If one can't be appointed arbitrator, he cannot nominate another as sole arbitrator: SC

The Supreme Court has emphasised if a person cannot be appointed an arbitrator being ineligible by operation of law, he cannot nominate another as a sole arbitrator.

A bench of Justices Manoj Misra and Ujjal Bhuyan declared that since managing director of a company would be ineligible for being appointed as an arbitrator in view of Section 12 (5) read with paragraph 5 in the Fifth Schedule to the Arbitration and Conciliation Act, he would be ineligible to nominate a sole arbitrator.

The court here allowed appeals filed by Bhayana Builders Pvt Ltd and terminated the mandate of the sole arbitrator nominated by the Managing Director of the respondents, Oriental Structural Engineers Pvt Ltd and others.

The appeals arose from an order of February 21, 2018 passed by the Delhi High Court, which rejected the petitions filed by the appellant, under Section 14(2) of the Arbitration and Conciliation Act, 1996, for termination of the mandate of the sole arbitrator appointed by the Managing Director of the respondents.

The counsel for the appellant submitted that now there is a Constitution bench decision in Central Organization for Railway Electrification vs. ECI SPIC SMO MCML (JV) A Joint Venture Company (2025) which has affirmed the law laid down in TRF Ltd vs Energo Engg Projects Ltd (2017) and Perkins Eastman Architects DPC vs HSCC (India) Ltd (2020), declaring that a clause which allows one party to unilaterally appoint a sole arbitrator gives rise to justifiable doubts as to the independence and impartiality of the arbitrator.

Further, such a unilateral clause is exclusive and hinders equal participation of the other party in appointment process of arbitrators, the counsel said.

The appellants urged the court to terminate the mandate of the sole arbitrator nominated by the Managing Director in terms of Clause 9.03 and appoint an arbitrator.

The counsel for the respondents could not dispute that the instant case is squarely covered by the Constitution bench decision.

Agreeing with the submissions of the appellants, the bench pointed out in TRF, this court had held that if a person cannot be appointed an arbitrator being ineligible by operation of law, he cannot nominate another as a sole arbitrator.

It also noted, the Constitution bench has upheld the view taken in TRF. "In such circumstances, since managing director of a company would be ineligible for being appointed as an arbitrator in view of Section 12 (5) read with paragraph 5 in the Fifth Schedule to the 1996 Act, he would be ineligible to nominate a sole arbitrator,'' the bench said.

Allowing the appeal, the bench referred the matter to the Delhi International Arbitration Centre for nominating a suitable Arbitrator for resolution of the dispute inter se the parties.

Case Title: Bhayana Builders Pvt Ltd Vs Oriental Structural Engineers Pvt Ltd & Etc

Bench: Justices Manoj Mishra & Ujjal Bhuyan

Date: August 18, 2025