Y D Transport v. SREI Equipment Finance (2025): a unilaterally appointed arbitrator's award is a nullity

The recurring temptation in lending and finance arbitration is for the creditor, holding a clause that lets it nominate the tribunal, to simply name its own sole arbitrator and proceed. Y D Transport Company v. SREI Equipment Finance Limited is a clean illustration of why that shortcut is fatal. The High Court at Calcutta, in a judgment of Shampa Sarkar, J. delivered on 2 December 2025, set aside an arbitral award in its entirety because the arbitrator who passed it had been appointed by one side alone — a constitution of the tribunal that the Court held to be a nullity from the outset.

The facts in brief

The dispute arose out of a loan and financing arrangement between Y D Transport Company and its proprietor, on one side, and SREI Equipment Finance Limited, the financier, on the other. SREI alleged default in repayment, putting the outstanding figure at approximately Rs 7.27 crore.

Invoking the arbitration clause in the financing documents, SREI appointed a sole arbitrator. Crucially, it did so unilaterally — without the concurrence of Y D Transport in the choice of the person who would decide the dispute. The reference then proceeded ex parte, and the arbitrator passed an award dated 28 December 2017.

The petitioners challenged that award before the Calcutta High Court under Section 34 of the Arbitration and Conciliation Act 1996, contending that an award rendered by a tribunal so constituted could not stand.

The questions

Two issues lay at the heart of the challenge. The first was whether an award rendered by a sole arbitrator whom one party had unilaterally appointed — a person rendered ineligible by Section 12(5) read with the Seventh Schedule — was a nullity, and whether it was opposed to the public policy of India for the purposes of Section 34.

The second was a question of waiver. SREI's position turned, in substance, on the proposition that the defect had been cured by the petitioners' conduct: that by allowing the proceedings to run their course, Y D Transport had waived any objection to the arbitrator's appointment. The Court had to decide whether participation in an arbitral reference can operate as such a waiver, and on what terms a Section 12(5) objection may lawfully be given up at all.

What the Court held

The Court allowed the Section 34 application and set aside the award dated 28 December 2017 in its entirety.

On the first issue, Shampa Sarkar, J. held that the unilateral appointment of a sole arbitrator by one party is fundamentally incompatible with the scheme of the 1996 Act. The constitution of the tribunal offended Section 12(5) read with the Seventh Schedule, with the consequence that the arbitrator was de jure unable to perform the mandate. An award produced by such a tribunal is hit by the doctrine of bias and is opposed to public policy — in the Court's analysis, a nullity rather than merely a flawed award. The vice was structural: it lay in who decided, not in how the merits were assessed.

On waiver, the Court was equally firm. Participation in an arbitral proceeding does not, by itself, amount to a waiver of the Section 12(5) bar. A valid waiver of that statutory ineligibility requires an express agreement in writing — it cannot be inferred from a party's continued presence in, or silence during, the reference. The Court also declined to apply a presumption of service against the petitioners, with the result that they could not be treated as having been afforded, and then having forgone, an opportunity to object. They had not, in short, been deprived of their right to challenge the award.

In reaching these conclusions the Court drew on the established line of authority on unilateral and party-interested appointments — TRF Ltd, Bharat Broadband, Perkins Eastman and Ellora Paper Mills — treating the present facts as a straightforward application of settled principle.

Analysis

The strength of Y D Transport lies in how little new ground it has to break. The Supreme Court's decisions in TRF Ltd v. Energo Engineering (2017) and Perkins Eastman Architects v. HSCC (2019) had already established that a person who is himself ineligible to act as arbitrator cannot validly nominate one, and that a unilateral right of appointment vested in one party is incompatible with the independence the Act demands. The Calcutta High Court simply carries that logic to its endpoint: where the tribunal is constituted by one side's unilateral choice, the defect is not curable by the conduct of the reference, because the problem is anterior to the proceedings themselves.

That framing matters for the characterisation of the relief. The Court did not treat the award as merely irregular and therefore liable to be set aside on a discretionary view of the merits; it treated the award as a nullity — something that never had legal existence to begin with, because the body that issued it was de jure incapable of acting. As the Court put it, an appointment of this kind is "violative of principles of natural justice and offends the very concept of just and fair treatment of the parties." Once the tribunal's very constitution is poisoned, the contents of the award cannot redeem it.

The waiver holding is the practically decisive part of the judgment. In finance and NBFC disputes the borrower is frequently absent, and the creditor's standard answer to a later challenge is that the borrower sat by while the reference ran. Y D Transport closes that route: because Section 12(5) attaches to the arbitrator's eligibility and not merely to a party's preference, it can be waived only by an express written agreement, and not by participation, acquiescence, or an ex parte default. The Court's refusal to apply a presumption of service reinforced the point — the petitioners' absence could not be converted into a waiver of a right they were never properly placed to exercise.

Why it matters

Y D Transport is a useful 2025 marker in a doctrine that has hardened steadily since 2017. Its significance is less in novelty than in reach: it applies the TRF–Perkins Eastman principle squarely in the lending context, where unilateral sole-arbitrator appointments recur precisely because the clauses that permit them are drafted by the financier. The message to creditors is unambiguous. A clause that lets one party pick the sole arbitrator does not buy a quick award; it buys an award that a borrower can have set aside as a nullity years later, regardless of how the reference unfolded.

For practitioners, three points carry forward. First, the eligibility bar in Section 12(5) is structural — it goes to whether the tribunal could lawfully decide at all, not to the quality of its decision. Second, the bar is non-waivable absent an express agreement in writing; participation, silence, and ex parte continuation cure nothing. Third, an award by a unilaterally appointed arbitrator is non est and opposed to public policy, and a Section 34 court will set it aside in full rather than salvage it. Where a financing instrument still carries a unilateral-appointment clause, the prudent course is to constitute the tribunal afresh by agreement or through the court's appointment power — not to rely on the borrower's absence to validate a tainted reference.

Related on Valkya

• Perkins Eastman Architects v. HSCC
• TRF Ltd v. Energo Engineering
• CORE v. ECI-SPIC-SMO (unilateral arbitrator)

Sources

• LiveLaw, "Unilateral Appointment Of Arbitrator Violates Principles Of Natural Justice: Calcutta HC Sets Aside Arbitral Award" — https://www.livelaw.in/high-court/calcutta-high-court/unilateral-appointment-of-arbitrator-violates-principles-of-natural-justice-calcutta-hc-sets-aside-arbitral-award-312128