This article is written by Saloni Parag Manjrekar pursuing Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.

Introduction

Arbitration is a process where the disputing parties jointly agree to settle their dispute to a third party who would render a binding and final decision. The consent-based nature of arbitration, its confidentiality, and enforceability clauses along with party autonomy are some of the peculiar characteristics that make it one of the favorable forms of alternative dispute resolution (“ADR”) mechanisms. It is known for providing the utmost flexibility to the parties yet upholding justice by passing an impartial award. However, oftentimes questions have arisen on the extent of granting flexibility or party autonomy. 

The unilateral appointment of an arbitrator is considered to be a major example of wrongful use of party autonomy which eventually stalls justice. Although the Arbitration and Conciliation Act, 1996 laid down rules ensuring an independent and impartial decision-making procedure, it did allow the appointment of an employee or persons related to either of the parties to become an arbitrator. Nevertheless, the Arbitration and Conciliation (Amendment) Act, 2015 along with several judgments of the courts have resolved such issues to a great extent. Thus, this article aims to succinctly explain the judgments that deal with the question of the unilateral appointment of a single arbitrator. 

The Arbitration and Conciliation (Amendment) Act, 2015

Before the said amendment a person who is the employee, advisor, director or, any person that is directly or indirectly related to either of the parties could be appointed as a sole arbitrator, and the question of prevailing bias if any would only be considered after the appointment. Such appointments not only benefited one party over the other but also hampered the entire arbitration process. This issue was dealt with by the amendment of 2015 under Section 12(5) and Schedule 7(1) of the act. The list of persons ineligible to arbitrate now included consultants, advisors, employees, or any person having past or present business relationships with either of the parties. Thus, such persons were debarred from being appointed as an arbitrator irrespective of them being independent and impartial. Hence, the Arbitration and Conciliation (Amendment) Act, 2015 was a step forward in discouraging the unilateral appointment of arbitrators as persons having any interest in the outcome of the dispute were debarred from being appointed. 

Perkins Eastman Architects vs. HSCC (India) Ltd

In the 2015 amendment, the question of unilateral appointment of a sole arbitrator is discussed at great length in Perkins Eastman Architects vs. HSCC (India) Ltd. In this case, the applicants are architectural firms and the respondent is an executing agency of the Ministry of Health and Family Welfare. The applicants entered into an agreement for providing architectural design and planning for the respondent. Due to several disputes between the two, the applicants invoked the dispute resolution clause. As per this clause, the respondent was to appoint a sole arbitrator within 30 days. The learned counsel for the applicants raised contentions that the appointment of the sole arbitrator was wrongfully done by the Chief General Manager after the stipulated period of time given in the dispute resolution clause and that such appointment cannot be termed as independent or impartial as it is in the interest of the respondent. The learned counsel for the respondent stated that there is nothing illegal in the appointment of the sole arbitrator as the appointment was carried out as per the dispute resolution clause and immediately on the next working day after 30 days.  

Thus, the Hon’ble Court had to address whether it could exercise its power of appointing a sole arbitrator in cases where the dispute resolution clause already stipulates the unilateral appointment procedure for a sole arbitrator.

Significant judgements the court relied on while addressing the case

The Supreme Court while addressing the said issue in Perkins Eastman Architects vs. HSCC (India) Ltd. placed reliance on several judgments as follows:

• TRF Ltd. vs. Energo Engineering Projects Ltd

In this case, the Supreme Court held that no party can unilaterally appoint a sole arbitrator and the Managing Director or any other person related to either of the parties is declared ineligible to act as an arbitrator as per Section 12(5) and has no right to nominate another arbitrator.

Based on TRF Ltd. vs. Energo Engineering Projects Ltd. (“TRF”), the Supreme Court, in this case, observed that prima facie both these cases might appear to be different as TRF dealt with the appointment of Managing Director as the sole arbitrator and his authority to appoint any other person as an arbitrator whereas the present case only dealt with the question of the authority of the Managing Director to appoint an arbitrator. But the result of both these cases would be the same, since, in both circumstances, there can be a possibility of bias or underlying interest in the outcome of the dispute. 

