ISSUE OF LAW

The Court examined significant legal questions concerning the appointment of arbitrators by arbitral institutions under the Arbitration and Conciliation Act, 1996. The first issue was whether an award holder could validly approach an arbitral institution of its own choice for the appointment of an arbitrator in the absence of any prior agreement designating such institution or without obtaining the express consent of the opposite party. The Court also considered whether an ex parte arbitral award passed by an arbitrator appointed unilaterally through an institution not agreed upon by the parties would be void and incapable of enforcement under Section 36 of the Act. Additionally, the Court analyzed the impact of Sections 12(5) and 18 of the Arbitration and Conciliation Act, particularly in the context of the post-2015 amendments aimed at safeguarding the constitution of arbitral tribunals from unilateral influence by interested parties.

DETAILED BACKGROUND AND FACTS

The execution petition arose from proceedings initiated by M/s Cholamandalam Investment & Finance Company Ltd., the award holder, against Sayan Goswami and another, who were the award debtors. The dispute originated from a Loan Agreement dated May 25, 2023, executed between the parties, which contained an arbitration clause. Following an alleged default in repayment by the borrowers, the award holder sought to invoke the arbitration mechanism provided under the agreement.

However, a procedural defect emerged in the constitution of the arbitral tribunal. The arbitration agreement did not specify any arbitral institution nor did it establish an agreed institutional framework for the appointment of an arbitrator. Despite the absence of such agreement, the award holder unilaterally approached an arbitral institution of its own choice and obtained the appointment of a Sole Arbitrator. The arbitral proceedings thereafter continued ex parte, culminating in an award dated May 13, 2025, in favour of the lender. Subsequently, the award holder filed Execution Petition No. EC-COM 248 of 2026 before the High Court seeking enforcement of the arbitral award.

JUDGMENT

The High Court dismissed the execution petition and held that the arbitral award sought to be enforced was a nullity in law. The Court observed that an arbitral institution could only be approached for the appointment of an arbitrator where there existed mutual consent between the parties, either through a prior agreement expressly naming the institution or by a subsequent joint agreement after the dispute had arisen.

The Court further held that where one party declines participation and there is no pre-existing institutional agreement, the Arbitration and Conciliation Act provides a specific mechanism under Section 11, requiring the aggrieved party to seek appointment through the Court rather than resorting to a unilateral institutional appointment.

Emphasizing the legislative intent behind Sections 12(5) and 18, the Court noted that permitting one interested party to unilaterally choose an arbitral institution would undermine the neutrality and independence envisaged under the Act. These provisions were specifically introduced to ensure that the process of constituting arbitral tribunals remains insulated from the exclusive control or influence of one stakeholder.

Since the arbitral tribunal had been constituted through an impermissible unilateral process, the Court held that the arbitrator lacked inherent jurisdiction to adjudicate the dispute. Consequently, the ex parte award was declared void ab initio and incapable of enforcement.

SUBSEQUENT DEVELOPMENT

Following the findings of invalidity, the execution petition was dismissed as the award itself was held unenforceable. Nevertheless, the Court clarified that the award holder retained the liberty to invoke the arbitration clause afresh in accordance with law, either by obtaining the mutual consent of the borrowers regarding the appointment process or by filing an application under Section 11 of the Arbitration and Conciliation Act before the High Court for appointment of an arbitrator.

COURT
In The High Court At Calcutta

CASE TITLE
M/s Cholamandalam Investment and Finance Company Limited vs. Sayan Goswami and Anr.

CASE NUMBER
EC-COM 248 of 2026

PRESIDING JUDGE
The Hon'ble Mr. Justice Gaurang Kanth

DATE OF JUDGMENT
MAY 15, 2026