Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2025 Supreme(Online)(Del) 37209

IN THE HIGH COURT OF DELHI AT NEW DELHI
Subramonium Prasad, Harish Vaidyanathan Shankar, JJ
Indian Oil Corporation Limited – Appellant
Versus
Man Industries (India) Limited – Respondent
FAO(OS) (COMM) 172/2023 | CM APPL. 43016/2023

Advocates:
For the Appellants/Petitioners: Pooja Saigal, Aditi Sinha, Jatin Dua, Dhruv Malik
For the Respondents: Amrita Singh, Vinod Mehta, Ankit Gupta

The unilateral appointment of a sole arbitrator is legally void, rendering the arbitrator de jure ineligible due to bias and inequality. Such an award is a nullity, and the objection to the arbitrator’s appointment can be raised at any stage, as it cannot be waived by mere conduct.

Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 12(5), 14, 34, 36 - Seventh Schedule - Constitution of India - Article 14 - Unilateral appointment of sole arbitrator - Arbitral award challenged - Whether arbitrator de jure ineligible.

(B) Arbitration - Appointment of arbitrator - Unilateral appointment clause allowing one party to unilaterally appoint a sole arbitrator is inherently exclusionary and violates the principle of equal treatment - This creates a real possibility of bias and renders the arbitrator de jure ineligible under Section 12(5) - The proviso to Section 12(5) requires an “express agreement in writing” made subsequent to the dispute arising to waive ineligibility - Waiver cannot be inferred from conduct such as participating in proceedings or seeking extension of the mandate - (Paras 14, 15, 16, 20, 22).

(C) Jurisdiction - Nullity - An award passed by an ineligible arbitrator is non-est - Since the appointment is void ab initio, the objection regarding lack of inherent jurisdiction can be raised at any stage of the proceedings, including in challenges to the award or during execution proceedings - The Court is obligated to ensure awards are not against the public policy of India - (Paras 21, 23).

Facts of the case:
A contract granted the power to unilaterally appoint a sole arbitrator to one party. Following the appointment and the issuance of an award, the opposing party challenged the legality of the appointment, contending the arbitrator was de jure ineligible. The lower court set aside the award as a nullity due to the unilateral appointment mechanism. The appointing party appealed this decision, arguing waiver by conduct.

Findings of Court:
The court ruled that any arbitration clause allowing a party to unilaterally appoint an arbitrator is violative of the principle of equal treatment and results in an ineligible tribunal. The court emphasized that the requirement for an express written waiver cannot be satisfied by the mere participation of the parties in the arbitration process.

Issues: The main issues were whether the unilateral appointment of a sole arbitrator renders them de jure ineligible, whether the waiver of such ineligibility can be inferred from the conduct of the parties, and whether such an objection can be raised for the first time at the stage of a petition to set aside the award.

Ratio Decidendi: A unilateral appointment of a sole arbitrator militates against the core requirement of impartial resolution of disputes and procedural equality. Because such an arbitrator lacks inherent jurisdiction, the resulting award is a nullity. Consequently, claims of ineligibility are not barred by failure to raise them earlier and can be asserted at any stage of the proceedings.

Result: Appeal dismissed.

Table of Content
1. introduction to the appeal and identification of the factual background leading to the impugned order. (Para 1 , 2)
2. arguments concerning procedural limitations and alleged waiver of the right to object to arbitrator eligibility. (Para 3 , 4 , 5 , 6)
3. arguments regarding the mandatory nature of section 12(5) and the lack of express waiver in writing. (Para 7 , 8 , 9)
4. examination of the specific arbitration clause and the factual timeline of unilateral arbitrator appointment. (Para 10 , 11 , 12 , 13)
5. the illegality of unilateral appointment clauses in public-private contracts under article 14 and section 12(5). (Para 14 , 15 , 16 , 17)
6. requirement for express agreement in writing for waiver of section 12(5) and jurisdictional consequences of ineligible appointments. (Para 18 , 19 , 20 , 21 , 22 , 23)
7. application of legal precedents to the facts, confirming the nullity of the arbitral award due to unilateral appointment. (Para 24 , 25 , 26)

IN THE MATTER OF:

JUDGMENT

SUBRAMONIUM PRASAD, J.

