Ineligibility to act as arbitrator under Section 12(5) also disqualifies that person from nominating an arbitrator — the taint attaches to the nomination power.

The Legal Question Before the Court

The arbitration clause in the contract between TRF Ltd. and Energo Engineering gave one party the right to appoint a nominee as sole arbitrator. The appointee was the Managing Director of the nominating party. Under the 2015 amendments to the Arbitration and Conciliation Act, 1996, the Fifth and Seventh Schedules set out grounds on which a person is ineligible to act as arbitrator — these include persons who are employees or officers of a party, or who have a financial interest in the outcome.

The question was: even if the Managing Director is disqualified from sitting as arbitrator, does that disqualification prevent him from nominating an arbitrator on behalf of the party?

The Court's Decision

The court held that a person who is rendered ineligible to be an arbitrator under Section 12(5) of the Arbitration Act — read with the Fifth and Seventh Schedules — also forfeits the power to nominate another arbitrator on behalf of a party. The ineligibility does not merely prevent the person from sitting as arbitrator; it also extinguishes the nominating power that flows from the same interest.

The logic is straightforward: if the law disqualifies a person from being an arbitrator because their connection to the dispute compromises neutrality, it would be contrary to that very purpose to allow the same person to choose who decides the dispute. The taint on the decision-maker is the same whether the interested person sits themselves or hand-picks a substitute.

This principle was later extended by the court in Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2020), which held that even where an interested party (not an individual officer) itself exercises the nomination power, that nomination is equally invalid.

The Court's Reasoning

The bench examined the purpose of the 2015 amendments, which introduced the Schedules of disqualification to align Indian arbitration law with the IBA Guidelines on Conflicts of Interest in International Arbitration. The amendments were intended to ensure that arbitrators are not only formally independent but are genuinely free from any connection that could colour their judgment.

The court applied a purposive reading of Section 12(5): the provision is concerned with the integrity of the arbitral process as a whole, not merely the formal qualification of the individual sitting in the chair. Where the appointment process itself is tainted — because it is controlled by an interested party or an ineligible person — the appointment does not become clean merely because the person eventually seated is nominally neutral.

The court also noted that the post-dispute waiver in the proviso to Section 12(5) — by which parties may, in writing after the dispute has arisen, waive the disqualification — was not invoked in this case. Absent such a waiver, the appointment was invalid and Section 11 jurisdiction vested in the High Court to make an independent appointment.

Practical Implications — What This Means Today

TRF Ltd. v. Energo is the precursor to Perkins Eastman and together the two decisions have fundamentally changed the landscape of arbitrator appointment in Indian commercial contracts. Any clause that gives one party — or any officer, director, or employee of a party — the power to appoint the sole arbitrator is now legally vulnerable.

For contracts with PSUs, government agencies, and corporations that historically reserved appointment rights to themselves, this means that the dispute resolution clause must be re-examined. The practical alternatives are: (a) a mutual appointment mechanism (each party appoints, the two appointees choose a presiding arbitrator); (b) institutional appointment (the arbitration is administered by an institution such as DIAC, MCIA, or SIAC, which makes the appointment); or (c) appointment by the High Court under Section 11. All three protect the neutrality that the law now demands.

Relevant Statutory Provisions

  • Section 12(5), Arbitration and Conciliation Act, 1996 — Ineligibility to act as arbitrator — and by extension to nominate
  • Fifth Schedule, Arbitration and Conciliation Act, 1996 — Grounds giving rise to justifiable doubts
  • Seventh Schedule, Arbitration and Conciliation Act, 1996 — Absolute grounds of ineligibility
  • Section 11, Arbitration and Conciliation Act, 1996 — Court's power to appoint arbitrator where nomination is invalid

Analysis by Vinode V. Luka, Advocate | Published: May 2026 | Last reviewed: May 2026