Court Holds Arbitration Tribunal Invalid as Sole Arbitrator Was Appointed Without Following Contractual Procedure, Violating Party Autonomy and Public Policy
In a significant judgment dated August 31, 2026, the Karnataka High Court (Dharwad Bench) has set aside an arbitral award in the dispute between Lotus Landmarks (India) Pvt. Ltd. and RVP City Owners concerning the development of the "RVP City" residential layout near Kanbargi Road, Belagavi. The Court held that the arbitration proceedings conducted by a sole arbitrator appointed unilaterally by one party, without adherence to the agreed procedure outlined in the Joint Venture Agreement (JVA), were invalid and vitiated the arbitral process.
The dispute arose after the death of one of the landowners in the joint venture, leading to disagreements between Lotus Landmarks and the RVP City Owners. Pursuant to Clause 25 of the JVA dated April 17, 2016, the arbitration clause provided a structured mechanism for the constitution of the arbitral tribunal: the party raising the dispute was to nominate an arbitrator, the other party was to appoint its arbitrator within 30 days, and the two arbitrators were to appoint an umpire if necessary.
However, the RVP City Owners initiated arbitration by appointing a nominee arbitrator and proceeded with arbitration as a sole arbitrator without the participation or nomination of an arbitrator by Lotus Landmarks, who failed to appoint their arbitrator within the stipulated period. The sole arbitrator passed an award directing Lotus Landmarks to pay damages exceeding Rs. 2.21 crore along with compensation and interest, and terminated the JVA.
Lotus Landmarks challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, on the ground that the sole arbitrator's appointment was contrary to the agreed arbitration procedure, violating the principle of party autonomy and the requirement of equal treatment under Section 18 of the Arbitration Act.
The Principal District Judge, Belagavi, dismissed the challenge, holding that Lotus Landmarks had waived its right to appoint an arbitrator by failing to do so within 30 days, and that the sole arbitrator's appointment was valid under Section 10 of the Arbitration Act.
On appeal, the Karnataka High Court reversed this finding. The Court emphasized that where an arbitration clause provides for each party to appoint an arbitrator, unilateral appointment of a sole arbitrator by one party without following the procedure under Section 11(6) of the Arbitration Act is impermissible. The Court explained that the right to appoint an arbitrator does not get automatically forfeited if a party fails to appoint within 30 days; instead, the party seeking appointment must invoke the Court's jurisdiction under Section 11(6) to appoint an arbitrator on behalf of the defaulting party.
The Court relied heavily on the Supreme Court precedents in Datar Switchgears Ltd. v. Tata Finance Ltd. and Bhadra International (India) Pvt. Ltd. v. Airports Authority of India, which underscore the importance of party autonomy and equal treatment in arbitration proceedings. The Court observed that the sole arbitrator's continuation of the proceedings despite repeated communications from Lotus Landmarks asserting its intention to appoint an arbitrator and objections to the sole arbitrator's jurisdiction constituted a violation of the fundamental policy of Indian law and public policy.
Further, the Court rejected the contention that Lotus Landmarks waived its right to object, noting that objections were raised at the earliest stage and throughout the proceedings. The Court distinguished the facts from cases where objections were raised late or after filing a statement of defense.
Consequently, the Court held the arbitral tribunal was not validly constituted, rendering the arbitration proceedings and the award a nullity. The judgment sets aside the award dated January 28, 2019, and the order of the Principal District Judge dated April 22, 2022. The parties were granted liberty to initiate fresh proceedings under the JVA.
This ruling reiterates the judiciary's commitment to upholding party autonomy, fairness, and adherence to agreed arbitration procedures, cautioning against unilateral actions that undermine the arbitration framework and public policy.
Bottom Line:
Arbitration proceedings conducted by a sole arbitrator, appointed unilaterally by one party without following the procedure outlined in the Joint Venture Agreement, vitiate the arbitral process and render the award null and void.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 4, Section 10, Section 11(6), Section 18, Section 34(2)(a)(v), Section 37