1. The present Appeal is filed by the Appellant under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’) seeking to challenge the Judgment dated 01.06.2023 (hereinafter referred to as ‘Impugned Judgment’) passed in O.M.P. (Comm.) 252 of 2018 and I.A. No. 13103 of 2022, whereby the Single Judge has held that the unilateral appointment of the Arbitrator by the Appellant makes the Arbitrator de jure ineligible to act as such and has set aside the Arbitral Award dated 03.02.2018 (hereinafter referred to as ‘Award’), which was passed in favour of the Appellant, as being void and unenforceable.

2. Shorn of unnecessary details, the facts leading to the filing of the present Appeal are as follows:

i. The Appellant launched SMPL Debottlenecking of Salya-Mathura Project (hereinafter referred to as ‘Project’) to feed three refineries. Vide Tender No. PLM/SMPL-DBL/13/70 (hereinafter referred to as ‘Tender’), the Appellant invited bids for the Project for supply of steel pipes. As per the Special Conditions of Contract (hereinafter referred to as ‘SCC’) and the General Conditions of Contract (hereinafter referred to as ‘GCC’) provided in the Tender, it was inter-alia, stated that for the tendered pipes, the Appellant shall avail the benefit of the Export Promotion Capital Goods Scheme (hereinafter referred to as ‘EPCG Scheme’) under EXIM Policy of Government of India and would issue EPCG Invalidation Letter to the suppliers.

ii. The Tender under clause 4.26.1 of the SCC contained an arbitration clause which stated that any dispute or difference arising between the parties shall be referred to arbitration by a Sole Arbitrator appointed by the General Manager of the Appellant.

iii. Pursuant to the Tender, the Appellant issued a Letter of Intent to the Respondent.

iv. In 2013-2014, the Appellant inter-alia complained about the slow progress of the work in production of the steel pipes and delay in transportation for the same.

v. The Respondent alleged that due to delay in issuance of the EPCG Invalidation Letter by the Appellant, there was a chain reaction, leading to delay.

vi. The Respondent invoked arbitration under clause 4.26.1 of the SCC in the Tender requesting the Appellant to nominate an arbitrator as per the terms of the Tender.

vii. The Appellant nominated Mr. A.K. Sharma, Former GM (Law), MMTC as the Sole Arbitrator to adjudicate the disputes between the parties.

viii. The Arbitral Award was passed by the Arbitrator in favour of the Appellant rejecting all the claims of the Respondent.

ix. The Respondent filed a petition under Section 34 of the Act by filing OMP (COMM) 252/2018 before this Court.

x. The learned Single Judge vide the Impugned Judgment has set aside the Award holding that since the Arbitrator has been appointed unilaterally, he was de jure ineligible to act as such and set aside the Award as void and unenforceable.

xi. Hence, the Appellant has filed the present

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2025 Supreme(Online)(Del) 37209

IN THE HIGH COURT OF DELHI AT NEW DELHISubramonium Prasad, Harish Vaidyanathan Shankar, JJIndian Oil Corporation Limited – AppellantVersusMan Industries (India) Limited – RespondentFAO(OS) (COMM) 172/2023 | CM APPL. 43016/2023

The unilateral appointment of a sole arbitrator is legally void, rendering the arbitrator de jure ineligible due to bias and inequality. Such an award is a nullity, and the objection to the arbitrator’s appointment can be raised at any stage, as it cannot be waived by mere conduct.

Cases Referred (6)

IN THE HIGH COURT OF DELHI AT NEW DELHI
Subramonium Prasad, Harish Vaidyanathan Shankar, JJ
Indian Oil Corporation Limited – Appellant
Versus
Man Industries (India) Limited – Respondent
FAO(OS) (COMM) 172/2023 | CM APPL. 43016/2023