Court reaffirms strict adherence to agreed arbitration appointment procedure under Arbitration and Conciliation Act, 1996, ruling unilateral nomination without consent as void ab initio.
In a significant ruling delivered on October 1, 2026, the Delhi High Court (Division Bench) dismissed an appeal filed by Tarsem Jain challenging the setting aside of an arbitral award in favor of Bharat Forge Limited (BFL) and BF Infrastructure Limited (BF Infra). The court affirmed the judgment of the Single Judge which declared the unilateral appointment of a sole arbitrator by the appellant as void ab initio, thereby nullifying the arbitral proceedings and the award that followed.
The dispute arose from a Share Purchase Agreement (SPA) dated December 18, 2010, between Tarsem Jain and BF Infra, a subsidiary of BFL, relating to the transfer of equity share capital in certain companies. The SPA contained a clause (Clause 20) mandating dispute resolution through arbitration by a single arbitrator, appointed in accordance with the Arbitration and Conciliation Act, 1996 ("the Act"). The clause required mutual consent for appointing the arbitrator, or, failing agreement, recourse to the court under Section 11 of the Act.
Tarsem Jain initiated arbitration proceedings in June 2013, requesting BF Infra to appoint a sole arbitrator with his consent. After BF Infra did not concur, Tarsem Jain issued a unilateral notice in July 2014 stating that in the absence of appointment by respondents, he would appoint the arbitrator himself, which he did in December 2014. BF Infra promptly objected to this appointment and participated in the arbitration proceedings under protest. The arbitrator ruled in favor of the appellant, awarding Rs. 77 crore in compensation.
BFL and BF Infra challenged the award under Section 34 of the Act, contending that the sole arbitrator's appointment violated the agreed procedure under the SPA as well as statutory provisions. The Single Judge ruled the appointment as void, holding that unilateral nomination without the respondents' consent contravened Clause 20.4 of the SPA and Section 11 of the Act, and that participation under protest did not amount to waiver or ratification of the invalid appointment. The award was set aside, and the execution petition dismissed.
On appeal under Section 37, the Division Bench reiterated the narrow scope of interference with Section 34 orders, emphasizing that appeals cannot amount to merits re-examination but only assess whether jurisdiction was correctly exercised. The Court rejected the appellant's arguments that respondents waived their right to object by participating in the proceedings and that Section 12(3) of the Act (concerning impartiality and independence of arbitrators) was inapplicable. The Court held that a unilateral appointment inherently casts justifiable doubts on the arbitrator's impartiality and undermines equal party participation, violating the spirit of arbitration under Section 18 of the Act.
Further, the Court clarified that the 2015 Amendment to the Act, including Section 12(5), does not validate unilateral appointments predating the amendment, nor does it bar challenges under the amended Section 34 for petitions filed after October 2015.
The Court dismissed the appeal, confirming the Single Judge's decision that the unilateral appointment was void ab initio, the arbitral award a nullity, and that fresh arbitration proceedings must follow the agreed and statutory appointment procedures.
This ruling underscores the judiciary's commitment to upholding arbitration agreements and statutory mandates regarding arbitrator appointments, ensuring fairness, impartiality, and equal opportunity for parties in arbitration.
Bottom Line:
Arbitration and Conciliation Act, 1996 - Unilateral appointment of sole arbitrator contrary to agreed procedure in arbitration clause and Section 11 is void ab initio - Participation in arbitral proceedings under protest does not amount to waiver or validate such appointment - In appeal under Section 37, scope of interference is narrower than Section 34.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 - Sections 4, 11, 12, 13, 16, 18, 34, 37; Arbitration and Conciliation (Amendment) Act, 2015 - Sections 12(5), 34 (amended)
Tarsem Jain v. Bharat Forge Limited, (Delhi)(DB) : Law Finder Doc Id # 2992069
