The Death of Unilateral Appointment: Bombay HC Reaffirms Arbitral Neutrality

In a significant ruling for commercial arbitration, the Bombay High Court has declared that an arbitral award is a nullity if it stems from an arbitrator appointed unilaterally by one of the parties. Justice Sandeep V. Marne, presiding over a challenge under Section 34 of the Arbitration and Conciliation Act, 1996, emphasized that the "express agreement in writing" requirement for waiving bias is not a mere formality—it is a cornerstone of justice.

The Backdrop: A Loan Gone Wrong

The dispute arose between Madhuban Motors Pvt. Ltd. and Manmohan Bhimsen Goyal, a former employee and his wife, regarding an outstanding loan of approximately Rs. 1.26 crore. Utilizing a clause in their 2014 loan agreement, Madhuban Motors unilaterally appointed a sole arbitrator to resolve the breach. Despite subsequent participation in the proceedings, including the filing of a substantial counterclaim, the petitioners ultimately challenged the resulting award, citing the arbitrator’s unilateral appointment as a fundamental violation of the Act.

The Clash of Perspectives

The core conflict lay in whether the petitioners, by participating in three years of arbitral proceedings and filing a counterclaim, had implicitly waived their right to challenge the arbitrator's independence.

• The Petitioner’s Argument: Counsel argued that the unilateral appointment of the arbitrator by the lender was a "void ab initio" action under Section 12 (5) of the Act. Invoking landmark precedents like Perkins Eastman and Bharat Broadband , they maintained that participation in proceedings does not amount to an "express agreement in writing," which is the only legal threshold for waiving the right to object.
• The Respondent’s Stance: The lender contended that the petitioners’ conduct—specifically their consent to the arbitrator’s nomination through correspondence and their active engagement in the arbitration—constituted a full waiver. They argued that it would be "disingenuous" for a party to participate in the entire process and then, upon receiving an unfavorable award, backtrack on the jurisdictional validity of the tribunal.

Legal Analysis: The Root of Ineligibility

Justice Marne’s analysis cut through the complexity by focusing on the "root of the matter." The Court affirmed that unilateral appointment clauses—where one party maintains exclusive control over the composition of the tribunal—are fundamentally incompatible with the principles of neutrality, independence, and the equality of parties.

Applying the doctrine set out by the Supreme Court in TRF Ltd. and Central Organisation for Railway Electrification (CORE) , the Court held that the right to object is not lost through conduct. Even in cases where the arbitrator's mandate was extended multiple times with the petitioner's knowledge, the requirement for an "express agreement in writing" remained unsatisfied. The Court distinguished the current case from instances of clear waiver, clarifying that a judgment is an authority for what it specifically decides, not for what might be inferred through conduct in other circumstances.

Key Observations

The judgment leaves little room for ambiguity regarding the invalidity of one-sided tribunal appointments:

> "Every arbitration agreement providing for unilateral appointment of the sole or the presiding arbitrator is invalid. Consequently, any proceedings conducted before such unilaterally appointed Arbitral Tribunal are nullity and cannot result into an enforceable award."

> "The waiver of applicability of Section 12 (5) of the Arbitration Act requires an express agreement in writing under the Proviso. The conduct of the parties... is inconsequential and cannot constitute a valid waiver under the Proviso."

> "As the ineligibility goes to the root of the jurisdiction, it is not necessary for a party to raise that objection before arbitrator or even in the Petition filed under Section 34 of the Act."

The Verdict and Its Future Impact

The High Court set aside the arbitral award of Rs. 1.26 crore, ruling that the appointment was in "clear conflict with provisions of Section 12 (5) of the Arbitration Act."

This decision serves as a stern warning to parties and drafters of commercial contracts: clauses that allow for unilateral appointment of arbitrators are increasingly viewed as dead letters. For legal professionals, the takeaway is clear: when it comes to the constitution of an arbitral tribunal, silence is not consent, and participation is not waiver. The sanctity of an arbitral process depends entirely on the equal participation of both parties.