The court reinforced that unilateral appointment of an arbitrator violates the Arbitration and Conciliation Act, leading to invalid proceedings, hence, a new arbitrator must be appointed.

JUDGMENT :

ARINDAM MUKHERJEE, J.

1. This is an appeal under Section 37 (2) (b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the 1996 Act’) arising out of an order dated 23rd May, 2025 passed by the Learned Arbitral Tribunal granting an order of attachment before judgment under Section 17 of the said Act.

2. The arbitration agreement in the instant case is contained as Clause 8 of the SME Business Loan Agreement dated 22nd June, 2024 (hereinafter referred to as the said “agreement”) a copy whereof is annexed at page 15 of the stay application. The arbitration clause (hereinafter referred to as the “Arbitration agreement”) does not provide for any named Arbitrator but says that “All disputes, differences and/or claims arising out of or in relation to this Agreement shall be settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory amendments thereof and the same shall be referred to arbitration by a sole arbitrator to be nominated/appointed by the Lender”. The lender in the instant case means the respondent.

3. The appellants by referring the arbitration agreement say that the Arbitrator has been appointed unilaterally by the respondent which is impermissible in view of the amendment to the 1996 Act brought into effect in 2015 and the subsequent pronouncements of the Supreme Court in respect thereof. The Learned Arbitrator was ineligible to act in view of the ratio laid down in the judgments reported in 2017 (8) SCC 377 [ TRF Ltd. v. Energo Engg. Projects Ltd. ] and 2020(20) SCC 760 [Perkins Eastman Architects DPC v. HSCC (India) Ltd. & Anr.] The ratio laid down wherein has been consistently followed even thereafter.

4. On a perusal of grounds contained in the Memorandum of Appeal, it appears that the appellants have challenged the order impugned mainly on the grounds that the Arbitrator who had passed the said order was not validly appointed. Although, there is no direct assertion in any one of the grounds that the order impugned is without jurisdiction yet on a conjoint reading of these grounds, the normal corollary is that the order impugned is without jurisdiction. The appellants, however, in the stay application have admitted to have received the notice under Section 21 of the 1996 Act, the Statement of Claim, the Section 17 application, the evidence on behalf of the respondent and the order impugned which are either annexed to the stay application or to the Memorandum of Appeal. The only substantive challenge to the order impugned on merit is that the learned Arbitrator did not give an opportunity of hearing to the appellants.

5. At this juncture several recourse were open to the appellants. The appellants could have filed an application under Section 16 of the 1996 Act to challenge the jurisdiction of the Arbitrator. This course, probably was not followed as the appellants had to participate in the arbitration proceedings if the Arbitrator hold in favour of his jurisdiction leaving the appellants to challenge the award on such ground at the Section 34 stage in the event an award was made and published. It was also open to the appellants to file an application under Section 11 (6) or an application unde