Party Cannot Indirectly Secure Unilateral Arbitrator Appointment By Choosing Arbitration Institution: Calcutta HC

The Calcutta High Court has recently held that a party interested in the outcome of an arbitration dispute cannot indirectly control the appointment of a sole arbitrator by unilaterally approaching an arbitration institution of its own choosing.

“The law does not permit such a stratagem. The prohibition engrafted by Section 12(5) and the judicial decisions thereunder is directed not merely at the formal act of appointing an arbitrator, but at the substance of the process, the unilateral control by an interested party over the constitution of the tribunal that is to adjudicate its own claims,” Justice Gaurang Kanth held,

“Whether that control is exercised directly through a personal appointment, or indirectly through the unilateral invocation of an institutional mechanism, the vices of partiality, inequality and conflict of interest are identical. The form cannot save what the substance condemns,” the court added.

Justice Kanth made the observations while refusing to enforce an ex parte arbitral award obtained by L&T Finance Ltd against Amina Fuels and others in a loan dispute, holding that the arbitral tribunal lacked inherent jurisdiction.

L&T Finance had extended financial assistance to Amina Fuels and others under a loan agreement dated April 30, 2024. After the borrowers allegedly defaulted, the lender invoked the arbitration clause in the agreement. Since the clause vested the power to appoint a sole arbitrator in L&T Finance, the company referred the dispute to LWTODR, an arbitration institution, which appointed retired Additional District & Sessions Judge Shyam Bihari Sharma as the sole arbitrator.

Despite notices sent through e-mail, WhatsApp, and SMS by both LWTODR and the arbitral tribunal, the borrowers did not appear or file any defence. The arbitrator proceeded ex parte and passed an award on July 17, 2025 in favour of L&T Finance.

When L&T approached the High Court to enforce the award, the Court examined whether it could be enforced even though the borrowers had not challenged it under Section 34 of the Arbitration and Conciliation Act.

The Court noted that since L&T was an interested party in the dispute, it was legally ineligible to appoint a sole arbitrator. In a situation where the opposite party does not participate in the appointment process, the proper remedy was to approach the court under Section 11 for appointment of an independent arbitrator, it held.

Instead, L&T chose to unilaterally approach LWTODR for appointment of the arbitrator.

“An Alternate Dispute Resolution institution or centre, however reputed, cannot be approached unilaterally by one party for the appointment of an arbitrator in the absence of the other party's consent,” Justice Kanth held.

The court said an arbitration institution derives authority to appoint an arbitrator only from the mutual consent of parties, either through a prior arbitration agreement naming that institution or through agreement reached after disputes arise. In the absence of such consent, an interested party cannot create a valid appointment mechanism by unilaterally invoking an institution of its own choice, the Court held.

The court also noted that the borrowers had never participated at any stage of the arbitral proceedings, including at the stage of the constitution of the tribunal, and therefore there could be no question of waiver or consent.

Holding that the sole arbitrator was de jure ineligible and that the tribunal was constituted in violation of mandatory legal safeguards, the Court declared the ex parte award void ab initio and refused enforcement.

The execution petition was dismissed, with liberty to L&T Finance to initiate fresh arbitral proceedings before a validly constituted tribunal in accordance with law