'Unilateral Appointment Of Arbitrator Violates Principles Of Natural Justice': Calcutta High Court Sets Aside Arbitral Award
The Calcutta High Court on Tuesday set aside an ex-parte arbitral award ruling that unilateral appointment of a sole arbitrator by one of the parties is violative of the Principles of Natural Justice and fatally vitiates the arbitral process, thereby resulting in nullity. Justice Shampa Sarkar in a judgement delivered on 2nd December, 2025, allowed the application filed by YD...
The Calcutta High Court on Tuesday set aside an ex-parte arbitral award ruling that unilateral appointment of a sole arbitrator by one of the parties is violative of the Principles of Natural Justice and fatally vitiates the arbitral process, thereby resulting in nullity.
Justice Shampa Sarkar in a judgement delivered on 2nd December, 2025, allowed the application filed by YD Transport Company and its proprietor under section 34 of the Arbitration and Conciliation Act, 1996. Court unequivocally stated that such an appointment is “violative of principles of natural justice and offends the very concept of just and fair treatment of the parties in the proceeding”, finding that the tribunal's constitution offended Section 12(5) read with the 7th Schedule of the Arbitration and Conciliation Act, 1996.
The issue stemmed out of alleged non-payments of Rs.7.27 crores in relation to a loan agreement between YD Transport company and SREI Equipment Finance Limited. This led to the invocation of the arbitration clause by the SREI Equipment Limited, the respondents, where they unilaterally appointed a single Arbitrator. The procedures were carried on ex-parte with an award issued by the arbitrator on 28th December, 2017. Aggrieved, the Petitioners approached the Calcutta High Court under section 34 of the Arbitration and Conciliation Act, 1996 seeking to set it aside.
It was the stance of the petitioners through arguing counsel Jishnu Choudhary, opposing the unilateral appointment of arbitrator, resulting in violation of Article 14 of the Constitution of India, reasoning out that they had never received a signed copy of the award, the appointment was unlawful as SREI chose the arbitrator alone, and that arguments to limitation and territorial jurisdiction were untenable.
On the other hand, SREI Equipment Finance Ltd., contended that the Section 34 petition was barred by the Law of Limitation as the arbitrator had sent the signed award via registered post, and a signed copy was not handed. It was further argued that by first bringing execution proceedings before the Jamshedpur court, the petitioners were subject to Section 42, which ousted the Calcutta High Court from hearing suits under Sections 34 and 36 of the Arbitration Act. It was further argued that the participation in the arbitration amounted to consent, and the tribunal's selection could not be disputed thereafter. As a result, the award did not warrant any interference.
The Court considered the central issues of whether the challenge was timely, whether an earlier execution petition in Jamshedpur meant that only that court could hear further proceedings under Section 42 and whether unilateral appointment invalidated the award despite participation.
On limitation, the Court observed Section 31(5) to be mandatory and found no evidence that the postal authorities attempted and failed to convey the award. It stated unequivocally that "the presumption of service cannot be applied in this case and the petitioners cannot be deprived of their right to challenge," computing the limitation from April 9, 2019, and determining the Section 34 petition to be timely.
On territorial jurisdiction, the Court pointed the difference between a Section 34 challenge under Part I and enforcement under Section 36. It held execution "is free from the clutches of Section 42" and thus, once an award is made and arbitral proceedings terminate, no application under Part I for enforcement can be filed.
As a result of the prior execution case in Jamshedpur, the Calcutta High Court retained its supervisory jurisdiction as the seat court under Sections 2(1)(e) and 20.
On the issue of unilateral appointment, the Court applied the Supreme Court's decisions in TRF Ltd., Bharat Broadband, Perkins Eastman, and Ellora Paper Mills to hold that an ineligible person cannot act as or nominate an arbitrator, and that a waiver of the Section 12(5) bar must be in writing. It emphasized that "participation in an arbitral proceeding does not amount to waiver" and reiterated that "the arbitrator can never be a chosen person of only one party" , which it deemed "violative of principles of natural justice and the very concept of just and fair treatment of the parties" .
Conclusively finding that the "arbitrator was de jure unable to perform," the Calcutta high Court on 2nd December, 2025 ruled that the award was "opposed to public policy" and "hit by the doctrine of bias." The Court thus allowed the application and set aside the award dated December 28, 2017 in its entirety.
Case Title: Y D Transport Company & Anr. v. SREI Equipment Finance Limited
Case No.: A.P. 430/2019
Court: High Court at Calcutta, Ordinary Original Civil Jurisdiction – Commercial Division
Coram: Hon'ble Justice Shampa Sarkar
Judgment Delivered: 2nd December 2025
Appearances : Mr. Jishnu Chowdhury, Mr. Ritoban Sarkar, Mr. Soham Sur Mr. Syamantak Banerjee (For Petitioners). Mr. Swatarup Banerjee, Mr. Sariful Haque, Ms. Archana Chowdhury and Ms. Priyanka Ghosh (For Respondents)