Appointment of Retired Employee as Sole Arbitrator by Interested Managing Director Violates Section 12(5) of Arbitration and Conciliation Act, 1996; Arbitral Award Set Aside for Lack of Jurisdiction
In a significant ruling on arbitration appointments, the Calcutta High Court (Division Bench) on 29th July 2026 delivered judgment in the appeal filed by Mr. Amal Krishna Dey against the Central Warehousing Corporation (CWC). The Court upheld the Commercial Court's decision to set aside an arbitral award on the ground that the appointment of the sole arbitrator was void ab initio due to statutory ineligibility and lack of jurisdiction.
The dispute arose from a contract for the construction of a 2400 MT capacity godown at CWC Santragachi, awarded to the appellant in 2011. Following delays and payment disputes, the respondent corporation invoked the arbitration clause and the Managing Director of CWC appointed Mr. Madhuresh Kumar, a retired employee of the corporation, as the sole arbitrator.
The appellant contended that the arbitrator, being a retired employee and appointed pursuant to the arbitration clause, was impartial and competent. However, the respondent challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the Managing Director-being a serving officer of the respondent and thus an interested party-was statutorily ineligible under Section 12(5) to appoint an arbitrator. The respondent further contended that the appointment process violated the mandatory provisions of the Arbitration Act, rendering the arbitral award liable to be set aside.
The Commercial Court agreed with the respondent, holding that the unilateral appointment by an interested Managing Director contravened the statutory bar under Section 12(5) of the Arbitration Act (as amended in 2015) and the Seventh Schedule, which prescribes categories of persons ineligible to be arbitrators. The Court emphasized that the statutory ineligibility extends not only to the arbitrator but also to the appointing authority, invalidating the entire appointment process. It was further held that pre-dispute contractual clauses purporting to waive objections to the arbitrator's relationship with the party are ineffective against the non-obstante clause in Section 12(5), unless expressly waived in writing after the dispute arises.
The Division Bench of the Calcutta High Court concurred with this reasoning. It underscored that the Managing Director of CWC, being a serving officer and thus an interested party, was ineligible to appoint an arbitrator and lacked authority to nominate a substitute arbitrator. The Court stated that "once the infrastructure collapses, the superstructure is bound to collapse," meaning that the invalid appointment of the arbitrator by an ineligible authority vitiates the entire arbitral proceeding and award. The Court also rejected the appellant's reliance on participation in arbitration as a waiver of statutory objection, stressing that only an express post-dispute written agreement can constitute a valid waiver under Section 12(5).
Consequently, the Court dismissed the appellant's appeal and upheld the setting aside of the arbitral award, holding the arbitrator de jure incapable of performing functions for lack of inherent jurisdiction.
This judgment reiterates the strict statutory framework governing arbitrator appointments under the Arbitration and Conciliation Act, particularly the mandatory disqualifications introduced by the 2015 Amendment. It also clarifies that contractual provisions attempting to pre-empt statutory ineligibility will not stand unless parties expressly waive such objections after disputes have arisen. Importantly, it affirms that appointment by an interested authority is legally impermissible and fatal to the arbitration process.
Bottom Line:
Arbitration - Appointment of arbitrator by interested authority - Managing Director's unilateral appointment of sole arbitrator declared void ab initio due to statutory ineligibility under Section 12(5) of Arbitration and Conciliation Act, 1996, as amended. The arbitrator was rendered de jure incapable of performing functions for want of inherent jurisdiction.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Sections 11(6), 12(5), 15(2), 29A, 34; Seventh Schedule of Arbitration and Conciliation Act, 1996
Amal Krishna Dey v. Central Warehousing Corporation, (Calcutta)(DB) : Law Finder Doc Id # 2949689
