Statutory ineligibility of an arbitrator also invalidates any nomination power, and Section 11 scrutiny remains available at threshold.

Section 12(5) of the Arbitration and Conciliation Act, 1996 read with the Seventh Schedule bars a person who is statutorily ineligible from acting as arbitrator, and that ineligibility also deprives the person of any contractual power to nominate another arbitrator. The Supreme Court further held that a court dealing with a Section 11 application may examine whether the appointment is invalid at the threshold where the appointing authority itself is disqualified, because Sections 11(6A) and 11(8) do not preclude scrutiny of an ex facie defective nomination. The impugned appointment was therefore unsustainable, and the matter was remitted for fresh appointment in accordance with law.

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Issues: (i) Whether a person rendered ineligible to act as arbitrator by operation of law can still nominate another person as arbitrator; (ii) whether the court dealing with an application under Section 11 can examine the statutory disqualification of the nominated arbitrator.

Issue (i): Whether a person rendered ineligible to act as arbitrator by operation of law can still nominate another person as arbitrator

Analysis: Section 12(5) of the Arbitration and Conciliation Act, 1996 read with the Seventh Schedule creates a statutory bar on the appointment of a person falling within the prescribed categories as arbitrator. The arbitration clause in question made the Managing Director the named sole arbitrator and also conferred on him the power to nominate another arbitrator. The Court distinguished cases dealing with forfeiture of a contractual right to appoint an arbitrator and cases where the arbitration clause itself ceased to operate. Here, the issue was the consequence of statutory ineligibility of the named sole arbitrator. The Court held that once the named sole arbitrator becomes ineligible by operation of law, the power to nominate another arbitrator is also lost, because the source of the nomination power is the same disqualified office.

Conclusion: A statutorily ineligible named sole arbitrator cannot validly nominate another arbitrator.

Issue (ii): Whether the court dealing with an application under Section 11 can examine the statutory disqualification of the nominated arbitrator

Analysis: The Court held that the jurisdiction under Section 11 is not excluded when the controversy goes to the existence of a valid appointment mechanism and the eligibility of the arbitrator at the threshold. Section 11(8) requires due regard to the disclosure by the prospective arbitrator and to the appointment of an independent and impartial arbitrator, while Section 11(6A) confines the court to the existence of an arbitration agreement, but does not prevent scrutiny where the appointment is ex facie invalid because the appointing authority itself is disqualified. The challenge was therefore capable of being examined in proceedings under Section 11, rather than being left solely to a later challenge before the arbitral tribunal.

Conclusion: The court under Section 11 can examine whether the appointment is vitiated by the statutory ineligibility of the appointing authority and the resulting invalidity of the nomination.

Final Conclusion: The impugned appointment of the sole arbitrator was unsustainable, and the matter was sent back for fresh consideration of appointment in accordance with law.

Ratio Decidendi: A person who is statutorily ineligible to act as arbitrator cannot derive authority from the contract to nominate another arbitrator, and the court may refuse such appointment at the Section 11 stage where the nomination is founded on an invalid and disqualified source of power.

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