PSU MD Ineligible To Unilaterally Appoint Sole Arbitrator; General Consent Not 'Express Waiver' Under Section 12(5): Allahabad High Court

"Bar under Section 12(5) can be removed only by a clear, unequivocal, and written agreement executed after the dispute has arisen, and not by any form of tacit acceptance or procedural participation," Allahabad High Court (Lucknow Bench), in a significant ruling, held that a person who is statutorily ineligible to act as an arbitrator under Section 12(5) of the Arbitration and Conciliation Act, 1996, also lacks the authority to unilaterally appoint another arbitrator.

A bench of Chief Justice Arun Bhansali and Justice Jaspreet Singh observed that the "express agreement in writing" required to waive such ineligibility must be a conscious, post-dispute relinquishment of a known right, and cannot be inferred from general consent or participation in proceedings.

The appellant, a dealer for Hindustan Petroleum Corporation Ltd (HPCL), challenged the termination of his dealership agreement following an inspection where a dispensing unit seal was found broken. After a writ petition directed the parties to arbitration, HPCL’s Deputy General Manager sought the appellant's consent to appoint a corporation employee as the arbitrator. Although the appellant initially proposed a different arbitrator, he eventually sent a letter on March 7, 2018, stating he gave "consent to the Corporation to appoint an arbitrator," leading to the appointment of a sole arbitrator whose award eventually dismissed the appellant's claims.

The primary question before the court was whether the consent given by the appellant via his letter dated March 7, 2018, amounted to an "express agreement in writing" waiving the ineligibility under Section 12(5) of the Act. The court was also called upon to determine if an objection regarding the inherent ineligibility of an arbitrator could be raised for the first time during an appeal under Section 37 of the Act.

Ineligibility Of Named Arbitrator Strikes At Root Of Power To Nominate

The Court analyzed Clause 66 of the dealership agreement, which named the Chairman and Managing Director (CMD) of the Corporation as the sole arbitrator or the authority to nominate one. The bench noted that under the amended Section 12(5) and the Seventh Schedule of the Act, the CMD is per se ineligible to act as an arbitrator due to his relationship with the PSU. Relying on the Supreme Court's ratio in TRF Ltd. v. Energo Engg. Projects Ltd. and Perkins Eastman Architects DPC v. HSCC (India) Ltd., the Court held that once the CMD became ineligible by operation of law, he also lost the authority to nominate anyone else.

"Once the infrastructure collapses, the superstructure is bound to collapse. It is inconceivable in law that a person who is statutorily ineligible can nominate a person."

Distinction Between General Consent and Statutory Express Waiver

The bench emphasized that the proviso to Section 12(5) requires an "express agreement in writing" to waive the ineligibility of an arbitrator. Examining the correspondence between the parties, the Court found that the appellant’s letter was merely a manifestation of consent to the appointment process and not a specific waiver of the legal bar against biased or interested arbitrators. The Court observed that there was no "consensus ad idem" or meeting of minds regarding the waiver of the statutory protection provided under the Seventh Schedule.

Waiver Under Section 12(5) Must Be Informed and Unequivocal

The Court held that waiver involves a conscious decision to abandon an existing legal right with full knowledge of its consequences. Citing the recent Supreme Court decision in Bhadra International (India) (P) Ltd. vs. Airports Authority of India, the bench noted that the requirement of an "express agreement" is a heightened mandatory standard. This ensures that parties are not divested of their right to an independent tribunal through procedural happenstance or mere participation in the arbitral process.

"The right to object to the appointment of an ineligible arbitrator cannot be taken away by mere implication. The agreement referred to in the proviso must be a clear, unequivocal written agreement."

Challenge To Ineligibility Can Be Raised At Any Stage Including Appeal

The respondent-corporation argued that the appellant had participated in the proceedings without demur and failed to raise a precise objection under Section 34. Rejecting this, the High Court held that since Section 12(5) involves "de jure" ineligibility, it goes to the root of the arbitrator’s jurisdiction. An award passed by an ineligible arbitrator is non-est in the eyes of the law. Consequently, such a challenge regarding inherent lack of jurisdiction can be raised at any stage, including in an appeal under Section 37.

"In arbitration, the consent of parties confers subject-matter jurisdiction. When an arbitral tribunal is unilaterally constituted, such consent is absent, thereby divesting the tribunal of subject-matter jurisdiction."

Failure To File Mandatory Disclosure Under Section 12(1)

The Court also noted that the arbitrator failed to provide the mandatory disclosure in the form specified in the Sixth Schedule regarding his independence and impartiality. This omission, coupled with the unilateral nature of the appointment by an ineligible CMD, rendered the entire arbitral proceedings void. The bench concluded that the Commercial Court had erred in dismissing the Section 34 petition by wrongly assuming that the appellant’s participation and general consent cured the underlying legal invalidity.

The High Court allowed the appeal, setting aside both the Commercial Court's order and the arbitral award dated April 26, 2019. The Court ruled that the unilateral appointment process violated the principle of equal treatment of parties. It left it open for the parties to seek the appointment of a fresh arbitrator in accordance with the law to resolve the underlying dispute.

Date of Decision: 23 April 2026