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Calcutta High Court clarifies that all unilateral appointment of arbitrators cannot automatically be nullified on the application Section 12(5) of Arbitration and Conciliation Act, 1996

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A recent judgment by the Calcutta High Court in the case of McLeod Russel India Limited & Anr. V. Aditya Birla Finance Limited & Ors., in A.P.No.106 of 2020 dated 14.02.2023 dealt with the issue of the unilateral appointment of an arbitrator and its effect on the validity of the appointment after analysing the various judgements such as TRF Limited vs. Energo Engineering Projects Limited; (2017) 8 SCC 377; Bharat Broadband Network Limited vs. United Telecoms Limited; (2019) 5 SCC 755; Perkins Eastman Architects DPC vs. HSCC (India) Limited; (2020) 20 SCC 760; Jaipur Zila Dugdh vs. Ajay Sales & Suppliers; AIR 2021 SC 4869; Jaipur Zila Dugdh vs. Ajay Sales & Suppliers; AIR 2021 SC 4869; Govind Singh vs M/s Satya Group – Division Bench decision of the Delhi High Court in FAO(COMN) 136/2022; MS Bridge Building Construction Co. Pvt. Ltd. vs. Bharat Heavy Electricals Ltd. – Single Bench decision of the Delhi High Court in O.M.T (COMM) 87/ 2022; Prodattur Cable TV Digi Services vs. Siti Cable Network Limited; (2020) 2 Arb LR 260; and Yashovardhan Sinha vs. Satyatej Vyapaar Pvt. Ltd.; A.P. No. 156 of 2022. The case involved an application filed by the petitioners under Section 14 of the Arbitration and Conciliation Act, 1996, seeking the termination of the mandate of the sole arbitrator on the ground that the appointment was invalid as the arbitrator was unilaterally appointed.

The court observed that the challenge to the appointment of an arbitrator must be accompanied by supporting circumstances that give rise to justifiable doubts regarding independence and impartiality. The entire challenge procedure is premised on the party being aware of the conflict post-appointment. In this case, the petitioners’ participation in the proceedings was a conscious and deliberate decision despite various decisions of the Supreme Court. The court noted that the pleadings filed by the petitioners at different stages of the proceedings amounted to an express agreement in writing as per the proviso to Section 12(5).

The court further opined that Section 12(5) is a relationship-conflict provision, and since every conflict can be circumvented by the parties, no appointment can be treated as void ab initio or incapable of being cured by an express written agreement. The court differentiated between an arbitrator who is hit by one or all conflicted relationships in the 7th schedule and an arbitrator who is rendered ineligible simply because of the unilateral appointment. The court further propounded that unilateral appointment must mean that unilateral appointment made by a person who is disqualified to act as an arbitrator under the 7th schedule and not every unilateral appointment made by one of the parties to the arbitrator.

In the present case, the court noted that the written statements and pleadings of the petitioners amounted to a waiver as per the proviso to Section 12(5). Based on the above-mentioned reasons, the court held that there was no material based on which the appointment of the arbitrator could be challenged, and hence, the application filed by the petitioners was dismissed.

The judgment of the Calcutta High Court provides clarity on the issue of the unilateral appointment of arbitrators and its effect on the validity of the appointment. It emphasizes the importance of the express written agreement between the parties in cases of conflict of interest due to independence or impartiality. The judgment also highlights the need for parties to be aware of the conflict post-appointment and to raise objections at the earliest opportunity.

In conclusion, the judgment of the Calcutta High Court is a welcome development in the law of arbitration in India. It provides a balanced approach to the issue of the unilateral appointment of arbitrators and emphasizes the need for parties to be vigilant and proactive in safeguarding their interests in the arbitration process. The judgment is a significant step in ensuring the integrity and effectiveness of the arbitration process in India. 

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