Bombay HC Upholds Pre-2015 Unilateral Arbitrator Appointments Allowed by Contract
The Bombay High Court ruled on August 4 that arbitrators appointed unilaterally prior to October 23, 2015, will not be deemed invalid if the underlying arbitration agreement explicitly permitted one party to make the appointment. Justice Jitendra Jain delivered the ruling while hearing four execution proceedings involving SE Investments Ltd, currently known as Paisalo Digital Ltd, in Mumbai.
The central issue before the court was whether an executing court has the authority to refuse enforcement of arbitral awards simply because an arbitrator was appointed unilaterally prior to major changes in India's arbitration legal framework in 2015.
In a detailed 71-page judgment, Justice Jain explained that unilateral appointments made before October 23, 2015, were recognized by courts under specific circumstances. These included agreements that named a specific arbitrator, identified a particular person or designation for appointment, or expressly granted one of the parties the power to appoint an arbitrator.
The legal framework governing arbitrations shifted significantly following the 2015 amendment to the Arbitration and Conciliation Act. That amendment introduced Section 12(5), which was designed to strengthen the requirements of independence and impartiality expected of arbitrators.
However, Justice Jain observed that the stricter legal position established after the amendment could not be retrospectively applied to invalidate every single arbitrator appointment made before October 23, 2015.
The court emphasized a clear distinction between contractual appointments allowed by an agreement and situations where no such power existed. If an arbitration agreement did not name an arbitrator or grant either party the explicit authority to appoint one, and a party nevertheless made a unilateral appointment without the consent of the other, that appointment would be invalid. In such circumstances, the arbitral proceedings and the resulting award could be treated as void.
Justice Jain noted that the validity of an appointment must be evaluated based on the specific arbitration agreement and the facts under which the arbitrator was chosen. Furthermore, the court held that in cases where an arbitrator's appointment had already been challenged unsuccessfully, an executing court cannot later treat the resulting award as void.
The four connected execution matters involving Paisalo Digital Ltd have been scheduled for further consideration by the High Court on September 15.
