Pre-2015 unilateral arbitrator appointments valid if contract permitted it: Bombay High Court

The Bombay High Court has ruled that unilateral arbitrator appointments made before October 23, 2015 - when a legal amendment introduced to ensure the impartiality of arbitrators came into force - remain valid unless they were not backed by contractual consent [Paisalo Digital Ltd. v. Star Bazaar Pvt Ltd and connected petitions].

Justice Jitendra Jain made the observation in an August 4 ruling.

"Unilateral appointment of an arbitrator prior to 23 October 2015, where the arbitration clause provides for a named arbitrator, an arbitrator by designation, or authorises one of the parties to appoint an arbitrator, will not be without jurisdiction and, consequently, the proceedings arising therefrom would not be void ab initio, except where there is no contractual clause naming a particular arbitrator or conferring on one of the parties the right to unilaterally appoint an arbitrator, but an appointment is nevertheless made by one party in the absence of the other party's consent. In the latter case, the appointment will be void," the Court said.

The ruling came in a batch of execution applications filed by Paisalo Digital Limited, formerly S E Investments Ltd, against several judgment debtors including Star Bazaar Pvt Ltd.

Star Bazaar objected to the award's enforcement on the ground that the sole arbitrators appointed for the disputes had been appointed unilaterally, before the 2015 amendments to the Arbitration and Conciliation Act, 1996.

The 2015 amendment introduced Section 12(5) and the Seventh Schedule, which rendered certain categories of arbitrators ineligible. Subsequent Supreme Court decisions interpreted these provisions to invalidate many unilateral appointments made after October 23, 2015.

Justice Jain was called to decide whether the unilateral appointment of a sole arbitrator before this date was invalid as well.

The consequential question before the High Court was whether an executing court could refuse to enforce arbitral awards passed by such a unilaterally appointed arbitrator on that basis. 

Notably, after the Supreme Court’s ruling in Bhadra International (India) Pvt. Ltd. v. AAI, judgment debtors started arguing that even pre‑2015 unilateral appointments were void.

In the Bhadra ruling, the top court had held that principles of equal treatment and impartiality were always implicit in the law, but later made explicit through the 2015 amendments. 

The judgment debtors argued that the Supreme Court has also declared unilateral arbitrator appointments inconsistent with basic tenets of impartiality.

In light of this, even pre‑2015 unilateral arbitrator appointments were void and the ensuing arbitral awards inexecutable, they said.

The decree holders countered the argument, claiming that the 2015 amendments are prospective and create a new, express statutory ineligibility for arbitrators.

They pointed out that before October 23, 2015, unilateral arbitrator appointments made under contractual clauses naming an arbitrator or authorising one party to appoint an arbitrator were upheld by the Supreme Court.

Parties also had specific remedies to challenge the appointment if any question of bias arose. If such remedies were never invoked or failed, the arbitral award cannot later be attacked in execution proceedings on a theory of “implicit” disqualification, the decree holders said.

In his analysis, Justice Jain noted that unilateral arbitral appointments under the pre-2015 regime could fall under various categories.

For instance, there are cases where the contract authorises one party to appoint an arbitrator, whether or not he is completely unconnected to the parties.

On the other hand are cases where there is no contractual clause naming an arbitrator or empowering one party to appoint an arbitrator, and yet one side unilaterally appoints an arbitrator without the other’s consent. 

The Court held that only it is only in the latter category - where an arbitrator is unilaterally appointed without the other party's consent and without any contractual backing - that the unilaterally selected arbitrator's appointment would be rendered void.

The Court also noted that unilateral arbitrator appointments that were backed by contract were consistently recognised as valid by the Supreme Court before the 2015 amendment. The Supreme Court's ruling in Bhadra International did not overrule that line of authority, the High Court held.

Advocates Devesh Khara, Abhinav Kalia, Devesh Dubey, Shoumya Sahu, Akhilesh Nair, Bismit Nayak, Lakshya Bhatia and Devendra Kumar Singh briefed by DKL Advocates appeared for Paisalo Digital.

[Read order]