SATNAM SINGH AHUJA AND 4 ORS v. KARVY FINANCIAL SERVICES LTD.
Invalidity of Unilateral Arbitrator Appointments and the Requirement of Express Written Consent for Waiver of Ineligibility Under Section 12(5).
Court: Bombay High Court
Citation: 2026:BHC-OS:5673
Decision Date: 05-03-2026
List of Laws
Arbitration and Conciliation Act, 1996; Section 12(5) - Ineligibility of Arbitrators; Seventh Schedule - Categories of Ineligibility; Section 34 - Setting Aside Arbitral Awards; Section 18 - Equal Treatment of Parties; Waiver of Right to Object
- Facts: The Respondent, Karvy Financial Services Ltd., unilaterally appointed a sole arbitrator to resolve a loan default dispute involving a debt of approximately Rs. 1.22 crore. The Petitioners participated in the arbitral proceedings without raising any formal protest regarding the method of appointment. Following the conclusion of the proceedings, the arbitrator passed several awards on February 6, 2018. The Petitioners subsequently challenged these awards, contending that the unilateral appointment rendered the arbitrator de jure ineligible and the resulting awards a nullity.
- Procedural Posture: The matter reached the High Court of Bombay through five consolidated petitions filed under Section 34 of the Arbitration and Conciliation Act, 1996, seeking to set aside the arbitral awards.
- Issue: Whether the unilateral appointment of an arbitrator by one party renders the arbitral award liable to be set aside under Section 34, and whether a party's participation in the proceedings without objection constitutes a waiver of their right to challenge such an appointment under Section 12(5) of the Act.
- Holding: Yes, the awards must be set aside. The Court held that unilateral appointment is a fundamental bridge of the Act that cannot be cured by mere participation; only an "express agreement in writing" after the dispute has arisen can waive the ineligibility of such an arbitrator.
- Reasoning: The Court relied on the Supreme Court's declaration in "Bhadra International" and "Bharat Broadband", which clarified that Section 12(5) read with the Seventh Schedule creates a de jure ineligibility. This ineligibility goes to the root of the tribunal's jurisdiction. The Court reasoned that the principle of "equal treatment of parties" under Section 18 requires an equal say in the constitution of the tribunal. Under the proviso to Section 12(5), waiver of this ineligibility requires a "clear, unequivocal, and written agreement" executed after the dispute has arisen. Tacit acceptance, procedural participation, or the filing of pleadings do not meet this high statutory threshold. Consequently, a unilaterally appointed arbitrator lacks inherent jurisdiction, and any award passed by such a tribunal is a nullity, regardless of whether the objection was raised during the proceedings or only at the Section 34 stage.
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