Unilateral arbitrator appointment by an interested party is impermissible; mandate terminated for de jure incapacity.

A unilateral appointment of a sole arbitrator by the Managing Director of one party, where the clause otherwise required mutual consent and failed consensus, was treated as inconsistent with party autonomy, impartiality and independence in arbitral appointments. Because the appointing authority was an interested party, the arbitrator was held de jure incapable of functioning, and Section 14(1)(a) of the Arbitration and Conciliation Act, 1996 was attracted. The sole arbitrator's mandate was therefore terminated, and the challenge to the appointment succeeded, while the underlying claims were left open for decision in accordance with law.

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Issues: Whether the mandate of the sole arbitrator was liable to be terminated on the ground that the appointment was unilateral and therefore impermissible in law.

Analysis: The arbitration clause contemplated appointment of the arbitrator by mutual consent, but on failure of consensus, the Managing Director of one party was empowered to appoint the sole arbitrator. Such an appointment mechanism vested the power of appointment in an interested party and was inconsistent with the requirements of party autonomy, impartiality, and independence that govern arbitral appointments. A unilateral appointment by a person interested in the outcome of the dispute is impermissible, and Section 14(1)(a) of the Arbitration and Conciliation Act, 1996 is attracted where the arbitrator is de jure incapable of functioning.

Conclusion: The mandate of the sole arbitrator was terminated de jure and the challenge to the appointment succeeded.

Final Conclusion: The petition was allowed to the extent that the existing arbitral mandate stood annulled, while questions regarding the underlying claims were left open for determination in accordance with law.

Ratio Decidendi: An arbitrator appointed unilaterally by an interested party under a dispute-resolution mechanism is de jure incapable of acting as arbitrator, and the mandate is liable to be terminated under Section 14(1)(a) of the Arbitration and Conciliation Act, 1996.

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