Interested party cannot unilaterally appoint sole arbitrator; appointment is invalid and the mandate becomes terminable under arbitration law.

An interested appointing authority cannot unilaterally appoint a sole arbitrator where it has a stake in the dispute; the Perkins Eastman principle was applied to treat the defect as extending beyond a managing director to any biased or interested appointing authority. The court also held that, once such ineligibility exists, the appointed arbitrator is de jure unable to continue and the mandate is terminable under the Arbitration and Conciliation Act, 1996. Section 12(5) was held to depend on the commencement of arbitration, and no express written waiver of disqualification was shown. A substitute sole arbitrator was appointed to proceed with the dispute.

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Issues: (i) Whether a company named as the appointing authority in an arbitration clause can unilaterally appoint a sole arbitrator when it has an interest in the dispute; (ii) Whether the mandate of an arbitrator so appointed is liable to be terminated de jure under the Arbitration and Conciliation Act, 1996.

Issue (i): Whether a company named as the appointing authority in an arbitration clause can unilaterally appoint a sole arbitrator when it has an interest in the dispute.

Analysis: The arbitration clause empowered the company, acting through its board of directors, to appoint the sole arbitrator. The governing principle applied was that an authority having an interest in the outcome of the dispute cannot control the arbitral process by making a unilateral appointment. The reasoning in Perkins Eastman was treated as applicable, because the defect is not confined to a managing director personally, but extends to any interested appointing authority whose choice carries an element of exclusivity and potential bias. The Court also noted that the directors, by statutory duty, must act in the best interest of the company, which reinforces the presence of interest in the dispute.

Conclusion: No. The company could not validly make a unilateral appointment of a sole arbitrator in these circumstances.

Issue (ii): Whether the mandate of an arbitrator so appointed is liable to be terminated de jure under the Arbitration and Conciliation Act, 1996.

Analysis: Once the appointing authority was held ineligible to make the appointment, the consequence was that the arbitrator's authority stood affected at the root. The Court applied the principle that after the law on ineligibility under Section 12(5) became clear, an arbitrator appointed by an interested party becomes de jure unable to perform functions as arbitrator, and the mandate is terminable under Section 14. The Court further held that the applicability of Section 12(5) depended on the commencement of arbitration, not merely on the date of the underlying contract, and that no express agreement in writing waiving the disqualification existed.

Conclusion: Yes. The mandate of the arbitrator was liable to be terminated de jure.

Final Conclusion: The unilateral appointment mechanism in the arbitration clause was held impermissible, the existing arbitrator was declared ineligible, and a substitute sole arbitrator was appointed to proceed with the disputes.

Ratio Decidendi: A party or authority having an interest in the outcome of the dispute cannot appoint a sole arbitrator, and such ineligibility under Section 12(5) of the Arbitration and Conciliation Act, 1996 renders the appointed arbitrator de jure incapable of continuing unless there is an express written waiver.

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