Mumbai: The Bombay High Court has held that an arbitrator appointed unilaterally before October 23, 2015, will not be considered invalid if the arbitration agreement itself allowed one party to make the appointment.
2015 Amendment Changed Legal Position
Justice Jitendra Jain passed the judgment on August 4 while dealing with four execution proceedings involving SE Investments Ltd, now known as Paisalo Digital Ltd. The issue before the court was whether an executing court could refuse to enforce arbitral awards on the ground that the arbitrators had been appointed unilaterally before changes were made to the arbitration law in 2015.
In a detailed 71-page-judgment, the court noted that before October 23, 2015, unilateral appointments were recognised by the courts in certain situations. This included cases where the arbitration agreement named a particular arbitrator, specified a person or designation for appointment, or gave one of the parties the authority to appoint an arbitrator.
The legal position changed after the 2015 amendment to the Arbitration and Conciliation Act. Section 12(5) was introduced to strengthen the requirements of independence and impartiality of arbitrators.
Court Draws Distinction Between Contractual And Unauthorised Appointments
Justice Jain said the later legal position could not be applied to invalidate every arbitrator appointment made before October 23, 2015.
“Unilateral appointment of an arbitrator prior to 23 October 2015 wherein the arbitration clause provides for a named arbitrator or by designation or authorising appointment of an arbitrator by one of the party will not be without jurisdiction,” the court held.
The judge, however, drew a distinction between such contractual appointments and cases where there was no provision allowing unilateral appointment.
If the arbitration agreement did not name an arbitrator or give either party the power to appoint one, and one party nevertheless appointed an arbitrator without the consent of the other, the appointment would be invalid. In such a case, the proceedings and award could be treated as void.
The court observed that the position had to be examined based on the arbitration agreement and the circumstances in which the arbitrator was appointed.
It further held that where an appointment had already been challenged unsuccessfully, the executing court could not subsequently treat the resulting award as void.
The four connected matters have been posted for further consideration on September 15.
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