Karnataka High Court Dismisses AVTEC Appeal, Holds Unilateral Appointment Of Sole Arbitrator Invalid

The Karnataka High Court on 29 April dismissed an appeal filed by AVTEC Limited and upheld the Commercial Court's order setting aside an arbitral award.

A Division Bench of Justices Anu Sivaraman and T.M. Nadaf held that parties cannot permit unilateral appointment of a sole arbitrator under the Arbitration and Conciliation Act, 1996, and also ruled that a party which participates in arbitration without objection cannot later dispute jurisdiction. It observed:

“The appellant having participated in the arbitration at Bengaluru on merits without raising any objection to the venue. Therefore, the appellant had acquiesced to the venue and consequently, the seat has been changed to Bengaluru.”

The dispute arose from a logistics services agreement between AVTEC Limited and PDS Logistics International Private Limited. After disputes arose over payment for consignments, AVTEC invoked arbitration and unilaterally appointed a sole arbitrator. The arbitrator proceeded ex parte and passed an award in favour of AVTEC.

PDS challenged the award before the Commercial Court at Bengaluru under Section 34 of the Arbitration Act. It argued that the Tribunal suffered from an improper constitution and that the proceedings violated principles of natural justice. The Commercial Court accepted these objections and set aside the award.

AVTEC argued before the High Court that PDS failed to challenge the arbitrator's appointment under Section 12 or seek appointment under Section 11, and therefore waived its right to object. It also argued that the arbitration agreement vested exclusive jurisdiction in Hosur courts and that the Commercial Court at Bengaluru lacked jurisdiction.

PDS countered that AVTEC itself invoked the jurisdiction of Bengaluru courts through a Section 9 petition and conducted arbitration proceedings there without objection, thereby accepting Bengaluru as the seat and becoming estopped from contesting jurisdiction.

On jurisdiction, the High Court noted that although the agreement designated Hosur as the seat, the parties' conduct modified that position. It held that AVTEC invoked the jurisdiction of Bengaluru courts and participated in proceedings there without objection, thereby acquiescing to Bengaluru as the seat.

On unilateral appointment, the Court noted that PDS consistently objected to the appointment of the sole arbitrator and that earlier arbitrators had recused themselves in view of such objections. It further agreed with the Commercial Court that the arbitral tribunal failed to properly adjudicate jurisdictional objections and did not ensure a fair hearing. It held:

“The proviso to Section 12(5) of the Arbitration Act permits waiver only by an express agreement in writing between the parties after disputes have arisen and no such agreement is on record.”

The Bench found no error in the Commercial Court's findings and dismissed the appeal. It, however, granted liberty to both parties to seek appointment of a fresh arbitrator in accordance with law.

Accordingly, the High Court dismissed the appeal.

For Appellant: Senior Advocate Pramod Nair and Advocate Ramya Ramachandran

For Respondent: Advocate K.B.S Manian