Unilateral nominee cannot act as sole arbitrator when agreement provides for two arbitrators, Karnataka HC rules

Lotus Landmarks (India) Pvt. Ltd. (“Lotus”), a land developer, entered into a Joint Venture Agreement dated 17 April 2016 with the landowners for development of the “RVP City” layout at Belagavi.

The agreement contemplated sharing of developed residential plots, completion of the project within 24 months with a six-month grace period, and a specific arbitration procedure under Clause 25 whereby each party was to nominate one arbitrator and the two arbitrators were to appoint an umpire.

Following disputes concerning the development work, the landowners issued notice dated 9 January 2018 and nominated their arbitrator. Lotus did not nominate its arbitrator within the stipulated period.

The landowners’ nominee thereafter proceeded as the sole arbitrator and passed an award dated 28 January 2019 directing Lotus to pay ₹2,21,58,000 with 18% interest, ₹25,00,000 as compensation with 18% interest, and comply with several consequential directions, including termination of the Joint Venture Agreement and power of attorney.

Lotus challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The Principal District Judge, Belagavi dismissed the challenge on 22 April 2022, holding, inter alia, that Lotus had failed to appoint its arbitrator within 30 days, had participated in the proceedings, and had waived its objection to the sole arbitrator.

Lotus filed the present appeal under Section 37(1)(b), principally contending that the arbitral tribunal had not been constituted in accordance with Clause 25.

1. Whether the arbitral proceedings conducted by the respondent’s nominee as the sole arbitrator, despite Clause 25 requiring each party to nominate an arbitrator and the nominees to appoint an umpire, were vitiated for non-compliance with the agreed procedure?

2. Whether the failure of Lotus to nominate its arbitrator within 30 days authorised the landowners’ nominee to proceed as the sole arbitrator without recourse to Section 11(6) of the Arbitration Act?

3. Whether Lotus had waived its objection under Section 4 of the Arbitration Act by participating in the arbitral proceedings?

The Court applied Section 34(2)(a)(v) of the Arbitration and Conciliation Act, 1996, under which an award may be set aside where the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the parties’ agreement.

Section 18 requires equal treatment of parties and a full opportunity to present their cases; the principle of equal treatment extends to equal participation in constituting the tribunal.

Under Section 11(6), where a party fails to act under an agreed appointment procedure, the other party must seek the Court’s assistance for appointment rather than unilaterally assume the defaulting party’s role.

Relying on Datar Switchgears Ltd. v. Tata Finance Ltd., (2000) 8 SCC 151, and Deep Trading Co. v. Indian Oil Corporation, (2013) 4 SCC 35, the Court held that non-appointment within 30 days does not, by itself, authorise unilateral appointment or automatically extinguish the agreed appointment mechanism.

Dharma Prathishthanam v. Madhok Construction (P) Ltd., (2005) 9 SCC 686, established that parties must adhere to the agreed appointment procedure and that unilateral appointment and reference are illegal unless validly waived.

The Court also relied on Bhadra International (India) Pvt. Ltd. v. Airports Authority of India, 2026 SCC OnLine SC 7, for the propositions that equal participation in tribunal constitution is part of fairness and party autonomy, and that an award rendered by an incompetent or ineligible tribunal is non-est.

Section 4 permits waiver only where a party proceeds without objecting within a reasonable time; timely objection prevents waiver.

Clause 25 granted both parties an equal contractual right to nominate an arbitrator, with the two nominees thereafter empowered to appoint an umpire.

Although Lotus failed initially to nominate its arbitrator, that default did not permit the landowners’ nominee to convert himself into the sole arbitrator. The proper course was to invoke Section 11(6) and seek appointment of Lotus’s nominee through the Court.

The unilateral assumption of jurisdiction disregarded the agreed tribunal-composition procedure and violated the principles of party autonomy, equal treatment, and fairness under Section 18.

The Court further found that Lotus had not waived its objection: its communications dated 8 March, 12 April, 3 May and 8 May 2018, and its later communication dated 4 January 2019, consistently disputed the sole arbitrator’s authority and sought time or judicial intervention to appoint its nominee.

The District Court therefore erred in treating Lotus’s limited participation and submission of documents as consent or waiver.

Since the tribunal suffered from a foundational and jurisdictional defect, the entire arbitral proceeding was a nullity, making it unnecessary to examine the other challenges to the award.

The landowners’ nominee could not act as sole arbitrator merely because Lotus had not appointed its nominee; recourse to Section 11(6) was necessary.

Lotus had also not waived its objection under Section 4 because it objected at the earliest stage and repeatedly thereafter.

Accordingly, the order dated 22 April 2022 in Arbitration Petition No. 2 of 2021 and the arbitral award dated 28 January 2019 were set aside.

The respondents were granted liberty to initiate appropriate proceedings afresh under the Joint Venture Agreement, as permissible in law.