The court further added that, when only one party is given the right to appoint a sole arbitrator, it gets an element of exclusivity in determining the course of the arbitration and hence persons having an interest in the ongoing dispute should not be permitted to appoint the arbitrator. 

• Indian Oil Corpn. Ltd. vs. Raja Transport (P) Ltd 

The Supreme Court emphasized on para 48 (vii) of the said case which states that if there are reasonable doubts with regards to independence and impartiality of the person being nominated as the arbitrator and if there exist circumstances requiring the appointment of an independent arbitrator then the court shall make such appointment irrespective of the procedure that is prescribed. 

• M/S. Voestalpine Schienen Gmbh vs. Delhi Metro Rail Corporation Limited 

In this case, the Supreme Court strengthened Section 12 and Schedule 7 of the Arbitration and Conciliation (Amendment) Act, 2015 by affirming the ineligibility of arbitrators having direct or indirect relation with either of the parties and suggested that the selection of arbitrators should be from a broad-based panel in order to ensure independence and impartiality. 

The Supreme Court in the present case placed reliance on paragraph numbers 20, 21, 22, and 30 of the said case while dealing with the concepts of independence and impartiality for a healthy arbitration process.

• Walter Bau AG vs. Municipal Corporation of Greater Mumbai 

While dealing with the question of being able to exercise power under Section 11 of the act when the appointment of the sole arbitrator has already taken place, the Supreme Court emphasized on para no. 10 of the said case which stated that “Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the court exercising jurisdiction under Section11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced by law” which means the power to exercise Section 11(6) is not automatically debarred merely because an arbitrator has already been appointed, the exercise of Section 11(6) is only debarred in cases where the existing appointment is valid.

Thus, the Supreme Court by placing reliance on these case laws accepted the application of appointing a sole arbitrator under section 11 and thereby conveying that a party having an interest in the outcome of the dispute cannot unilaterally appoint a sole arbitrator even in case of pre-existing contract or agreement that permits such unilateral appointment.

Similarly, in Proddatur Cable TV Digi Services vs. SITI Cable Network Limited, the validity of the unilateral appointment of a sole arbitrator was discussed and heavy reliance was placed on the judgment of Perkins Eastman Architects vs. HSCC (India) Ltd. Placing reliance on the case laws, the Delhi High Court concluded that the unilateral appointment of sole arbitrator is invalid as the same is impermissible by law and would temper the virtues of impartiality, fairness, and transparency. It also stated that party autonomy is an important characteristic of arbitration but these virtues are equally important and cannot be overridden. Thus, the present petition was allowed by terminating the mandate of the unilaterally appointed arbitrator and with the appointment of a new sole arbitrator.  

Conclusion

Although the issue of unilateral appointment of a sole arbitrator has been dealt with convincingly in judgments like Perkins Eastman Architects vs. HSCC (India) Ltd and Proddatur Cable TV Digi Services vs. SITI Cable Network Limited, the retrospective invalidity of unilaterally appointing an arbitrator has also increased the chaos between the parties whose agreements or contracts were made before the amendment of 2015. Undoubtedly, it is a step forward in making the arbitration process conducive but as a matter of fact, it has also increased the burden of courts with a rise in arbitral proceedings. Moreover, there have been some contradicting judgments, for instance in the case of Central Organization for Railway Electrification vs. M/S ECI-SPIC-SMO-MCML (JV), the Supreme Court observed that being a retired employee of either of the parties does not automatically indicate bias against such an employee to act as an arbitrator. Further, the judgment did not follow the procedure of nominating an arbitrator from a broad-based panel that was laid down in M/S. Voestalpine Schienen Gmbh vs. Delhi Metro Rail Corporation Limited. 

Nevertheless, with the joint efforts of legislature and judiciary, it is evident that India is making some noteworthy changes in its legal system to uphold the true spirit of arbitration which can distinctly be observed from the judgments like Perkins Eastman Architects vs. HSCC (India) Ltd and Proddatur Cable TV Digi Services vs. SITI Cable Network Limited that restricts the unilateral appointment of a sole arbitrator. 

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join: