Unilateral appointment of a sole arbitrator and limited waiver under Section 12(5) can vitiate arbitral proceedings

Section 12(5) of the Arbitration and Conciliation Act, 1996 bars appointment of an ineligible arbitrator, including where a party interested in the dispute unilaterally appoints the sole arbitrator under a pre-existing clause. The proviso permits waiver only by an express written agreement made after disputes have arisen, so mere participation in the arbitration does not amount to waiver under Section 4. The text also notes that procedural defects such as failure to frame issues and denial of a meaningful opportunity to lead evidence may independently undermine arbitral fairness and natural justice.

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Issues: (i) Whether the arbitral proceedings and award were vitiated because the sole arbitrator was unilaterally appointed by the respondent-bank in the face of Section 12(5) of the Arbitration and Conciliation Act, 1996; (ii) Whether the petitioners had waived their objection by participation in the arbitration and whether the proceedings were otherwise vitiated for breach of natural justice and procedural fairness.

Issue (i): Whether the arbitral proceedings and award were vitiated because the sole arbitrator was unilaterally appointed by the respondent-bank in the face of Section 12(5) of the Arbitration and Conciliation Act, 1996.

Analysis: Section 12(5) contains a non-obstante mandate that disqualifies a person falling within the Seventh Schedule from being appointed as arbitrator, and the proviso permits waiver only by an express written agreement after disputes have arisen. The arbitration clause reserved the power of sole appointment to the respondent-bank, and the appointment was made unilaterally after the statutory amendment had come into force. The legal position applied is that a party interested in the dispute or its outcome cannot appoint a sole arbitrator, and prior contractual clauses cannot override this statutory bar.

Conclusion: The unilateral appointment was invalid and the arbitral proceedings stood vitiated from inception, against the petitioner.

Issue (ii): Whether the petitioners had waived their objection by participation in the arbitration and whether the proceedings were otherwise vitiated for breach of natural justice and procedural fairness.

Analysis: Waiver under Section 4 cannot operate where the statute itself prescribes a specific mode of waiver under the proviso to Section 12(5), namely an express written agreement after disputes have arisen. Mere participation in the proceedings did not amount to such waiver. Independently, the record showed serious procedural infirmities, including failure to frame issues and denial of a meaningful opportunity to lead evidence, which undermined fairness in the arbitral process.

Conclusion: There was no effective waiver, and the proceedings also suffered from breach of natural justice, against the respondent-bank.

Final Conclusion: The award was unsustainable because the arbitrator's unilateral appointment was hit by the statutory ineligibility regime and the arbitral process was additionally marred by procedural unfairness.

Ratio Decidendi: A party having an interest in the dispute cannot unilaterally appoint a sole arbitrator after the amendment introducing Section 12(5), and such disqualification can be waived only by an express written agreement after disputes have arisen.

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