In its recent ruling in the case of Hanuman Motors Pvt. Ltd. and Anr. vs Tata Motors Finance Ltd. the Bombay High Court reiterated the need for a written agreement between the parties if one of them objects to the unilateral appointment of an arbitrator by the other, as contemplated under the proviso to Section 12(5) of the Arbitration & Conciliation Act, 1996 (“A&C Act”).
Tata Motors Finance Ltd (“Respondent”), having invoked the arbitration clause in a loan agreement executed with Hanuman Motors Pvt Ltd (“Petitioner”), nominated a sole arbitrator to adjudicate a dispute under the agreement.
The arbitrator passed an award in favour of the Respondent, allowing the claim raised against the Petitioner. The Petitioner filed a petition with the Bombay High Court arguing that the award should be set aside on the basis that the Respondent had unilaterally appointed the arbitrator.
The Petitioner also emphasised that the objection regarding the ineligibility of the arbitrator under Section 12(5) of the A&C Act can only be waived by an express agreement between the parties and not by their conduct.
The Respondent countered the above objections by submitting that the petitioner should have raised the objection to the unilateral appointment of the arbitrator, before the arbitrator himself. It was submitted by the Respondent that having failed to raise any such objection before the Arbitrator, such a ground cannot be taken before the Court as a Section 34 Petitioner.
The Bombay High Court analysed the issue by placing reliance on a ruling by the Apex Court in the case of Bharat Broadband Network Limited vs. United Telecoms Limited, where it was held that if the existence of an exclusive power to appoint a sole arbitrator enjoyed by either party creates a situation where serious doubts would arise about the eligibility of the said arbitrator, then this would vitiate the entire arbitral proceedings. The Court also further relied on the prior decision of the Bombay High Court in Naresh Kanayalal Rajwani and Ors. vs. Kotak Mahindra Bank Ltd. & Anr. which had clarified the need for a written waiver of any objections against the appointment of arbitrator.
Having taken into account the above contentions of the parties and the case law on the subject, the Bombay High Court ruled that when one of the parties to the dispute has an overwhelming and unilateral power to appoint a sole arbitrator, this completely vitiates such an appointment as the same is hit by Section 12(5) read with the Seventh Schedule of the A&C Act.
The court further analysed the provisions of the A&C Act, which under Section 12(5) states that, the parties may, subsequent to the disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. Further after looking at the Amendment Act of 2015, the court stated that the unilateral appointment of an arbitrator is no longer permissible, this is because Section 12(5) of the A&C Act starts with a non-obstante clause.
The court considered that the nature of the objection raised by the Petitioner is such that it goes to the very root of the matter and there was no question of holding that such an objection could never be raised before the Court under Section 34 of the said Act, merely because it was not raised before the learned arbitrator.
The Court also reiterated that without a written waiver, a mere participation in the arbitral proceedings would not disentitle a party from raising said issue in a Section 34 stage before the High Court. Thus it was not necessary for the Petitioner to raise an objection regarding the unilateral appointment before the arbitrator, to be able to raise the same in a Section 34 Petitioner before the High Court to challenge the arbitral award.
The Court observed that the sole arbitrator was unilaterally appointed by the Respondent, and the Respondent was unable to demonstrate the existence of any written waiver under Section 12(5) of the A&C Act. Thus the Court considered the unilateral appointment to be untenable and set aside the arbitral award in favour of the Petitioner.
 2023 SCC OnLine Bom 523
 CIVIL APPEAL NO. 3973 of 2019 decided on April 16, 2019
 2022 SCC OnLine Bom 6204