Madras HC Sets Aside Five Vehicle-Loan Awards Against Family Over Lender’s Unilateral Appointment of Replacement Arbitrator

In brief

The question

Whether the respondent’s unilateral appointment of a replacement sole arbitrator after the original arbitrator’s death rendered the appointment and resulting awards invalid under Section 12(5) read with the Seventh Schedule of the Act

The court held

The Court allowed Arb. O.P. (Com. Div.) Nos. 354–358 of 2023 and set aside the awards dated 10 October 2022 in P.A.A.C.P. Nos. 5–9 of 2021 on the ground of the replacement arbitrator’s unilateral appointment and resulting ineligibility.

It also directed

No costs were ordered.

01Facts

The petitioners, members of the same family, challenged five arbitral awards arising from vehicle-financing transactions.

¶ 3.1–3.3

The original arbitrator, appointed when the proceedings began, died in 2021. The respondent finance company then unilaterally appointed P. Anbarasan as the replacement arbitrator, who issued awards on 10 October 2022 in favour of the respondent.

¶ 4.1, 5.1–5.2, 6.1, 7.1

The petitioners had raised preliminary objections under Sections 12 and 13 of the Arbitration and Conciliation Act, 1996, but did not pursue an application under Section 14 before filing these Section 34 petitions.

¶ 9.3–9.4

02Issues

i.Whether the respondent’s unilateral appointment of a replacement sole arbitrator after the original arbitrator’s death rendered the appointment and resulting awards invalid under Section 12(5) read with the Seventh Schedule of the Act

¶ 9.1–9.4

ii.Whether the petitioners could challenge the arbitrator’s ineligibility under Section 34 despite not pursuing a Section 14 application and despite the proceedings having continued

¶ 9.4

03Law Applied

Section 12(5) of the Arbitration and Conciliation Act, 1996, read with the Seventh Schedule, disqualifies a person falling within its specified categories from acting as an arbitrator; as applied by the Court, a party’s unilateral appointment of a sole arbitrator is void ab initio and makes that arbitrator de jure ineligible.

¶ 9.1–9.2

Relying on Bhadra International (India) Private Limited & Ors. v. Airports Authority of India, [(2026) SCC OnLine SC 7], the Court stated that party autonomy cannot displace equal treatment, independence, and impartiality in the appointment process, and that waiver of the Section 12(5) disqualification requires an express written agreement made after the right is known.

¶ 9.1–9.2

The Court further held that this fundamental challenge could be raised in a Section 34 proceeding even where the objecting party had not pursued relief under Section 14.

¶ 9.4

Provisions in the judgment · 5 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 34 Section 12 Section 13 Section 14 Section 7

04Reasoning

The replacement arbitrator was appointed unilaterally by the respondent in 2021, after the original arbitrator’s death; in one matter, the Court noted that the earlier proceedings had already concluded before the fresh appointment.

¶ 9.3–9.4

Applying Bhadra International, the Court held that the unilateral appointment violated the requirement of equal treatment and rendered the replacement arbitrator de jure ineligible.

¶ 9.3–9.4

The petitioners’ earlier objections and failure to pursue a Section 14 application did not prevent them from raising the issue under Section 34, as the defect went to the root of the proceedings.

¶ 9.3–9.4

The Court therefore found it unnecessary to consider the petitioners’ other grounds.

¶ 9.3–9.4