The ineligibility of an arbitrator under Section 12(5) of the Arbitration and Conciliation Act invalidates the arbitral award, which can be challenged at any stage.

JUDGMENT :

VIBHU BAKHRU, C.J.

1. The appellant has filed the present appeal under Section 37 (1)(c) of the Arbitration and Conciliation Act, 1996 [A&C Act] impugning an order dated 20.03.2025 passed by the learned II Additional District and Sessions Judge, Udupi [Commercial Court] in A.P. No.12 of 2024. The respondent No.1 had filed the said petition under Section 34 of the A&C Act impugning an arbitral award dated 10.04.2024 [impugned award].

2. The learned Commercial Court had set aside the impugned award on the ground that the award was delivered by the arbitral tribunal comprising of the sole arbitrator who was ineligible under Section 12 (5) of the A&C Act.

3. The appellant is a multi state cooperative society governed under the Multi State Cooperative Societies Act, 2002 [MSCS Act]. The respondent No.1 was functioning as a Secretary of the appellant society during the period 01.04.2018 to 31.03.2023. It is alleged that respondent No.1 had in collusion with respondent No.2, who was at the material time the President of the Society, committed various acts of omission and commission in administration of the appellant society.

4. It is alleged that during the said period, respondent Nos. 1 and 2 had without any resolution of the Board of the appellant, invested Rs.90 lakhs of the appellant society in Kamalakshi Vividhoddesha Sahakara Sangha Ltd., [KVS Sangha]. It is alleged that due to officials of the KVS Sangha mismanaging and misappropriating the funds deposited with KVS Sangha, the appellant society has been unable to recover the amount deposited with KVS Sangha. In the aforesaid context, the appellant society had raised a dispute regarding the respondent Nos. 1 and 2 acting without authority and causing a loss to the appellant Society. The said dispute was preferred under Section 84 of the MSCS Act before the Registrar of Cooperative Society. The said Registrar referred the disputes to a sole arbitrator.

5. Respondent Nos.1 and 2 had contested the said proceedings. However, the Arbitral Tribunal found in favour of the appellant society and rendered the impugned award. The Arbitral Tribunal awarded an amount of ₹ 90 lakhs in favour of the appellant and against the respondent Nos.1 and 2 along with interest at the rate of 9.5% per annum. Additionally, the Arbitral Tribunal awarded costs quantified at ₹1,61,600/-, in favour of the appellant.

6. Admittedly, the sole arbitrator was engaged as a counsel for the appellant society in O.S. No.2/2015, which was pending before the Additional Civil Judge, Udupi at the material time [from 12.01.2015 to 10.01.2024]. Respondent No.1 had also produced certified copies of the order sheets in O.S. No.2/2015, the vakalathnama, written statement, interim application, memo and orders passed on interim application in the said proceedings. These documents established that the sole arbitrator was acting on behalf of the appellant in the said proceedings.

7. The learned Commercial Court rightly set aside the impugned award as the sole arbitrator was ineligible to function as an arbitrator.

8. The impugned award is also the subject matter of challenge in A.P. No.10 of 2024, which was allowed by the learned Commercial Court. The appellant had preferred an appeal against the said order being M.F.A. No.3229 of 2025, which has been dismissed by a separate order passed by this court. The relevant extract of the said order is set out below.

"3. We consider it apposite to refer to Sub-sections (1), (2) and (5) of Section 12 of the A&C Act. The same are set out below.

" 12. Grounds for challenge.—(1) When a person is approached in connection with his possible appoint