“Unilateral Appointment = de jure Ineligibility” – 2025 Delhi High Court Commentary on Ballarpur Industries Ltd. v. SG Enterprises & Ors.

1. Introduction

On 16 May 2025, the Delhi High Court delivered a significant ruling in Ballarpur Industries Limited v. SG Enterprises & Ors. (O.M.P. (T) (COMM.) 40/2024). The petitioner, Ballarpur Industries Limited (BIL), sought termination of the mandate of a sole arbitrator appointed unilaterally by the respondent distributor under Clause 20 of a 2009 Distribution Agreement. The petition was brought under Section 14(1)(a) of the Arbitration and Conciliation Act, 1996 (“1996 Act”), against the backdrop of a contemporaneous Corporate Insolvency Resolution Process (CIRP) that had been commenced under the Insolvency and Bankruptcy Code, 2016 (“IBC”).

Two principal issues framed the controversy:

• whether the unilateral appointment of the sole arbitrator by the Managing Director of the respondent distributor infringed the principles of independence and impartiality clarified in Perkins Eastman and allied authorities; and
• whether, owing to the IBC moratorium and the subsequent approval of a Resolution Plan, the respondent’s claims survived at all, potentially rendering the arbitration infructuous.

While the Court refrained from pronouncing on the merits of the insolvency-related extinguishment issue, it decisively held that the unilateral appointment mechanism produced a de jure ineligibility of the arbitrator, thereby necessitating termination of her mandate under Section 14(1)(a).

2. Summary of the Judgment

Justice Jyoti Singh disposed of the petition with the following operative directions:

1. Unilateral appointment invalid: The appointment procedure in Clause 20—empowering the Managing Director of Respondent No. 1 to nominate a sole arbitrator if mutual agreement failed—is hit by the Supreme Court’s ratio in Perkins Eastman Architects Dpc v. Hscc (India) Ltd. and Central Organisation for Railway Electrification v. ECI-SPIC SMO-MCML (JV). Consequently, the appointment is impermissible in law.
2. Mandate terminated de jure: The arbitrator became incapable of acting within the meaning of Section 14(1)(a) of the 1996 Act; her mandate therefore stood terminated de jure.
3. No substitute arbitrator appointed: Given the live dispute on whether the respondent’s claims were extinguished under the approved Resolution Plan, the Court left the parties “at large” to initiate fresh appointment proceedings in accordance with law.
4. IBC issues kept open: The Court consciously declined to rule on the claim-extinguishment question, leaving it open for adjudication if and when arbitration is reinvoked.

3. Analysis

3.1 Precedents Cited and their Influence

• Perkins Eastman Architects Dpc v. Hscc (India) Ltd. (2020) 20 SCC 760: The Supreme Court held that a party interested in the outcome of the dispute cannot unilaterally appoint a sole arbitrator. This decision extended the logic of the 2015 Amendments (S. 12(5) & Seventh Schedule) to cover scenarios where one party retains an exclusive right to appoint.
• Central Organisation for Railway Electrification v. ECI-SPIC SMO-MCML (JV), 2024 SCC OnLine SC 3219: Reaffirmed Perkins, declaring that even an ostensibly neutral authority structurally aligned with one party is disqualified from sole appointments.
• Proddatur Cable TV Digi Services v. Siti Cable Network, 2020 SCC OnLine Del 350; Smaaash Leisure Ltd. v. Ambience Commercial Developers, 2023 SCC OnLine Del 8322; Power Grid Corp. v. Mirador Commercial, 2024 SCC OnLine Del 6366: Delhi High Court decisions that operationalised Perkins by terminating mandates under Section 14 for unilateral appointments.
• Alchemist Asset Reconstruction Co. v. Hotel Gaudavan, (2018) 16 SCC 94: Clarified that Section 14 IBC moratorium prohibits continuation or initiation of arbitration during CIRP.

Justice Jyoti Singh drew directly from these precedents, applying the “interested person” test to the Managing Director and treating the arbitrator’s appointment as void ab initio, leading inexorably to Section 14(1)(a) consequences.

