Neutral arbitrator appointment prevails over unilateral nomination, while a reasonable pre-deposit safeguard was upheld.

A contractual clause allowing the Managing Director or its nominee to appoint the arbitrator could not be enforced where the appointing authority had an interest in the dispute, because neutrality and independence in arbitration required independent appointment through the Court. The challenge on limitation failed, as the request for arbitration was made within a reasonable time after the dispute remained unresolved. The 3% pre-deposit condition was upheld as a permissible contractual safeguard designed to deter frivolous claims, rather than an arbitrary restraint on arbitration.

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Issues: (i) whether the arbitration clause permitted appointment of an arbitrator through the respondent's mechanism despite the law on neutrality and unilateral appointment; (ii) whether the claim for appointment of an arbitrator was barred by limitation and whether the contractual pre-deposit condition of 3% of the amount claimed was liable to be quashed.

Issue (i): whether the arbitration clause permitted appointment of an arbitrator through the respondent's mechanism despite the law on neutrality and unilateral appointment.

Analysis: The clause empowered the Managing Director/Chief Engineer or its nominee to appoint the arbitrator, but that power stood curtailed by the law declared on arbitrator neutrality. Where the appointing authority has an interest in the dispute, it cannot retain exclusive power to make a sole appointment. The principles governing ineligibility of a named arbitrator and the consequent inability to nominate another were applied to protect independence and impartiality in arbitration.

Conclusion: The respondent could not insist on exercising the contractual appointment power, and appointment through the Court was warranted. This issue was decided in favour of the petitioner.

Issue (ii): whether the claim for appointment of an arbitrator was barred by limitation and whether the contractual pre-deposit condition of 3% of the amount claimed was liable to be quashed.

Analysis: The request for arbitration was made within a reasonable time after the dispute remained unresolved and the rejection of the request was followed promptly by the petition. The Court treated the claim as not suffering from inordinate delay. On the pre-deposit condition, the Court distinguished the challenge from the 10% clause struck down in another case and relied on earlier binding authority upholding a structured deposit requirement to discourage frivolous claims. The condition was treated as a permissible contractual safeguard, not as an arbitrary restraint on arbitration.

Conclusion: The limitation objection failed, and the 3% pre-deposit condition was upheld. The challenge to the clause was dismissed.

Final Conclusion: The challenge to the contractual pre-deposit clause failed, but the request for independent arbitral appointment succeeded, subject to furnishing proof of the stipulated security and compliance with the statutory requirements governing arbitrator disclosure and procedure.

Ratio Decidendi: A party in control of the appointment process cannot exclusively appoint a sole arbitrator where neutrality is compromised, and a reasonable contractual security deposit intended to deter frivolous claims may be enforced if it is not shown to be arbitrary or unconscionable.

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