The High Court of Andhra Pradesh has held that the unilateral appointment of a sole arbitrator by one party is invalid and violative of Article 14 of the Constitution of India. The Court further ruled that an award passed by such an arbitrator lacks inherent jurisdiction and cannot be enforced in execution proceedings.
A Division Bench comprising Justice Ravi Nath Tilhari and Justice Balaji Medamalli set aside an attachment order passed in execution proceedings, observing that the mandate of an ineligible arbitrator terminates automatically by operation of law.
Background of the Case
The matter arose from two Civil Revision Petitions (CRP Nos. 2345/2022 & 419/2026) filed by Katta Srinivasu. The dispute originated from a loan agreement (No. LN148437) with M/s. IKF Finance Limited. Following a default, the Finance Company unilaterally appointed a sole arbitrator, Sri B. Chalapathi Suri, who passed an ex parte award on January 20, 2021.
The petitioner challenged the execution of this award (E.P. No. 676 of 2022), specifically an order dated September 30, 2022, which attached his bank account. Simultaneously, the petitioner had filed an application under Section 34 of the Arbitration and Conciliation Act, 1996, to set aside the award, which was pending before the VIII Additional District Judge, Vijayawada.
Arguments of the Parties
For the Petitioners: Sri P. V. A. Padmanabham, learned counsel for the petitioners, contended that the sole arbitrator was appointed unilaterally by the Finance Company’s Legal Manager. He argued that under Section 12(5) read with the Seventh Schedule of the Act, the Finance Company and its officials were ineligible to act as or nominate an arbitrator. Relying on Perkins Eastman Architects DPC v. HSCC (India) Ltd., he submitted that since the appointing authority was himself ineligible, the nomination of the arbitrator was “non-est” and without jurisdiction.
For the Respondents: Sri V. V. L. N. Purnesh, representing the Finance Company, argued that the petitioner had waived the right to object under Section 4 of the Act by not raising concerns during the arbitration proceedings. He maintained that the arbitrator was an individual entity with no direct relation to the company and that the appointment did not violate Section 12(5).
Court’s Analysis
The Court identified four key points, primarily focusing on whether unilateral appointment results in an inherent lack of jurisdiction and whether such an objection can be raised during execution.
1. Ineligibility and Unilateral Appointment: Referring to the Supreme Court’s decisions in TRF Ltd. and Perkins Eastman, the Court noted that a person having an interest in the outcome of a dispute is ineligible to act as an arbitrator and is equally ineligible to appoint one. The Bench observed:
“The person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015.”
The Court found that the Legal Manager of the respondent company fell under several categories of the Seventh Schedule (Category 1, 2, 5, and 12), rendering him ineligible to nominate the arbitrator.
2. Distinction of Waiver under Section 4 and Section 12(5): The Court rejected the respondent’s plea of waiver. It clarified that for Section 12(5) ineligibility, waiver can only occur through an “express agreement in writing” subsequent to the dispute arising, as per the proviso to that section.
“The right to object to the appointment of an ineligible arbitrator cannot be taken away by mere implication. The agreement referred to in the proviso must be a clear, unequivocal written agreement.”
3. Inherent Lack of Jurisdiction and Execution: Citing Bhadra International (India) Pvt. Ltd. v. Airports Authority of India, the Bench emphasized that a challenge to an arbitrator’s ineligibility can be raised at any stage, including collateral proceedings like execution.
“A challenge to an arbitrator’s ineligibility could be raised at any stage because an award passed in such circumstance is non-est, i.e., it carries no enforceability or recognition in law.”
The Court further noted that the law regarding sole arbitrators, as settled in Central Organisation for Railway Electrification, applies retrospectively, unlike the prospective application directed for three-member tribunals.
The Decision
The High Court concluded that the appointment of the sole arbitrator was invalid and the resulting award was passed without jurisdiction.
The Court held:
- The impugned order of attachment dated September 30, 2022, in the execution proceedings is set aside.
- The Award dated January 20, 2021, is declared inexecutable.
- The pending Section 34 proceedings before the lower court were ordered to be closed as they would be a “futile exercise” given the award’s invalidity.
The Bench allowed both revision petitions but clarified that parties remain free to initiate fresh arbitration proceedings in accordance with the law.
Case Details:
- Case Title: Katta Srinivasu vs. M/s. IKF Finance Limited and others
- Case No.: CIVIL REVISION PETITION Nos. 2345/2022 & 419/2026
- Bench: Hon’ble Sri Justice Ravi Nath Tilhari & Hon’ble Sri Justice Balaji Medamalli
- Date of Judgment: April 10, 2026
