Unilateral Appointment of Arbitrator Without Express Written Waiver Is Void Ab Initio Under Section 12(5).

The petitioners challenged an arbitral award dated 10.10.2023

The dispute arose from a loan agreement where Article 12 granted the respondent-lender, Indiabulls Housing Finance Limited (IHFL), the exclusive and unilateral authority to appoint a Sole Arbitrator

Following this clause, the respondent unilaterally appointed an arbitrator on 10.02.2023

The petitioners contended that such a unilateral appointment, without an express written agreement waiving Section 12(5) of the Arbitration and Conciliation Act after the dispute arose, was illegal

1. Whether the unilateral appointment of a Sole Arbitrator by one party to the agreement is legally sustainable under the Arbitration and Conciliation Act, 1996

2. Whether the participation of a party in the arbitral proceedings constitutes a valid waiver of the statutory ineligibility of an arbitrator under Section 12(5) of the Act

Section 12(5) of the Arbitration and Conciliation Act, 1996, which mandates the neutrality of arbitrators

Supreme Court precedent of TRF Ltd. v. Energo Engg. Projects Ltd., establishing that a person ineligible to act as an arbitrator cannot nominate another

Perkins Eastman Architects DPC v. HSCC (India) Ltd., which held that a party interested in the outcome cannot have exclusive authority to appoint a sole arbitrator

Bhadra International (India) (P) Ltd. v. Airports Authority of India, which clarifies that Section 12(5) can only be waived by an express agreement in writing executed after the dispute has arisen

The court found that Article 12 of the loan agreement explicitly gave the respondent "exclusive and unilateral authority" to appoint the arbitrator, excluding any other mode of appointment

Applying the Perkins Eastman principle, the court reasoned that such a clause is "legally impermissible" because an interested party cannot constitute the tribunal

The court observed that the respondent failed to produce any written agreement executed post-dispute that showed the petitioners had waived the protections of Section 12(5)

Consequently, the court determined that the arbitrator lacked the inherent jurisdiction to enter upon the reference, making the entire constitution of the tribunal defective from the "very root"

The High Court set aside the impugned award dated 10.10.2023

Exercising its powers with the consent of the parties, the court appointed Ms. Anjana Gosain, Advocate, as the new Sole Arbitrator to adjudicate the disputes under the aegis of the Delhi International Arbitration Centre (DIAC)

The petition was disposed of with all rights and pleas left open for the parties before the new arbitrator