Your own lawyer as arbitrator? Delhi High Court says that award is dead on arrival.

When Your Opponent’s Lawyer Becomes Your Judge

M/s PGL Estatecon Pvt. Ltd. and M/s Flozen Estates and Developers Pvt. Ltd. had a commercial relationship with M/s Jyoti Enterprises. A dispute arose. Jyoti Enterprises sent a demand notice in March 2021, threatening arbitration if payment was not made. No response came. So Jyoti Enterprises did something extraordinary: it appointed its own lawyer as the sole arbitrator. Without court intervention. Without the other side’s consent. The arbitrator proceeded, passed two awards against PGL and Flozen. Now, the Delhi High Court has stayed execution of both awards, finding the entire arbitration prima facie invalid ab initio. The stakes? Two commercial awards worth substantial sums, the integrity of the arbitral process, and a clear message to every party who thinks they can bypass Section 11 of the Arbitration and Conciliation Act, 1996.

The March 2021 Notice That Started It All

On 13 March 2021, Jyoti Enterprises issued a notice to PGL Estatecon and Flozen Estates. The notice was styled as a demand under Section 21 of the Arbitration Act — the provision that commences arbitral proceedings. But Justice C. Hari Shankar of the Delhi High Court noted something curious: the notice was not stricto sensu a Section 21 notice. It was a demand notice with a conditional threat: pay up, or we will go to arbitration. The recipients did not respond. That silence, the Court observed, did not amount to consent to the arbitration that followed.

The Unilateral Appointment That Broke the Rules

What happened next is the heart of the case. Without approaching the Court under Section 11 of the Act — which governs the appointment of arbitrators — Jyoti Enterprises unilaterally appointed its own counsel as the sole arbitrator. The arbitration clause in the agreement, the Court found, was prima facie violative of Section 12(5) of the Act. That provision, inserted by the 2015 amendment, declares that a person who is ineligible to be an arbitrator cannot be appointed, even if the parties agree. The Fifth and Sixth Schedules to the Act list categories of ineligibility. An arbitrator who is the counsel of one party falls squarely within that prohibition.

The arbitrator entered reference. PGL Estatecon and Flozen Estates raised written objections to the arbitrator’s jurisdiction. The objections were not addressed. The arbitrator proceeded ex parte under Section 25 of the Act — default of a party — after the petitioners failed to participate substantively. Two awards were passed in favour of Jyoti Enterprises.

What the Petitioners Argued

PGL Estatecon and Flozen Estates moved the Delhi High Court under Section 34 of the Act, seeking to set aside the awards. Their argument was simple and devastating: the entire arbitration was invalid because the arbitrator was unilaterally appointed by the claimant without approaching the Court under Section 11. The arbitration clause itself, they argued, was invalid under Section 12(5). The arbitrator, being the respondent’s own lawyer, was ineligible from the start. The awards, they said, were a nullity.

What the Court Found

Justice C. Hari Shankar examined the record. The Court noted that the arbitration clause, as it stood, envisaged the respondent’s proprietor as arbitrator — a classic unilateral clause. The 2015 amendment to the Act was designed precisely to eliminate such clauses. Section 12(5) read with the Seventh Schedule makes it clear that a person who is a party’s employee, consultant, or counsel cannot act as arbitrator. The Court found prima facie merit in the petitioners’ objections.

The critical legal point: even if an arbitration clause is unilateral, the Court observed, actual appointment of the arbitrator with consensus ad idem between the parties could save the arbitration from invalidity. But here, there was no consensus. The petitioners had raised written objections to the arbitrator’s jurisdiction. They had not consented. The arbitration was, therefore, prima facie invalid ab initio.

THE PLAY: If your arbitration clause is unilateral or appoints an ineligible person, do not proceed without a Section 11 application to the Court. Any award rendered will be vulnerable to immediate challenge and stay.

The Doctrine That Mattered: Section 12(5) and the Unilateral Clause

The ratio decidendi of this judgment is straightforward but powerful. Where an arbitration clause is unilateral and violative of Section 12(5) of the 1996 Act, and the appointing party does not approach the Court under Section 11 before the arbitrator enters reference, the arbitration is prima facie invalid ab initio. This is true regardless of whether a Section 21 notice was issued. The notice itself, the Court noted, may not even qualify as a proper Section 21 notice — it was a demand notice with a conditional threat.

The second ratio is equally important: even a unilateral clause can be saved if the parties reach consensus ad idem on the appointment. But that consensus must be real, not presumed from silence. Written objections to jurisdiction are strong evidence that no consensus exists.

Why This Matters in Practice

For advocates, this judgment is a reminder that the 2015 amendment to the Arbitration Act was not cosmetic. Section 12(5) read with the Seventh Schedule is a hard rule. If your client is a claimant and the arbitration clause appoints your client’s own employee, consultant, or counsel as arbitrator, you cannot simply proceed. You must approach the Court under Section 11 for appointment. If you don’t, the entire arbitral process is vulnerable to being set aside.

For CFOs and founders, the lesson is equally stark. When you sign a commercial contract with an arbitration clause, check who can be appointed as arbitrator. If the clause gives one party the unilateral right to appoint its own person — especially its lawyer — that clause is likely invalid. If a dispute arises and the other side appoints its lawyer without court intervention, you have grounds to challenge the entire arbitration. Do not participate substantively without first raising a jurisdictional objection in writing.

The Court’s order in this case was interim. It issued notice on the Section 34 petitions, directed replies by 18 September 2024 and rejoinders by 22 September 2024, and listed both matters for hearing and disposal on 24 September 2024. But the stay on execution of both awards is a powerful signal. The Court found the arbitration prima facie invalid. That finding will be difficult for Jyoti Enterprises to overcome at final hearing.

The Bottom Line

If your arbitration clause appoints an ineligible arbitrator — especially your own lawyer — and you proceed without a Section 11 application, the award is dead on arrival. The Delhi High Court will stay execution and likely set it aside. Do not gamble on the other side’s silence. Get court intervention first.