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Sole Arbitrator Not to be Appointed by Sole Party-An End to Potential Abuse of Power in Arbitration

Updated: Jan 13



INTRODUCTION


When we speak about arbitration, it is seen as a better alternative to litigation process which is said to be costly, complicated as well as time consuming. Therefore, it becomes increasingly important that arbitration must not be affected by violating the basic principle of natural justice. The arbitration process must be free and fair trial and the adjudicating authority must not be biased. One of the essential principles of natural justice is Nemo Judex in Causa Sua i.e. no one can be a judge in own’s cause. These essential principles of natural justice can be violated if one party is given a free hand in appointing the sole arbitrator.

Recently, the Hon’ble Supreme Court in the case of Perkins Eastman Architects DPC & Anr. v HSCC (India) Ltd. had dealt with issue in which one party had been given the power to appoint sole arbitrator.


FACTS


A consortium of applicants, Perkins Eastman Architects DPC (referred as Perkins), which is registered in New York and Edifice Consultants Private Limited (referred as Edifice), having its office in Mumbai, submitted their bids to HSCC (India) Limited (referred as HSCC) for design of AIIMS at Guntur, Andhra Pradesh. Later the consortium of applicants was declared as successful bidders and the project was given to them. As per Clause 24 of the contract, the Chairman and Managing Director of HSCC were given the power to appoint a sole arbitrator to adjudicate the disputes between both the parties.


But within six days of the signing of the said contract, it was alleged by HSCC that Perkins and Edifice had committed default and issued a termination notice. This resulted in stoppage of work. Later, Perkins and Edifice invoked clause 24 which provided for resolving the dispute through arbitration. The applicants also called upon HSCC to appoint the sole arbitrator, as per clause 24 of the contract. According to the condition stated for the appointment of sole arbitrator, it was to be done within the stipulated time period of thirty days. Whereas, the appointment of the sole arbitrator, Major General K.T. Gajria, was done after thirty days. The applicants, aggrieved by the non-compliance by the HSCC, therefore approached the Hon’ble Supreme Court for the appointment of a sole arbitrator under Section 11(6) read with Section 11(12)(a) of the Indian Arbitration and Conciliation Act, 1996.


ISSUES


The issues raised in the case were as follows:


i) Whether the arbitration in the present case would be "International Commercial Arbitration"?

ii) Whether a case had been made out for the exercise of power by the Court to appoint an arbitrator?


We shall be restricting ourselves with regard to the reasoning given in the second issue that was dealt in this case.


RATIO


The Hon’ble Supreme Court in this case held that “a party to the agreement would be disentitled to make any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator.” The court further referred to the judgement of TRF Limited v. Energo Engineering Projects Limited (herein referred as TRF case) that “whatever advantage a party may derive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator.”


ANALYSIS


It needs to be understood that Arbitration and Conciliation Act permitted the appointment of related party as arbitrator prior to 2015 amendment. This has been cleared by the Hon’ble Supreme Court in the case of Aravali Power Company v Era Infra Engineering and Rajasthan Small Industries Corporation Limited v. M/s Ganesh Containers Movers Syndicate. The 246th Law Commission had in its observation remarked that “The balance between procedural fairness and binding nature of these contracts, appears to have been tilted in favour of the latter by the Supreme Court, and the Commission believes the present position of law is far from satisfactory. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the arbitral tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles – even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties’ apparent agreement. A sensible law cannot, for instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the parties agreed.” Therefore, the committee suggested to bring amendments in section 11, 12 and 14 of the Act to avoid such unilateral and related party appointment of arbitrators. But still, the act was silent on whether one of the parties to the arbitration agreement could be the appointing authority.


Even before the 2015 amendment, the Hon’ble Supreme Court had emphasized in the case of Union of India v. M/s Singh Builders Syndicate, that “Having regard to the emphasis on independence and impartiality in the new Act, government, statutory authorities and government companies should think of phasing out arbitration clauses providing for serving officers and encourage professionalism in arbitration.”


The Hon’ble Supreme Court in the case of Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd, has given emphasis on the independence and impartiality of the arbitrators even before the amendment took place. It has been stated that “if there are justifiable doubts as to the independence and impartiality of the person nominated, and if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, such appointment can be made by the Court.” Further in the case of Bharat Broadband Network Limited v United Telecoms Limited, in which the Hon’ble Supreme Court had upheld the principle laid down in the case of TRF tyres, stated that “Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the Arbitral Tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties’ apparent agreement.” So, it can be seen that the Hon’ble Supreme Court has always been in favor of appointing arbitrators that are neutral and impartial. Further, the approach of Supreme Court shall be good in a long-term perspective as it shall prevent the misuse by dominating parties in contracts and not giving any choice to other party.


With regard to the substitution of the arbitrator by the court, in case there is already an agreement between the parties with regard to the appointment of sole arbitrator, the court still has the power to intervene in such matters. If we read section 12(5) of the Arbitration Act with the Seventh Schedule, it shows that it prohibits the employees of one of the parties from being an arbitrator. Also , it has been highlighted in the case of Waulter Bau that “ Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law”. Therefore, it can be said that the courts have the jurisdiction to intervene in case of already decided agreements.


CONCLUSION


The Hon’ble Supreme Court has paved a new way for ensuring impartiality and neutrality during the appointment of the arbitrators. It can be said that this judgement has sent positive signals to the national as well as the international business community, that India aims to create a healthy arbitration environment and conducive arbitration culture in our country.

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