The Delhi High Court appointed a sole arbitrator to resolve disputes between M/S Greentree Building Energy Private Limited and the Bureau of Energy Efficiency after finding the arbitration agreement's appointment mechanism unenforceable. The court held that a clause allowing the respondent to unilaterally appoint the sole arbitrator contravenes Section 18 of the Arbitration and Conciliation Act, 1996, which mandates equal treatment of parties. Despite this defect, the court affirmed the underlying arbitration agreement's validity and exercised its jurisdiction under Section 11(6) to appoint a neutral arbitrator, emphasizing that challenges to the appointment procedure do not invalidate the arbitration agreement itself.
Background & Facts
The Dispute
The petitioner, M/S Greentree Building Energy Private Limited, entered into a Memorandum of Agreement / Service Agreement dated 29.02.2024 with the respondent, Bureau of Energy Efficiency (BEE), for conducting Refresher Courses for Energy Auditors and Energy Managers. The agreement was pursuant to BEE's Request for Proposal dated 06.12.2023, which led to the issuance of a Letter of Award dated 15.02.2024 bearing Work Order No. 10/01/RC/BEE/2022/7063 in favour of the petitioner.
Key Facts
- The petitioner agreed to provide training to approximately 2,000 candidates through workshops across the country under the Service Agreement.
- The petitioner trained 636 candidates, achieving Milestone-I (requiring 600 candidates), and raised Tax Invoice No. 25262075/01/081 dated 06.06.2025 for Rs. 46,11,204/- (inclusive of IGST), representing 30% of the total contract value of Rs. 1,53,70,680/-.
- On 15.01.2026, only Rs. 15,53,350/- was released to the petitioner after statutory deductions towards TDS and GST-TDS.
- The respondent forwarded payment particulars via e-mail dated 28.01.2026, indicating that from the invoiced sum of Rs. 46,11,204/-, deductions of Rs. 11,52,801/- (for six workshops due to alleged shortfall below 25 candidates) and Rs. 15,37,068/- (towards an alleged "10% maximum penalty" on total contract value) were effected, leaving Rs. 17,29,202/- as payable.
- The petitioner disputed these deductions as unilateral, arbitrary, and contrary to the agreement's terms.
- A further sum of Rs. 5,14,918/- was claimed under Pro-Forma Invoice No. PI/26-27/00073 dated 21.05.2026 for the balance 67 candidates.
- The contract period was extended by the respondent: first upto 14.05.2025 via letter dated 02.04.2025, and thereafter upto 01.10.2025 via letter dated 11.07.2025.
Procedural History
- 01.04.2026: Petitioner issued notice under Sections 11 and 21 of the Arbitration and Conciliation Act, 1996, invoking the arbitration agreement and calling for appointment of an independent sole arbitrator within 30 days.
- 23.04.2026: Respondent filed reply to the notice, contesting the petitioner's claims and justifying the deductions.
- 29.07.2026: Pursuant to an order of this Court, notice was issued to the respondent; affidavit of service filed.
- Despite service, no appearance was entered by the respondent, and no reply to the petition was filed.
Relief Sought
The petitioner sought appointment of a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 to adjudicate disputes arising from the Letter of Award dated 15.02.2024 and the Service Agreement dated 29.02.2024.
The Legal Issue
The central question was whether the arbitration agreement's Clause 11.4.2, which stipulated that "all disputes... shall be resolved by a Sole Arbitrator appointed by BEE", was enforceable under Section 11(6) of the Arbitration and Conciliation Act, 1996, given that it permitted one party to unilaterally appoint the arbitrator.
Arguments Presented
For the Petitioner
The petitioner argued that Clause 11.4.2 of the Service Agreement was unenforceable as it allowed the respondent to unilaterally appoint the sole arbitrator, violating the principle of equal treatment under Section 18 of the Arbitration and Conciliation Act, 1996. Reliance was placed on TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377 and Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760, which held that a party interested in the outcome cannot appoint the arbitrator. The petitioner further cited the Constitution Bench judgment in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), 2024 SCC OnLine SC 3219, which affirmed that unilateral appointment procedures raise justifiable doubts about arbitrator independence and impartiality.
