement.

In 2011, the respondent awarded the petitioner a contract for the construction of a memorial in Punjab

The respondent unilaterally appointed a sole arbitrator in 2019, whose award was subsequently set aside by the High Court in a Section 37 appeal on 02.04.2025 for violating Section 12(5) of the Arbitration and Conciliation Act, 1996

Following a Section 21 notice, the petitioner filed the present petition under Section 11(6) for the appointment of an independent arbitrator

The respondent contested the petition based on Clause 48 of the contract, which stipulated that arbitration must be conducted by the respondent’s Managing Director/Chief Engineer or their nominee; further, the clause stated that if such an appointment was not possible, the matter should not be referred to arbitration at all

1. Whether a contractual clause that forecloses the right to arbitration if the contractee’s designated official cannot act as an arbitrator is valid and enforceable under the Act

2. Whether the court can invoke Section 11(6) to appoint an independent arbitrator by severing the unilateral appointment mechanism from the arbitration agreement

The court applied Section 11(6) and Section 18 of the Arbitration and Conciliation Act, 1996, the latter of which mandates equal treatment of parties

It relied extensively on the Supreme Court precedent in Hindustan Construction Company Ltd. v. Bihar Rajya Pul Nirman Nigam Limited (2025 SCC OnLine SC 2578), which held that clauses granting a party an "absolute veto" over arbitration violate Article 14 of the Constitution (principles of fairness and non-arbitrariness) and Section 18 of the Act

The court also applied the doctrine of severability to ensure that the substantive intent to arbitrate survives the striking down of an unenforceable appointment mechanism

The court observed that the restrictive portion of the arbitration clause—providing that the matter "shall not be referred to arbitration at all" if the respondent's nominee cannot act—is "vague, uncertain, and arbitrary"

Applying the Hindustan Construction ruling, the court held that in public-private contracts involving Public Sector Undertakings (PSUs), such clauses fail the test of constitutional scrutiny under Article 14

The court rejected the respondent's argument that the absence of "consent" at the Section 11 stage distinguished this case from precedent, clarifying that the valid arbitration agreement is derived from the surviving portion of the clause after severing the illegal unilateral mechanism

The court concluded that the intention to arbitrate remained intact, empowering the court to "cure the defect" by appointing an independent arbitrator

The court appointed Justice Mr. Krishna Kumar Lahoti (Retd.) as the sole arbitrator

It directed that the arbitrator’s fees be governed by Schedule IV of the Act and required a Section 12 disclosure before entering upon the reference

All rival claims and counterclaims were left open for adjudication by the learned arbitrator