Unilateral Appointment of Arbitrator Without Consent or Recourse to Section 11 is Void and Illegal

The Appellant and Respondent No. 1 entered into an agreement on 28.03.2008 for the supply of a "Prefabricated Steel Building System," which included an arbitration clause for settling disputes in Haridwar.

Following a dispute and the termination of the agreement by the Appellant, the Appellant unilaterally appointed Respondent No. 2 (Yogesh Anand) as the sole arbitrator via notice dated 23.12.2009.

Respondent No. 1 objected to this unilateral appointment, asserting it lacked consent and legal authority.

Respondent No. 1 filed a civil suit (O.S. No. 17 of 2010) seeking a declaration that the appointment was void and a permanent injunction against the arbitral proceedings.

The District Judge, Haridwar, decreed the suit in favor of the plaintiff/respondent on 09.07.2014.

1. Whether defendant no. 2 (Respondent No. 2) was illegally appointed as an arbitrator by defendant no. 1 (Appellant) in pursuance of the agreement dated 28.03.2008?

2. Whether the civil suit was maintainable given the alternative remedies and procedures provided under the Arbitration and Conciliation Act, 1996?

The Court primarily applied Section 11 of the Arbitration and Conciliation Act, 1996, specifically sub-sections (2) through (6), which outline the procedure for the appointment of arbitrators when parties fail to reach an agreement.

The Court followed the principle that the Act does not provide for the unilateral appointment of an arbitrator by one party without the express consent of the other.

It further considered Sections 12, 13, 14, and 15 regarding the challenge and termination of an arbitrator's mandate, and distinguished the Supreme Court’s ruling in Swadesh Kumar Agarwal v. Dinesh Kumar Agarwal (2022).

The Court noted that the arbitration clause in the agreement provided for disputes to be settled as per the Act but did not grant the Appellant the power to appoint an arbitrator unilaterally.

Respondent No. 1 had explicitly refused to concur with the appointment of Respondent No. 2.

The Court observed that during trial court proceedings, the Appellant’s counsel admitted that an arbitrator could only be appointed with mutual consent or through the High Court’s jurisdiction under Section 11.

The Court rejected the Appellant’s argument that the court must fill the vacancy under Section 14, finding that since the initial appointment was void ab initio for lack of consent, the statutory mechanism for appointment had been bypassed illegally.

The citations provided by the Appellant regarding the stage of challenge and the termination of mandate were deemed inapplicable to a situation where the initial appointment lacked the fundamental requirement of mutual consent or judicial intervention.

The High Court dismissed the appeal and upheld the District Judge’s judgment, however, the Court granted the Appellant liberty to seek legal recourse for a fresh appointment of an arbitrator in accordance with the law.