Unilateral appointment of Arbitrator

In India, the unilateral appointment of an arbitrator, where one party has exclusive authority to appoint the arbitrator, has been a contentious issue. The courts have dealt with this matter extensively to ensure fairness and impartiality in arbitration proceedings. One of the landmark cases in this regard is Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd. (2019).

Case: Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd. (2019)

Background:

Perkins Eastman Architects DPC and another party entered into a contract with HSCC (India) Ltd. The arbitration clause in their agreement provided that the Managing Director of HSCC (India) Ltd. would appoint the sole arbitrator in the event of a dispute. Perkins Eastman contested this clause, arguing that the unilateral appointment would lead to bias and unfairness.

Supreme Court Judgment:

The Supreme Court of India, in its judgment dated 26 November 2019, ruled that a party to the arbitration agreement who has an interest in the outcome of the dispute should not have the unilateral right to appoint a sole arbitrator. The Court emphasized the importance of neutrality and impartiality in arbitration.

Key points from the judgment:

1. Neutrality and Impartiality: The Court reiterated that the principle of neutrality and impartiality of arbitrators is paramount in arbitration proceedings. A unilateral appointment by an interested party undermines these principles.

2. Section 12 of the Arbitration and Conciliation Act, 1996: The Court referred to the amended provisions of Section 12, which include circumstances that give rise to justifiable doubts as to the independence and impartiality of arbitrators.

3. Reliance on TRF Ltd. vs. Energo Engineering Projects Ltd. (2017): The judgment relied on the precedent set by the Supreme Court in the TRF Ltd. case, where it was held that once the managing director or a similar authority is ineligible to act as an arbitrator due to the potential conflict of interest, such an individual cannot appoint another arbitrator.

Conclusion:

The Supreme Court concluded that a person who is ineligible to be an arbitrator cannot have the power to appoint an arbitrator. This decision ensures that the arbitration process remains fair and impartial.

Implications:

The Perkins Eastman case has significant implications for arbitration clauses in contracts in India. Parties drafting arbitration agreements must ensure that the appointment mechanism for arbitrators does not give one party unilateral control, particularly if that party has a vested interest in the dispute.

Other Relevant Cases:

1. TRF Ltd. vs. Energo Engineering Projects Ltd. (2017): This case laid the groundwork by holding that once an individual is ineligible to act as an arbitrator due to potential bias, they cannot appoint another arbitrator.

2. Bharat Broadband Network Limited vs. United Telecoms Limited (2019): The Court held that the appointment of an arbitrator by an interested party could be challenged under Section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, 1996.

These cases collectively underscore the judiciary’s stance on maintaining the integrity and impartiality of the arbitration process in India.