Unilateral appointment of a sole arbitrator without express written waiver renders an award void and unenforceable.

In brief

The question

1. Whether an Arbitral Award rendered by an arbitrator appointed unilaterally by one party is enforceable in law

The court held

The unilateral appointment of the Sole Arbitrator was ex-facie invalid, making the Award dated 30.08.2018 a nullity and unenforceable

It also directed

The objection to inherent lack of jurisdiction can be raised at the enforcement stage; consequently, the enforcement petition was dismissed, though the parties were granted liberty to take fresh steps for appointment of an arbitrator

01Facts

The Petitioner (Decree Holder) entered into agreements with the Respondents (Judgment Debtors) to purchase Floor Space Index (FSI) for a project in Gurgaon

¶ 2(i)

The Petitioner paid ₹29 crores, but disputes arose regarding project permissions

¶ 2(ii), 5, 6

Invoking Clause 36 of the Agreement, which empowered the "second party" (Petitioner) to appoint a Sole Arbitrator, the Petitioner unilaterally appointed a retired District Judge

¶ 8, 9

Despite the Respondent communicating disagreement with this non-mutual appointment, the Arbitrator proceeded to pass an Award on 30.08.2018 directing the Respondent to pay ₹29 crores plus 18% interest

¶ 11, 2(ii)

The Petitioner filed this enforcement petition in 2022 after the Respondent’s challenges to the Award were dismissed on grounds of delay

¶ 2(iv), 12

02Issues

i.1. Whether an Arbitral Award rendered by an arbitrator appointed unilaterally by one party is enforceable in law

¶ 3, 16

ii.2. Whether the participation of a party in arbitral proceedings or the failure to challenge an award under Section 34 within the limitation period constitutes an "express waiver" of ineligibility under Section 12(5) of the Arbitration Conciliation Act

¶ 17, 19

iii.3. Whether an objection regarding the inherent lack of jurisdiction due to unilateral appointment can be raised for the first time at the stage of execution/enforcement

¶ 22, 25

03Law Applied

Section 12(5) of the Arbitration Conciliation Act, 1996, which renders any person whose relationship falls under the Seventh Schedule ineligible to be an arbitrator unless waived by an "express agreement in writing" after disputes arise

¶ 18

Unilateral appointment violates the principle of equality under Article 14 and procedural fairness as established in Perkins Eastman Architects DPC v. HSCC (India) Ltd. and Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV)

¶ 3, 16

An award passed by an ineligible arbitrator is a nullity and void ab initio

¶ 21

Provisions in the judgment · 12 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 11 provisions

Section 12 Section 13 Section 14 Section 15 Section 18 Section 34 Section 36 Section 37 Section 75 Section 81 Section 7

Code of Civil Procedure, 1908 Section 21

04Reasoning

The Court observed that Clause 36 of the Agreement gave the Decree Holder the exclusive right to appoint the arbitrator, which is fundamentally contrary to the adjudicatory function as it hinders equal participation

¶ 16

Under the proviso to Section 12(5), waiver of ineligibility must be an "express agreement in writing" and cannot be inferred from the conduct of the parties or mere participation in proceedings

¶ 19, 20

The Court reasoned that since the arbitrator was ineligible by operation of law, the tribunal suffered from an inherent lack of jurisdiction

¶ 21

A decree/award passed without jurisdiction is a nullity and its invalidity can be set up at any stage, including execution, citing Hira Lal Patni v. Kali Nath and Kiran Singh v. Chaman Paswan

¶ 21

The unilateral appointment goes to the root of the matter, rendering the resulting award unenforceable despite the expiration of the limitation period for a Section 34 challenge, following Kotak Mahindra Bank Ltd. v. Narendra Kumar Prajapat and M/s Mahavir Prasad Gupta Sons v. Govt. of NCT of Delhi

¶ 24, 25, 27