Unilateral appointment of an arbitrator through an intermediary institution or algorithm is illegal and void ab initio.

The Petitioners challenged the unilateral appointment of an arbitrator by the Respondent (IIFL Finance Limited), a non-banking financial company (NBFC).

The unilaterally appointed arbitrator had passed urgent interlocutory orders under Section 17 of the Arbitration and Conciliation Act, 1996, including the attachment of bank accounts, without detailing the manner of the tribunal's constitution.

Upon the filing of these petitions, the Respondent sought to withdraw the arbitration proceedings, requesting the court to dispose of the petitions as infructuous.

The court noted a recurring "modus operandi" where finance companies use unilateral appointments to coerce settlements and withdraw only when legally challenged.

1. Whether the unilateral appointment of an arbitrator through an "institution" or algorithm-based selection by one party is legally valid under the Arbitration and Conciliation Act, 1996.

2. Whether the participation in proceedings or the withdrawal of arbitration by the appointing party cures the foundational illegality of a unilateral appointment.

The court applied Section 12(5) and Section 11 of the Arbitration and Conciliation Act, 1996, emphasizing that there are only two lawful methods for appointment: mutual consent or court appointment.

Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2020), which established that a party interested in the outcome cannot unilaterally appoint an arbitrator.

Bhadra International (India) Pvt. Ltd. v. Airports Authority of India (2026), which clarified that the principle of equal treatment is "foundational" and "explicit," and that unilateral appointment is void ab initio.

Central Railway v. ECI (2025) and Lite Bite Foods Pvt. Ltd. v. AAI (2019) to affirm that neutrality must exist in the arbitral-forum selection process itself.

The court reasoned that attempting to "whitewash" a unilateral appointment by routing it through an "institution" of one party's choice is a "colourable and manipulative device" to circumvent settled law.

The court observed that the independence of an arbitrator is compromised at the threshold if the manner of constitution is one-sided.

The court rejected the notion that a Section 21 notice or subsequent participation constitutes "express agreement in writing" required to waive ineligibility under the proviso to Section 12(5).

The court found that the Respondent's strategy of withdrawing proceedings upon a challenge was an attempt to avoid a judicial ruling on their illegal practices while continuing to use the same flawed process against parties who lack the means to approach the Court.

The Court quashed and set aside the impugned interlocutory orders. Although the arbitration was withdrawn, the Court directed that a copy of the judgment be placed before the Respondent’s Board of Directors and Audit Committee to ensure compliance with the law and the framing of legal arbitration policies.