Mumbai High Court judge Hon’ble Justice Mr. Mainsh Pitale in the matter of Hanuman Motors Pvt Limited Vs Tata Motors Finance Limited (2023) SCC Online Bom has set aside an arbitration award vide a recent well-reasoned Judgment dated 13th February 2023 passed by an unilaterally appointed arbitrator as not sustainable in law holding that the said appointment of arbitrator is hit by non-obstante clause of S.12(5) read with Schedule VII of the Arbitration and Conciliation Act,1996. The most important point decided by the Court is that the aggrieved party is allowed to raise the ground challenging the unilateral appointment in the application filed under S.34 of the Act, even though the petitioner did not make that challenge before the arbitrator, holding that even though the petitioner participated in the arbitration proceedings, in the absence of any waiver in writing by way of an agreement between the parties after arising of the disputes as mandated under S.12 of the Act.

Neutrality is the foundation of any sustainable judicial or quasi process and arbitration being a quasi-judicial process determining valuable rights of the parties, the arbitrator is required to be neutral if not it can lead to gross injustice. Hence it is the duty of Government and Judiciary to ensure that the arbitrators are neutral persons and persons with even a little conflict of interest should not be allowed to be the arbitrators. But unfortunately, Supreme Court of India earlier (pre 2015) took a wrong view that if parties enter into a contract allowing one party appointing the sole arbitrator such clause is valid in law because parties entered into the contract keeping their eyes open and hence in a later stage they cannot challenge it. The above stand of the Supreme Court made many parties lose confidence on the arbitration process itself and there has been a lot of contracts carrying such arbitration agreements. So many companies had stock arbitrators who were entrusted with large number of cases. Such arbitrators were totally biased and were acting as representatives of the appointing company but still those awards were sustained by the Court

In the year 2015 Government of India took historical steps to ensure transparency in arbitrations and incorporated various safeguards to avoid interested parties becoming arbitrators by amending the original 1996 Act. The requirement of arbitrators declaring to the parties about their relationship with parties and lawyers was made mandatory by introduction of Section.12. Even the red, green and orange list as provided in the “IBA rules on conflict of interest in International Arbitration” as Schedule V and VII to the Act. Schedule VII provides for the list of Relationships of the arbitrator with the parties or lawyers. If the arbitrator falls into any of the relationships (that can create justifiable doubts) then the parties should be declared about that relationship and it is for the parties to object or accept, the continuance of that arbitrator. But if the relationship of the arbitrator falls under any of the relationships mentioned in Schedule VII, then he is not eligible to continue as an arbitrator unless this bar is waived of by the parties. But such a waiver must be in writing by way of an agreement entered into the parties, after the disputes arose.

In the meantime, some judgments like Voestalpine Schienen GMBH case1, TRF Limited case2, Bharat broadband Network Limited Case3, Perkins Eastman Architects DPC4 etc., started asserting that the unilateral appointment of arbitrators is not sustainable as per law. In the case of Perkins Eastman supreme Court of India specifically held that unilateral appointment of Sole arbitrator will vitiate the appointment and the arbitration proceedings. But still one of the points on which Courts were reluctant to decide was that if a party fail to object to the unilateral appointment before the arbitrator and participate in the arbitration proceedings, whether such a party can be allowed to raise the ground of unilateral appointment in S.34 stage. In Naresh Kanayalal Rajwani5 case the Bombay High Court held that mere participation in the arbitral proceedings cannot disentitle the petitioners from raising the issue while challenging the award under S.34 of the Arbitration and Conciliation Act,1996. Division Bench of Delhi High Court in the matter of Kanodia Infratech Limited case6, held that it was not necessary to raise such an objection before the learned Arbitrator, to be able to raise the same in a petition filed under Section. 34 of the said Act, while challenging the Arbitral award.

Relying on the above said cases the Bombay High court held in the present case that for the reason that the nature of the objection goes to the root of the matter and if it is found that the Learned Arbitrator could not have entered upon the reference itself, there was no question of holding that such an objection could never be raised before the court under Section 34 of the Act, merely because it was not raised before the learned Arbitrator. Hence Hon’ble High Court held that award is vitiated.

This is one of the most progressive Judgments which strengthens the arbitration process by ensuring the neutrality of the arbitrator. We hope that Supreme Court upholds this view and make this as the law of the land.