The Punjab and Haryana High Court has affirmed the judiciary's role in ensuring impartial arbitration by appointing an independent arbitrator where the contractually designated authority is potentially conflicted. This decision reinforces the integrity of arbitration proceedings under the Arbitration and Conciliation Act, 1996, particularly where institutional bias may compromise fairness.
Background & Facts
The Dispute
The applicant, M/s Rajasthan Cables and Conductors Private Limited, entered into a purchase order with the respondent, Uttar Haryana Bijli Vitaran Nigam Limited, containing an arbitration clause in Clause 20. The clause stipulated that any dispute arising between the parties shall be referred to a Sole Arbitrator to be nominated by the Managing Director of the respondent. The applicant alleged that the Managing Director, being an officer of the respondent organization, is an interested party and thus disqualified under Section 12(5) of the Arbitration and Conciliation Act, 1996.
Key Facts
- The purchase order (Annexure P-1) contained Clause 20, mandating arbitration before a Sole Arbitrator nominated by the respondent’s Managing Director
- The applicant issued a formal notice invoking the arbitration clause on 29.12.2025 (Annexure P-7)
- No response was received from the respondent within a reasonable time
- The applicant filed the present application under Section 11 of the Act on an unspecified date prior to 01.04.2026
- The respondent did not dispute the existence of the arbitration agreement or its invocation
Procedural History
- 29.12.2025: Applicant issued notice invoking arbitration clause
- 12.03.2026: Respondent filed memorandum of appearance
- 01.04.2026: Hearing before Justice Jasgurpreet Singh Puri; respondent sought and was granted permission to file power of attorney, which was taken on record
Relief Sought
The applicant sought the appointment of an independent Sole Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, arguing that the designated authority (Managing Director) is disqualified due to potential bias under Section 12(5).
The Legal Issue
The central question was whether the court may appoint an independent arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, when the contractually designated authority - the Managing Director of the respondent - is potentially disqualified under Section 12(5) due to its institutional affiliation with one of the parties.
Arguments Presented
For the Applicant
Learned counsel for the applicant submitted that Clause 20 of the purchase order designates the Managing Director of the respondent as the sole authority to nominate the arbitrator. Since the Managing Director is an employee and officer of the respondent, he is an interested party and thus falls within the scope of Section 12(5), which mandates automatic disqualification of persons with a relationship that gives rise to justifiable doubts as to their independence or impartiality. The applicant argued that the court, under Section 11, has the power to appoint an independent arbitrator to ensure fairness and compliance with statutory mandates.
For the Respondent
Mr. Sourabh Goel, counsel for the respondent, did not contest the existence of the arbitration clause or its invocation. He confirmed that the respondent had no objection to the court appointing an independent Sole Arbitrator. The respondent’s position effectively conceded the applicant’s core contention regarding the disqualification of the designated authority.
The Court's Analysis
The Court observed that while the parties had agreed to a mechanism for appointing the arbitrator, the designated authority - the Managing Director of the respondent - is inherently aligned with the interests of one party. Under Section 12(5) of the Arbitration and Conciliation Act, 1996, any person whose relationship with a party gives rise to justifiable doubts as to independence or impartiality is disqualified from acting as an arbitrator. The Court noted that the Managing Director, being a senior executive of the respondent, cannot be considered neutral.
"The very design of the arbitration clause, by vesting appointment power in the Managing Director of the respondent, creates a structural conflict that undermines the foundational principle of impartiality in arbitration."
The Court further emphasized that Section 11 empowers the High Court to appoint an arbitrator when the agreed mechanism fails or is rendered ineffective due to disqualification. The respondent’s lack of objection to an independent appointment further supported the court’s intervention. The Court held that the purpose of Section 11 is not merely procedural but substantive - to ensure that arbitration proceeds with integrity and without institutional bias.
The Verdict
The applicant succeeded. The Court appointed Sh. Nilesh Bhardwaj, Advocate, as the Sole Arbitrator to adjudicate the dispute. The parties are directed to appear before the arbitrator at a date, time, and place to be fixed by him. The arbitrator’s fees shall be determined in accordance with the Fourth Schedule of the Arbitration Act, as amended. The arbitrator is directed to complete the proceedings within the time limit prescribed under Section 29-A of the Act. A copy of the order has been sent to the appointed arbitrator.
What This Means For Similar Cases
Designated Arbitrator Appointing Authorities Must Be Truly Neutral
- Practitioners must scrutinize arbitration clauses that designate appointing authorities from within one party’s organizational hierarchy
- Any such designation triggers automatic scrutiny under Section 12(5)
- Even if the clause is unambiguous, courts will intervene under Section 11 if the appointing authority is not independent
Judicial Intervention Under Section 11 Is Procedurally Mandatory, Not Discretionary
- Courts are not merely facilitators - they are guarantors of impartiality
- When the agreed mechanism is compromised by bias, Section 11 becomes a mandatory remedy, not an optional one
- Parties cannot waive the requirement of impartiality by contract; statutory disqualifications under Section 12(5) override contractual terms
Procedural Compliance Is Non-Negotiable in Arbitration
- Failure to respond to an arbitration notice does not invalidate the process; it triggers the court’s power under Section 11
- The absence of objection from the respondent does not preclude judicial intervention - it reinforces the need for it
- Practitioners should proactively seek court appointment under Section 11 where the designated authority is an employee, director, or agent of a party
