DB Bench Rules Unilateral Appointment Without Consent Violates Arbitration Act Principles, Emphasizes Duty of Arbitrator to Decide Jurisdictional Challenges Before Proceeding
In a landmark judgment delivered on September 18, 2026, the Himachal Pradesh High Court (Division Bench) decisively ruled against the unilateral appointment of an arbitrator by BMD Pvt. Ltd. without the consent of the State of Himachal Pradesh. The Court set aside an ex-parte arbitral award dated April 29, 2023, declared it void ab initio, and clarified that such unilateral appointments infringe upon the fundamental principles of party autonomy, equal treatment, and the agreed arbitration procedure under the Arbitration and Conciliation Act, 1996 ("the Act").
Background:
The dispute arose from a Pre-Implementation Agreement (PIA) between the State and BMD Pvt. Ltd. related to hydroelectric projects, wherein Clause 53 specified disputes to be resolved through mutual negotiations or, failing that, by arbitration under the Act. After the State cancelled the allotment of the projects and forfeited the upfront premium due to contract non-fulfillment, BMD Pvt. Ltd. initiated arbitration by unilaterally nominating Justice S.N. Jha (Retd.) as the sole arbitrator without the State's consent.
The State immediately objected to this unilateral appointment, explicitly denying consent and requesting adherence to the statutory appointment procedure. The State filed petitions under Section 11(6) of the Act seeking appointment of an independent arbitrator, which were dismissed by a Single Judge on the ground that the State had submitted to the jurisdiction of the arbitrator by filing a challenge under Section 13 and not contesting the earlier appointment. Thereafter, the arbitrator proceeded with the arbitration ex-parte and passed an award in favor of BMD Pvt. Ltd.
Key Legal Issues and Court's Findings:
1. Unilateral Appointment Contrary to Agreed Procedure and Party Autonomy:
The Division Bench emphasized that arbitration agreements embody party autonomy and equal participation, especially in the appointment of arbitrators. The unilateral appointment by the contractor without the State's consent contravened the arbitration clause and statutory framework. The Court relied heavily on precedents, including the Apex Court's decision in Dharma Prathishthanam v. Madhok Construction and Bhadra International v. Airport Authority of India, holding that such unilateral appointments are void ab initio and cannot confer jurisdiction on the arbitrator.
2. Mandatory Duty of Arbitrator to Decide Challenges Under Sections 13 and 16:
The Court noted that the State had filed a timely challenge under Section 13 of the Act contesting the arbitrator's appointment. The arbitrator was statutorily bound to rule on this challenge before proceeding. However, the arbitrator improperly deferred this issue, awaited the outcome of the Section 11 petition, but ultimately passed the ex-parte award without deciding the jurisdictional challenge. This was held to be a patent illegality, resulting in an inherent lack of jurisdiction.
3. Estoppel Against Contractor's Inconsistent Stance:
The contractor's opposition to the State's Section 11 petition on the ground that remedy lay under Sections 13 and 34, and subsequent claim that Section 34 challenge was impermissible, was rejected. The Court applied the doctrine of approbation and reprobation, estopping the contractor from taking inconsistent positions in the same litigation.
4. Scope of Judicial Review Under Section 34 and 37 of the Act:
Although judicial interference with arbitral awards is limited, the Court clarified that where the constitution of the arbitral tribunal is void ab initio, such defect goes to the root of jurisdiction and justifies interference. The Court set aside the Single Judge's judgment that had upheld the award, stating that the tribunal's composition being void warranted nullification of the award.
5. Parties Directed to Appoint Independent Arbitrator:
The Court allowed the appeals filed by the State, set aside the ex-parte award, and directed that the parties are free to appoint an independent arbitrator strictly following the agreed procedure. It ordered restitution of amounts deposited and withdrawn during the prior proceedings.
Significance:
This judgment reinforces the sanctity of party autonomy and procedural fairness in arbitration under the Arbitration and Conciliation Act, 1996. It underscores that unilateral acts in appointing arbitrators without mutual consent are void and that arbitrators must first rule on jurisdictional challenges before adjudicating the merits. The decision aligns with the doctrine of competence-competence and the equal treatment principle under Section 18 of the Act, reaffirming the non-negotiable nature of consensual arbitration agreements.
The ruling also clarifies that parties cannot take contradictory legal positions and that courts retain jurisdiction to set aside awards where fundamental jurisdictional defects exist. It is a stern reminder to contracting parties and arbitral tribunals to scrupulously adhere to the statutory framework governing arbitrator appointments and challenges.
Bottom Line:
Arbitration and Conciliation Act, 1996 - Unilateral appointment of sole Arbitrator without consent of other party and contrary to agreed procedure is void ab initio - Arbitrator is bound to decide challenge under Sections 13 and 16 before proceeding further - Ex parte award passed without deciding objection to jurisdiction/composition of tribunal is liable to be set aside under Sections 34 and 37.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 - Sections 7, 8, 11, 12, 13, 16, 18, 21, 34, 37
State of Himachal Pradesh v. BMD Pvt. Ltd., (Himachal Pradesh)(DB) : Law Finder Doc Id # 2981688
