Court Can Examine Arbitrator Appointment In Arbitral Award Challenge Even If Not Pleaded: Madras High Court

The Madras High Court has reiterated that courts can examine the validity of an arbitrator's appointment even if the issue was not specifically pleaded in a challenge under Section 34 of the Arbitration and Conciliation Act, where the defect goes to the root of the arbitral tribunal's jurisdiction.

Setting aside a 2016 arbitral award, the Single Bench of Justice N. Anand Venkatesh held that the tribunal lacked inherent jurisdiction since the sole arbitrator, an official of Indian Oil Corporation Ltd., had been appointed despite the dealer's objection and without its consent or waiver.

Referring to settled principles, the Court observed:

“The Apex Court has held in more than one judgment that where the question raised goes to the root of the matter touching upon the very jurisdiction of the arbitral Tribunal and the same can be ascertained on the face of the award passed by the Tribunal, the Court can always go into the issue of jurisdiction even if no specific ground has been raised in the petition filed under Section 34 of the Act.”

The dispute arose after Indian Oil Corporation Ltd. allotted a petrol retail outlet dealership at Uthiramerur to Sree Agencies, represented by proprietor T. Dinesh, pursuant to a Letter of Indent issued in September 2005.

After obtaining the required approvals and executing a lease deed dated 30 June 2006, the retail outlet was commissioned on 31 July 2007 and made operational on 10 August 2007. According to the dealer, operational problems including leakage in the pipeline resulted in stock losses, and the outlet was closed on 8 December 2008. The dealer initially sought reference of the dispute to arbitration in December 2008, but those proceedings were later terminated.

Indian Oil subsequently issued a show cause notice in November 2011 and terminated the dealership agreement on 8 January 2013. Following the termination, Sree Agencies issued a notice dated 6 February 2013 invoking arbitration and specifically requested appointment of an independent third-party arbitrator, stating that it had no confidence in an arbitrator drawn from the corporation's officials. Despite the objection, an official of Indian Oil Corporation Ltd., who was serving as Director (Pipeline), was appointed as the sole arbitrator.

The dealer filed claims before the arbitrator seeking cancellation of the termination order, allotment of a new retail outlet, damages of Rs 7,45,65,297 with interest, and other consequential reliefs. The sole arbitrator passed an award on 26 July 2016, which Sree Agencies challenged before the High Court under Section 34 of the 1996 Act.

Before the Court, the dealer contended that the appointment of the arbitrator violated the requirement of neutrality under Section 12(5) of the Act, since the arbitrator was unilaterally appointed by Indian Oil despite a specific objection. Indian Oil argued that the award pre-dated the Supreme Court's ruling in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) and that the petitioner had not raised the objection regarding the arbitrator's appointment as a specific ground in the Section 34 petition.

The Court noted that the dealer's objection to the appointment of an official of the corporation as arbitrator was evident from its notice dated 06.02.2013. It further observed that although the Supreme Court had held that the law relating to neutrality in arbitrator appointments would apply prospectively, the validity of the tribunal's constitution could still be examined where the issue went to the very jurisdiction of the arbitral tribunal.

Justice Venkatesh held that Sree Agencies had neither consented to nor waived its right to an independent arbitrator, and therefore the principle laid down by the Supreme Court in Bhadra International (India) Pvt. Ltd. v. Airports Authority of India (2026) squarely applied.

Reiterating that “where the party has not waived the right or given consent for the arbitral Tribunal, such arbitral Tribunal lacks inherent jurisdiction,” the Court held that the award was vitiated.

Accordingly, the Court set aside the arbitral award dated July 26, 2016, and left it open to the parties to take fresh steps for the appointment of a new arbitrator in accordance with law.

For Petitioner (M/s Sree Agencies): Advocates Aasim Shehzad, BFS Legal.

For Respondent (Indian Oil Corporation Ltd.): Advocates M. Vijayamehanath.