The Punjab & Haryana High Court has clarified that where the party designated to appoint an arbitrator under a contract is also a disputing party, its involvement creates a conflict of interest that disqualifies it from making the appointment. The Court affirmed its power under Section 11(6) of the Arbitration and Conciliation Act, 1996 to step in and appoint an impartial arbitrator when the contractual mechanism is compromised.
Background & Facts
The Dispute
The petitioner, M/s Suraj Cables (India) Pvt. Ltd., entered into a rate contract (Annexure P-1) with Uttar Haryana Bijli Vitran Nigam (UHBVN) and other respondents for the supply of electrical cables. Clause 19 of the contract contained an arbitration clause stipulating that any dispute arising out of or relating to the contract shall be referred to a Sole Arbitrator to be nominated by the Managing Director of UHBVN/DHBVN. The clause further provided that the arbitrator’s award would be final and binding, and the provisions of the Arbitration and Conciliation Act, 1996 would apply.
Key Facts
- The rate contract was executed on an unspecified date prior to January 2026.
- Clause 19 of the contract designated the Managing Director of UHBVN/DHBVN as the sole appointing authority for the arbitrator.
- On 26.01.2026, the petitioner issued a formal notice (Annexure P-13) invoking the arbitration clause, citing unresolved payment disputes.
- The respondents did not respond to the notice.
- The petitioner contended that the Managing Director of UHBVN, being a party to the dispute, could not act as an impartial appointing authority under Section 12(5) of the Act.
- The respondents did not dispute the existence of the contract, the arbitration clause, or the invocation of arbitration.
- The respondents’ sole objection was that no amount was due to the petitioner, as all payments had been settled.
Procedural History
- 26.01.2026: Petitioner issued arbitration notice to respondents.
- No response received from respondents within the stipulated time.
- 20.04.2026: Petitioner filed the present petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 before the High Court of Punjab & Haryana at Chandigarh.
The Parties' Positions
- Petitioner: Argued that the Managing Director of UHBVN, being a party to the dispute, is an interested person under Section 12(5) of the Act and therefore disqualified from appointing the arbitrator. Requested the Court to appoint an independent arbitrator.
- Respondents: Did not dispute the existence of the contract or the arbitration clause. Did not dispute the invocation of arbitration. Contended only that no amount is due, and therefore no arbitration is necessary.
Relief Sought
The petitioner sought the appointment of a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, to adjudicate the dispute, given the conflict of interest inherent in the contractual appointing authority.
The Legal Issue
The central question was whether the Court may appoint a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, when the contractual appointing authority - the Managing Director of UHBVN - is an interested party and thus disqualified under Section 12(5).
Arguments Presented
For the Petitioner
The petitioner’s counsel relied on Section 12(5) of the Act, which mandates that an arbitrator must be independent and impartial, and that any person with a conflict of interest cannot be appointed. She argued that the Managing Director of UHBVN, being the very entity against whom the claim is made, is inherently interested and cannot be permitted to appoint the arbitrator. She further cited the Supreme Court’s decision in Hindustan Construction Company Ltd. v. Union of India to support the proposition that the court must intervene when the contractual mechanism for appointment is rendered ineffective due to bias or conflict. The invocation of arbitration by notice dated 26.01.2026 was uncontested, satisfying the threshold requirement for court intervention under Section 11(6).
For the Respondent
The respondents’ counsel conceded the existence of the contract and the arbitration clause, and acknowledged that no reply was given to the arbitration notice. However, they contended that since no amount is due to the petitioner, there is no live dispute to arbitrate. They argued that the petition is premature and that the Court should not entertain an application for appointment of an arbitrator when the underlying claim is non-existent.
The Court's Analysis
The Court observed that the existence of a valid arbitration agreement and the invocation of the arbitration clause are not in dispute. The respondents did not challenge the validity of the contract or the notice. The only objection raised was on the merits of the claim - that no amount is due. The Court held that such a challenge goes to the root of the dispute and is a matter for the arbitrator to decide, not for the Court at the stage of appointment under Section 11.
"The objection that nothing is due to the petitioner is a defence that can be raised before the arbitrator and cannot be a ground to deny the appointment of an arbitrator at this stage."
The Court further examined Clause 19 of the contract, which designates the Managing Director of UHBVN as the appointing authority. It noted that UHBVN is a respondent in the dispute and therefore an interested party. Under Section 12(5), read with the Eighth Schedule, such a person is ineligible to act as an arbitrator or appointing authority. The Court held that the contractual mechanism for appointment is therefore invalid due to conflict of interest.
The Court emphasized that Section 11(6) empowers the High Court to appoint an arbitrator when the parties fail to agree on the appointment or when the designated authority is disqualified. The Court found that the conditions for such intervention were fully satisfied. The respondents’ contention that no dispute exists was rejected as premature, since the petitioner had invoked arbitration and the respondents had not refuted the existence of a dispute, only its substance.
The Verdict
The petition was allowed. The Court appointed Ms. Gurvinder Kaur, Additional District & Sessions Judge (Retd.), 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 communicated by her. The arbitrator’s fees shall be determined in accordance with the Fourth Schedule of the Arbitration Act, as amended. The arbitrator is directed to conclude the proceedings within the time limit prescribed under Section 29-A of the Act. A copy of the order was to be sent to the appointed arbitrator.
What This Means For Similar Cases
Contractual Appointing Authorities Must Be Neutral
- Practitioners must scrutinize arbitration clauses for appointing authorities who are parties to the contract or have a financial or institutional interest in the outcome.
- If the designated authority is an interested party, the appointment mechanism is void under Section 12(5), and the court may intervene under Section 11(6).
- Merely stating that no amount is due is not a valid ground to resist appointment of an arbitrator at the reference stage.
Court’s Role Under Section 11(6) Is Procedural, Not Substantive
- The court’s inquiry at the Section 11 stage is limited to the existence of an arbitration agreement and the failure of the appointment mechanism.
- The merits of the dispute - including payment disputes, performance issues, or defenses - are to be decided by the arbitrator.
- Any attempt to pre-judge the claim’s validity at the appointment stage will be rejected.
Timely Invocation Is Critical
- A party invoking arbitration must ensure the notice clearly references the arbitration clause and identifies the nature of the dispute.
- Silence from the other party after invocation creates a clear basis for court intervention under Section 11(6).
- Delay in seeking court appointment may be viewed as acquiescence, but in this case, the absence of response was sufficient to trigger judicial intervention.
