Arbitration is a widely recognized formal method of dispute resolution involving a neutral third party known as “Arbitrator” who makes a binding decision in the matter. Arbitration offers a time effective alternative to the Court proceedings which are often time consuming. As Legal proceedings in Courts are time consuming therefore, arbitration has become a preferred choice for resolving disputes in business transaction.

While entering into business agreements, parties commonly include an arbitration clause which lays the foundation for arbitration, enabling parties to seek judicial intervention for the appointment of an impartial arbitrator for adjudicating dispute arising from the said agreement. It is only if the agreement includes an arbitration clause, the parties may approach the Hon’ble Courts to appoint an impartial Arbitrator to adjudicate the matter and not otherwise.

Can an Arbitrator be appointed by either Party to the Arbitration Agreement?

The answer to the above question is NO.

In order to ensure impartiality in the arbitration proceedings, it is very crucial that the Arbitrator/s is appointed by the parties mutually. Courts in it’s numerous judgments have ruled that the appointment of an Arbitrator by one party is invalid as it violates the principle of natural justice. In multiple judgments, the courts have stressed that arbitration proceedings conducted by an arbitrator appointed solely by one party are inherently flawed and the awards granted are liable to be set aside.

The Hon’ble High Court of Delhi in it’s judgment dated 08.08.2024 titled as “M/S S. K. BUILDERS Versus M/S CLS CONSTRUCTION PVT LTD” while addressing the issue of unilateral appointment of an arbitrator, held that arbitral proceedings conducted by an arbitrator appointed unilaterally by one party are void ab initio, observing as follows:

“….Unilateral arbitration is an oxymoron. Consent, to the arbitration as well as the arbitrator, is the very raison d’etre of the arbitral process. Unilateral appointment of an arbitrator is, therefore, completely proscribed…” (Para 22)

“…mere insertion, in the Section 21 notice, of a caveat that failure to object to the arbitration of the disputes by the named Arbitrator would imply consent, would not necessarily mean that the opposite party had consented to the arbitration as it did not expressly object.” (Para 25)

That the Hon’ble High Court in another judgment dated 08.11.2023 titled as “BABU LAL AND ANR. Versus CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LTD. AND ANR.”, declared the award rendered by a unilaterally appointed arbitrator as null and void by stating as follows:

“…In the instant case, admittedly, nomination of the Sole Arbitrator was done by the respondents on their own without any concurrence from the appellant. Letter dated 18.10.2021 is merely an intimation to the appellant of nomination of the Sole Arbitrator. Said nomination was without reference to the Court in terms of Section 11 of the Arbitration & Conciliation Act, 1996.” (Para 09)

“…In the instant case since the appointment of an Arbitral Tribunal was unilateral and without recourse to Court, the Award rendered by the Arbitral Tribunal would also be a nullity.” (Para 11)

Further, The Hon’ble High Court of Delhi in it’s judgment titled as “M/S UPPER INDIA TRADING CO. PVT. LTD Versus M/S HERO FINCORP LTD” decided on 23 February, 2024 reiterated reaffirmed that the unilateral appointment of an arbitrator by one party is contrary to the provisions of the Arbitration and Conciliation Act and, therefore, is invalid and unenforceable in law.

Conclusion

Unilateral appointment of Arbitrator violates the principles of impartiality and fairness and hence, mutual consent of the parties is essential for the appointment of an arbitrator. It has been reiterated by Courts in numerous judgments that any award rendered by an arbitrator appointed unilaterally by one party is liable to be set aside as null and void.