3.2 Legal Reasoning of the Court

1. Clause 20 analysed textually: While the clause superficially begins with a “mutual appointment” requirement, the default mechanism stipulates appointment by the Managing Director of Respondent No. 1—a person inherently aligned with one side. Thus the clause is structurally unilateral.
2. Party autonomy vs. impartiality: The Court emphasised that statutory imperatives of independence and impartiality (S. 12) override contractual autonomy when both cannot coexist.
3. Application of Section 14(1)(a): Because the foundational defect pertained to eligibility (de jure incapacity), the Court preferred the Section 14 remedy (termination) over the Section 13 mechanism (challenge before the arbitral tribunal).
4. IBC overlay considered but not decided: Recognising that the arbitral reference was initiated while the Section 14 IBC moratorium was subsisting, the Court acknowledged potential nullity of proceedings on that ground as well; however, it refrained from delivering findings that might pre-judge claims-extinguishment under the approved Resolution Plan.
5. No automatic substitution: Invoking the equitable posture of the Court, Justice Singh chose not to unilaterally appoint a substitute arbitrator, thereby protecting the petitioner from being thrust into fresh arbitration until the extinguishment issue is clarified.

3.3 Potential Impact of the Decision

• Reinforcement of the Perkins doctrine: The judgment tightens compliance in contracts that still contain legacy clauses allowing one party’s managerial officer to appoint arbitrators.
• Strategic use of Section 14 petitions: Parties may increasingly employ Section 14 as a swifter alternative to Section 11 applications when challenging arbitral mandates.
• IBC–Arbitration interface: By recognising—but not resolving—the claim-extinguishment conundrum, the Court maps a procedural route: terminate the defective appointment first, then litigate insolvency-bar issues if arbitration is resurrected.
• Drafting implications: Corporates will need to revisit dispute-resolution clauses to eliminate default appointments by internal officers. Multi-tier clauses may instead nominate independent institutions or adopt mutually agreed panels.

4. Complex Concepts Simplified

Section 14(1)(a) – de jure incapacity

Under the 1996 Act, if an arbitrator “becomes de jure or de facto unable to perform” his/her functions, any party may request the Court to terminate the mandate. “De jure” means a legal disability (e.g., statutory disqualification), whereas “de facto” covers practical impossibility (e.g., prolonged illness).

Unilateral Appointment

One party’s exclusive power to choose the sole arbitrator, without an equal role for the other party or an independent institution. Post-Perkins, such clauses are invalid where the appointing authority is “interested” in the dispute.

Moratorium under IBC – Section 14

Immediately upon admission of a company into CIRP, Section 14 bars institution or continuation of suits, execution, or arbitration against the corporate debtor. The aim is to maintain the debtor as a going concern and ensure orderly resolution.

Resolution Plan & Extinguished Claims

Once a Resolution Plan is approved by the NCLT, only the liabilities captured therein survive; all other antecedent claims stand “extinguished”, meaning they cannot be asserted in any forum thereafter.

5. Conclusion

The Delhi High Court’s ruling in Ballarpur Industries Ltd. v. SG Enterprises serves as yet another cautionary tale against vestigial arbitration clauses that empower one party’s internal functionary to appoint a sole arbitrator. By categorically treating such appointments as a de jure disqualification under Section 14(1)(a), the Court not only vindicated the principles laid down in Perkins but also provided litigants with a clear procedural pathway to challenge defective tribunals.

Equally noteworthy is the Court’s nuanced handling of the IBC overlay: it respected the sanctity of CIRP and potential claim extinguishment without collapsing the arbitration framework, leaving parties free to re-negotiate or re-litigate claims through a lawful appointment process. In the broader legal landscape, the judgment harmonises two specialised regimes—arbitration and insolvency—underscoring that party autonomy cannot trump statutory safeguards of neutrality, and that arbitral efficacy must coexist with insolvency finality.

Prepared by: Legal Commentary Desk | © 2025