Delhi HC: Invalid Arbitrator Appointment Clause Does Not Invalidate Arbitration Agreement

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 26.10.2026

Delhi HC: Invalid Arbitrator Appointment Clause Does Not Invalidate Arbitration Agreement

The Delhi High Court has referred a payment and performance dispute between Greentree Building Energy Private Limited and the Bureau of Energy Efficiency (BEE) to arbitration, holding that BEE could not unilaterally appoint the sole arbitrator under the contract.

Background of the dispute

The dispute arose from a government engagement for conducting refresher courses for Energy Auditors and Energy Managers across India. BEE issued a request for proposal in December 2023, and Greentree’s bid was accepted through a Letter of Award dated 15 February 2024. The parties then entered into a Memorandum of Agreement/Service Agreement on 29 February 2024.

Under the arrangement, Greentree was to provide refresher training to about 2,000 candidates through workshops held nationwide. The agreement included an arbitration clause providing that unresolved disputes would be referred to a sole arbitrator appointed by BEE, with New Delhi as the seat and venue of arbitration.

Greentree’s claims

Greentree contended that its work was hampered because BEE did not provide a functioning portal, candidate database, and necessary instructions or approvals concerning registration, payment verification and certification. According to Greentree, it had to deploy its own staff and technical resources to establish an alternative portal.

The contract period was extended twice: first until 14 May 2025 and then until 1 October 2025. Greentree stated that it trained 636 candidates, exceeding the first milestone requirement of 600 candidates.

For that milestone, Greentree issued an invoice of Rs. 46,11,204, inclusive of IGST, representing 30% of the total contract value of Rs. 1,53,70,680. It said that only Rs. 15,53,350 was released.

BEE’s payment calculation treated Rs. 44,19,071 as payable but deducted:

• Rs. 11,52,801 for alleged shortfalls in the minimum number of participants at six workshops; and
• Rs. 15,37,068 as an alleged maximum 10% penalty on the total contract value.

Greentree challenged these deductions as unilateral, arbitrary and inconsistent with the agreement. It also claimed a further Rs. 5,14,918 relating to 67 additional candidates trained under the same work order.

BEE’s position

BEE disputed Greentree’s claims. It maintained that Greentree had repeatedly failed to perform according to the agreed milestones and timelines, despite earlier communications. BEE also asserted that the deductions from the invoice were justified under the contractual framework.

The Court did not decide these factual and contractual disputes. It held that questions relating to delay, performance, deductions and payment entitlement must be determined by the arbitral tribunal.

Why the Court intervened

Greentree invoked arbitration in April 2026 and asked BEE to agree to an independent and impartial sole arbitrator. While BEE responded to the notice, it did not concur with such an appointment.

The Court found that the contractual provision allowing BEE to appoint the sole arbitrator could not be enforced. Relying on Supreme Court precedent, the Court reaffirmed that a party interested in the outcome of a dispute cannot unilaterally appoint the sole arbitrator. Such a process creates justified concerns regarding the arbitrator’s independence and impartiality and conflicts with the requirement of equal treatment of parties.

Importantly, the Court clarified that an invalid appointment procedure does not invalidate the arbitration agreement itself. The parties’ clear intention to resolve disputes through arbitration remained effective; only the agreed method of appointment had failed.

The Court’s decision

The Delhi High Court appointed Ms. Manini Brar, Advocate, as the sole arbitrator to decide the disputes arising from the work order and service agreement.

The arbitration will proceed under the aegis and rules of the Delhi International Arbitration Centre (DIAC). The parties must make the disclosures required under Section 12 of the Arbitration and Conciliation Act, 1996. BEE may raise any preliminary objections concerning jurisdiction or arbitrability before the arbitrator.

All claims, counterclaims and substantive defences remain open for decision on their merits. The Court expressly stated that its order should not be treated as a view on the correctness of either party’s case.

Legal significance

The ruling reinforces a central principle of Indian arbitration law: a party to a dispute cannot retain exclusive control over the appointment of a sole arbitrator. Where such a clause exists, courts can preserve the arbitration agreement while replacing the defective appointment mechanism with an independent judicial appointment.

For government bodies, contractors and commercial parties, the decision highlights the need to draft arbitration clauses that provide a neutral, balanced and legally sustainable appointment process.

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Source: Delhi High Court

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