Court’s decision
The Kerala High Court held that an arbitration agreement that empowers only one contracting party to appoint the arbitrator is unenforceable as it violates the fundamental requirement of neutrality under the Arbitration and Conciliation Act. The Court emphasised that “no party can be a judge in its own cause,” concluding that a clause giving the creditor exclusive authority to appoint the arbitrator is void. It ruled that such a clause cannot bind the Respondent and that the Petitioner cannot seek appointment based on a structurally unfair arbitration arrangement.
The Court also rejected the Petitioner’s contention that the Respondent had earlier admitted the existence of the arbitration clause. It held that even if the clause existed, its one-sided nature rendered it legally ineffective. The Court declined to appoint an arbitrator under Section 11 and dismissed the petitions. The judgment reiterates the constitutional and statutory mandate that arbitral proceedings must be free from bias, structurally fair, and reflective of equal procedural rights.
Facts
The Petitioner entered into a financial transaction with the Respondent under a standard-form agreement which contained an arbitration clause. The clause provided that disputes “shall be resolved by an arbitrator appointed by the Petitioner,” thereby conferring sole authority on one party to select the decision-maker. When disputes arose regarding repayment, the Petitioner issued notice invoking arbitration and nominated an arbitrator. The Respondent did not concur and challenged the validity of the clause on the ground that it vested exclusive appointment power in the Petitioner.
The Petitioner subsequently filed petitions before the High Court seeking appointment of an arbitrator under Section 11. The Respondent opposed the petitions, asserting that the clause was unconscionable, lacked mutuality, and violated mandatory provisions of the Arbitration Act. The dispute before the High Court thus centred on whether such a unilateral clause could be treated as a valid arbitration agreement warranting judicial appointment of an arbitrator.
Issues
The Court framed three central issues:
- Whether an arbitration clause empowering only one party to appoint the arbitrator satisfies statutory requirements of neutrality and independence.
- Whether the existence of an arbitration clause, even if admitted by the Respondent, can justify appointment when the clause itself is legally defective.
- Whether Section 11 jurisdiction can be invoked when the underlying arbitration agreement suffers from structural unfairness and violates principles laid down by the Supreme Court.
Petitioner’s arguments
The Petitioner argued that the agreement between the parties expressly contained an arbitration clause and that the Respondent had previously acknowledged its existence in earlier proceedings. The Petitioner submitted that the clause conferred a contractual right to appoint an arbitrator and that parties are bound by their contractual terms. It was further argued that the Respondent’s objections regarding unilateral appointment were an afterthought and that refusal to honour the clause amounted to breach of contract.
The Petitioner also asserted that Section 11 jurisdiction is limited and that the Court ought to refer the matter to arbitration if a clause exists, leaving all other disputes to the arbitrator. It contended that the Respondent had benefited from the agreement and could not claim unenforceability merely because disputes had arisen. The Petitioner urged the Court to either accept its nominated arbitrator or appoint an independent arbitrator under Section 11.
Respondent’s arguments
The Respondent argued that the arbitration clause was void as it vested absolute power in the Petitioner to appoint the arbitrator without any reciprocal right. It submitted that such unilateral appointment clauses violate the principles of independence, impartiality, and equal participation mandated by the Arbitration Act. The Respondent relied on the Supreme Court’s line of decisions holding that no party with an interest in the dispute can appoint the arbitrator.
The Respondent maintained that mere existence of an arbitration clause does not compel the Court to refer parties to arbitration if the clause suffers from inherent illegality. It emphasised that the clause created an unfair power imbalance and deprived the Respondent of the right to participate in the constitution of the tribunal. Accordingly, it argued that the petitions must be dismissed.
Analysis of the law
The Court analysed Section 11 in light of the Supreme Court’s modern arbitration jurisprudence, which stresses party equality in the appointment process. It reiterated that arbitration is premised on the neutrality of the adjudicatory body. A clause that makes one contracting party the sole appointing authority inherently undermines that neutrality. The Court held that the judiciary cannot enforce a structurally biased clause merely because it appears in a signed document.
The Court further observed that, under amendments to the Arbitration Act, the power to appoint must be structured in a way that preserves independence of the tribunal. The statutory scheme demands that both parties have an equal role unless they mutually agree to an independent institution or third-party appointing mechanism. Clauses violating these standards cannot be saved by consent or conduct.
Precedent analysis
The Court relied on multiple Supreme Court decisions which declared unilateral appointment clauses invalid. It applied the principles that arbitrators connected to one party, or appointed exclusively by one party, fall foul of mandatory neutrality requirements. The Court noted that these precedents treat independence and impartiality as non-negotiable features of arbitration, integral to the integrity of the arbitral process.
The Court emphasised that the precedents leave no room for validating one-sided clauses. It concluded that the Petitioner’s reliance on contractual autonomy could not override the binding judicial pronouncements establishing that arbitration must be free from unilateral control.
Court’s reasoning
The Court reasoned that an arbitration clause must satisfy three essential elements: mutuality, fairness, and compliance with statutory neutrality standards. The clause before the Court failed on all three counts because it vested all appointing power in the Petitioner. The Court held that this rendered the clause void ab initio, regardless of the Respondent’s prior statements regarding its existence.
The Court clarified that a Section 11 petition cannot succeed merely on the presence of a clause if that clause itself is illegal. Judicial power cannot be used to perpetuate an unfair arrangement that deprives one party of equal participation. Therefore, the Court dismissed the petitions seeking appointment of an arbitrator.
Conclusion
The Kerala High Court dismissed the Petitioner’s request for appointment of an arbitrator, holding that the arbitration clause was invalid due to unilateral appointment provisions. The Court reaffirmed that fairness, neutrality, and equality are core components of arbitration, and any clause violating these foundational elements cannot be enforced. The judgment strengthens the modern arbitration jurisprudence emphasising impartiality and protects weaker contracting parties from oppressive contractual mechanisms that compromise adjudicatory fairness.
Implications
The judgment reinforces that all arbitration agreements must comply with neutrality standards, and unilateral appointment clauses are unequivocally unenforceable. This decision will impact financial institutions, corporate lenders, and entities relying on standard-form agreements containing one-sided clauses. It also signals stronger scrutiny of arbitration clauses where weaker parties face structural disadvantages. For practitioners, the ruling confirms that Section 11 petitions will not be entertained when the clause undermines foundational fairness.