Award Passed by Unilaterally Constituted Arbitral Tribunal Unenforceable: Calcutta HC

The Hon’ble Calcutta High Court, in L and T Finance Limited v. Amina Fuels and Ors. (EC-COM 293 of 2026), refused enforcement of an ex parte arbitral award obtained by L&T Finance Ltd., holding that an arbitral tribunal constituted through a unilaterally invoked institutional mechanism by an interested party was rendered de jure ineligible under Section 12(5) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The Court held that such unilateral control over the constitution of the arbitral tribunal violated the principles of equal treatment, independence and impartiality embodied under Sections 12(5), 14 and 18 of the Arbitration Act, thereby rendering the award unenforceable in law.

The execution petition had been filed by L&T Finance Ltd. under Section 36 of the Arbitration Act seeking enforcement of an ex parte arbitral award dated July 17, 2025 passed in Arbitration Case No. L&T/ARB/LOT-5/31 (L&T Finance Ltd. v. Anima Fuels & Ors.), arising out of disputes under a loan agreement dated April 30, 2024. The award debtors had allegedly defaulted in repayment obligations, following which arbitration proceedings were initiated by L&T Finance Ltd.

The Court noted that since L&T Finance Ltd., being directly interested in the outcome of the dispute, was itself rendered ineligible to appoint a sole arbitrator in view of the Supreme Court’s judgment in Perkins Eastman Architects DPC v. HSCC (India) Ltd. [(2020) 20 SCC 760], it referred the disputes to LWTODR, an arbitral institution, which thereafter appointed Shri Shyam Bihari Sharma, retired Additional District and Sessions Judge, as Sole Arbitrator. The arbitrator proceeded ex parte after the respondents failed to participate despite repeated notices issued through email, WhatsApp and SMS.

Before considering enforcement, the High Court independently examined whether the award was enforceable under Section 36 of the Arbitration Act. The Court referred to Section 12(5) of the Arbitration Act read with the Seventh Schedule, which renders persons having specified relationships with the parties or dispute ineligible to act as arbitrators. These include employees, consultants, advisors, managers or persons having business, financial, professional or personal relationships with a party or the subject matter of the dispute.

Relying on Bhadra International (India) Pvt. Ltd. v. Airports Authority of India [(2026 SCC OnLine SC 7)], the Court observed that such ineligibility constitutes a de jure inability under Section 14(1)(a) of the Arbitration Act, resulting in automatic termination of mandate by operation of law.

The Court further relied upon TRF Ltd. v. Energo Engineering Projects Ltd. [(2017) 8 SCC 377], Perkins Eastman Architects DPC v. HSCC (India) Ltd., and Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) [(2025) 4 SCC 641] to reiterate that the principle of equal treatment under Section 18 extends even to the stage of constitution of the arbitral tribunal. It held that where a party is itself ineligible to act as an arbitrator, such party cannot directly or indirectly exercise unilateral control over the appointment process, since arbitration necessarily requires independence, impartiality and equality between parties.

The Court held that L&T Finance Ltd.’s unilateral invocation of the services of LWTODR for appointment of the Sole Arbitrator, without the consent or participation of the award debtors, amounted in substance to exercise of the very power of unilateral appointment prohibited in law. The Court observed that “the institutional form does not alter the substantive nature of the act” and that the prohibition under Section 12(5) is directed not merely at the formal act of appointing an arbitrator, but at “the unilateral control by an interested party over the constitution of the tribunal that is to adjudicate its own claims.”

Importantly, the Court drew a distinction between consensual institutional arbitration mechanisms contractually agreed between parties and unilateral reference by an interested party to an arbitral institution after disputes had arisen. The Court clarified that an arbitral institution derives authority from mutual consent of parties and cannot ordinarily be unilaterally approached by an interested party for appointment of an arbitrator unless the arbitration agreement itself specifically provides for institutional arbitration.

The Court further held that where the opposite party does not participate in the appointment process, the appropriate statutory remedy available to the interested party is to approach the Court under Section 11 of the Arbitration Act for appointment of an independent arbitrator.

The High Court also held that since the award debtors never participated in the arbitral proceedings, there could be no inference of waiver or acquiescence. It reiterated that an award rendered by a de jure ineligible arbitral tribunal remains vulnerable to invalidation and may be refused enforcement even at the execution stage, notwithstanding the absence of any challenge under Section 34 of the Arbitration Act.

Accordingly, the Court concluded that the arbitration clause vesting unilateral appointment power in L&T Finance Ltd. was legally unsustainable and that the unilateral invocation of LWTODR amounted, in substance, to a prohibited unilateral appointment mechanism. Consequently, the Sole Arbitrator was held to be de jure ineligible by operation of law, and the ex parte arbitral award dated July 17, 2025 was declared incapable of enforcement under Section 36 of the Arbitration and Conciliation Act, 1996.