For the Respondent
The respondent contended that the arbitration agreement was valid and enforceable, and that the petitioner had failed to meet contractual milestones, justifying the deductions from the invoice. It argued that the Court should not interfere with the agreed appointment mechanism and that any objections regarding the arbitrator's independence should be raised before the arbitral tribunal, not at the appointment stage under Section 11.
The Court's Analysis
The Court first confirmed the existence and validity of the arbitration agreement under Clause 11.4 of the Service Agreement, noting that the seat of arbitration was agreed to be New Delhi, granting the Court jurisdiction under Section 8 and Section 11(6) of the Arbitration and Conciliation Act, 1996. The Court then examined Clause 11.4.2, which provided for appointment of a sole arbitrator "by BEE".
The Court held that this mechanism was unenforceable, stating: "It is well settled that a party which is itself interested in the outcome of the dispute cannot be permitted to unilaterally appoint the sole arbitrator." This principle was derived from TRF Ltd. v. Energo Engineering Projects Ltd. and Perkins Eastman Architects DPC v. HSCC (India) Ltd., and expressly affirmed by the Constitution Bench in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV). The Court emphasized that such a procedure "gives rise to justifiable doubts as to the independence and impartiality of the arbitrator, and is contrary to the principle of equal treatment of parties enshrined in Section 18 of the A&C Act."
Crucially, the Court distinguished between the unenforceability of the appointment mechanism and the validity of the arbitration agreement itself, observing: "The unenforceability of the appointment mechanism, however, does not impinge upon the existence and validity of the arbitration agreement itself. The unequivocal intention of the parties to have their disputes resolved by arbitration remains." Consequently, the appointment procedure was treated as having failed, enabling the Court to exercise its jurisdiction under Section 11(6).
The Court further clarified that the scope of inquiry under Section 11 is "extremely narrow" and confined to verifying the existence of an arbitration agreement, citing In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, (2024) 6 SCC 1; SBI General Insurance Co. Ltd. v. Krish Spinning, (2024) 11 SCC 41; and NTPC Ltd. v. SPML Infra Ltd., (2023) 9 SCC 385. Matters such as alleged non-performance, delay, or the justifiability of deductions were deemed non-arbitrable at this stage, as they fall within the domain of the arbitral tribunal.
The Verdict
The petitioner succeeded. The Court set aside the unilateral appointment mechanism in Clause 11.4.2 of the Service Agreement dated 29.02.2024, held that the appointment procedure had failed, and appointed Ms. Manini Brar, Advocate (Mobile No. +91 9205591340) as the Sole Arbitrator to adjudicate the disputes between the parties. The Court directed that the arbitration proceedings be conducted in accordance with the Arbitration and Conciliation Act, 1996, subject to disclosure requirements under Section 12, and under the aegis of the Delhi International Arbitration Centre (DIAC). The respondent was granted liberty to raise preliminary objections regarding arbitrability/jurisdiction before the Sole Arbitrator. The Court expressly clarified that its order expressed no opinion on the merits of the dispute.
What This Means For Similar Cases
Unilateral Appointment Mechanisms Are Per Se Unenforceable
Parties cannot rely on arbitration clauses that permit one party to unilaterally appoint the sole arbitrator, as such provisions violate Section 18 of the Arbitration and Conciliation Act, 1996. Practitioners must draft arbitration agreements with neutral appointment procedures (e.g., joint appointment, institutional nomination, or court appointment in case of disagreement) to avoid jurisdictional challenges at the enforcement stage. The Constitution Bench precedent in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) now binds all courts on this principle.
Section 11 Proceedings Are Strictly Limited to Agreement Existence
At the appointment stage under Section 11(6), courts must confine their inquiry to whether a valid arbitration agreement exists, without delving into the merits of the underlying dispute, including allegations of breach, non-performance, or the validity of claims/counter-claims. Arguments regarding the respondent's justifications for deductions or the petitioner's alleged milestones shortfall are irrelevant and inadmissible at this juncture, as affirmed by the trilogy of 2023-2024 Supreme Court decisions cited in the judgment.
Failed Appointment Procedure Triggers Court Intervention
When an agreed appointment mechanism fails due to unenforceability (e.g., unilateral appointment) or party disagreement, the court's power under Section 11(6) arises not from invalidating the arbitration agreement but from giving effect to the parties' paramount intention to arbitrate. The court's role is facilitative - to appoint a neutral arbitrator to save the arbitration agreement from frustration - not to adjudicate the dispute's merits.
