The Bombay High Court has delivered a definitive ruling that unequivocally bars parties from curing the illegality of a unilateral arbitrator appointment through passive participation in arbitration proceedings. This judgment reinforces the statutory rigour of Section 12(5) of the Arbitration and Conciliation Act, 1996, and closes a long-standing loophole exploited by parties seeking to ambush adverse awards.
Background & Facts
The Dispute
The petitioners in ARBP No. 324 of 2019 were borrowers who defaulted on a loan of approximately Rs. 1.22 crore, governed by a Loan Agreement dated March 31, 2011. The respondent, Karvy Financial Services Ltd., unilaterally appointed a sole arbitrator and invoked arbitration on November 30, 2016. The arbitral award was rendered on February 6, 2018, in Karvy’s favour.
Procedural History
- November 2016: Karvy unilaterally appointed the arbitrator without the petitioners’ consent.
- 2016 - 2018: Petitioners actively participated in arbitration proceedings, including filing statements of claim, seeking interim relief, and submitting written replies - without objecting to the arbitrator’s appointment.
- February 2018: Arbitral award passed in favour of Karvy.
- 2019: Petitioners filed Section 34 petitions under the Arbitration Act to set aside the award, challenging the arbitrator’s unilateral appointment for the first time.
Relief Sought
The petitioners sought to set aside the impugned arbitral awards on the ground that the arbitrator was ineligible under Section 12(5) read with the Seventh Schedule of the Arbitration Act due to unilateral appointment, and that their participation did not constitute a waiver of this statutory objection.
The Legal Issue
The central question was whether participation in arbitration proceedings without objection constitutes a waiver of the right to challenge an arbitral award on the ground of unilateral appointment of an arbitrator under Section 12(5) of the Arbitration and Conciliation Act, 1996.
Arguments Presented
For the Petitioner
The petitioners relied on Bhadra International v. Airports Authority of India (2026 SCC OnLine SC 7) and Perkins Eastman Architects v. HSCC (India) Ltd. (2020) 20 SCC 760 to argue that unilateral appointment renders an arbitrator de jure ineligible. They contended that Section 12(5) imposes a mandatory statutory bar that cannot be waived except by an express agreement in writing after the dispute arises. Participation in proceedings, including filing pleadings or seeking interim relief, does not amount to consent under the proviso to Section 12(5). They further cited Govind Singh v. Satya Group Pvt. Ltd. (2023 SCC OnLine Del 37) to affirm that waiver by conduct is impermissible.
For the Respondent
Karvy argued that the petitioners’ prolonged and active participation - spanning over two years without objection - constituted implied consent and estoppel. It contended that allowing challenges at the Section 34 stage after full participation would encourage tactical litigation and undermine the finality of arbitral awards. Karvy urged the Court to apply principles of equity and procedural fairness to deny relief to parties who allegedly sought to ambush the outcome.
The Court's Analysis
The Court anchored its analysis in the Supreme Court’s recent judgment in Bhadra International, which explicitly overruled prior High Court decisions that permitted waiver by conduct. The Court emphasized that Section 12(5) is not a procedural formality but a substantive safeguard for impartiality and equal treatment under Section 18 of the Act.
"The expression 'express agreement in writing' demonstrates a deliberate and informed act that although a party is fully aware of the arbitrator’s ineligibility, yet it chooses to forego the right to object against the appointment of such an arbitrator."
The Court rejected Karvy’s estoppel argument, holding that equity cannot override statutory mandates. The legislature’s deliberate use of the phrase "express agreement in writing" in the proviso to Section 12(5) was interpreted as a conscious exclusion of implied or constructive waiver. The Court noted that Section 4 of the Act permits waiver by conduct in procedural matters, but Section 12(5) was intentionally crafted with a higher threshold to protect the integrity of the arbitral process.
The Court further held that the arbitrator’s ineligibility is a jurisdictional defect going to the root of the award. As such, it is not curable by participation, and a challenge under Section 34 is maintainable even if no objection was raised before the arbitrator. The Court endorsed the Delhi High Court’s reasoning in Govind Singh, affirming that filing statements of claim, seeking interim relief, or submitting replies cannot be construed as an "express agreement in writing."
The judgment concluded that the unilateral appointment rendered the arbitral tribunal void ab initio, and the awards were therefore nullities.
The Verdict
The petitioners succeeded. The Court held that unilateral appointment of an arbitrator under Section 12(5) cannot be cured by participation in arbitration proceedings, and that only an express written agreement can waive the statutory objection. All impugned arbitral awards were set aside.
What This Means For Similar Cases
Waiver Requires Express Written Consent
- Practitioners must now treat any unilateral appointment as a jurisdictional defect, regardless of procedural conduct.
- Any attempt to argue waiver based on participation, delay, or silence will be rejected under current law.
- Parties seeking to validate a unilateral appointment must obtain a signed, post-dispute written waiver from the counterparty.
Strategic Implications for Arbitration Drafting
- Drafters of arbitration clauses must avoid language permitting unilateral appointment.
- Where unilateral appointment is unavoidable, parties should execute a separate, post-dispute written consent before proceedings commence.
- Failure to do so renders the entire award vulnerable to challenge under Section 34, even years after the award is rendered.
No Need to Object During Proceedings
- There is no longer any obligation to raise a Section 12(5) objection before the arbitrator.
- A Section 34 petition remains valid even if no application under Section 14 was filed.
- This removes the risk of procedural missteps and allows parties to preserve challenges until the award is received.
