Arbitration is an alternative conflict resolution procedure in which a third party is appointed to adjudicate disagreements between the parties involved. In such a situation, maintaining the integrity of the legal system becomes critical. Because arbitration necessitates adjudication of the parties' rights, natural justice principles are crucial in preventing the danger of a miscarriage of justice. ‘Nemo judex in causa sua,' or ‘no one may be a judge in his matter,' is the first principle of natural justice. This concept aims to eliminate any "reasonable suspicion of prejudice" that may exist throughout any legal proceeding.
Arbitration has grown in favour of a preferred means of dispute settlement in recent years. The enormous party autonomy and flexibility it provides are the reasons. Various scenarios have developed throughout the years, placing courts in a quandary over maintaining party autonomy or natural justice principles. On the other hand, courts have been unwilling to interfere with party autonomy since it is the cornerstone of arbitration.
In the case of Perkins Eastman Architects DPC & Anr. v HSCC (India) Ltd (“Perkins”), which was determined by a division bench of the Supreme Court in November 2019, the judges encountered a similar difficulty.
FACTS OF THE CASE
On May 22, 2017, HSCC (India) Ltd (“Respondent”) and a consortium of Perkins Eastman Architects DPC and Edifice Consultants Private Limited (“Applicants”) reached an agreement. Under the terms of the agreement, the Appellant provided the Respondent with architectural design and planning services. Inevitable disagreements emerged between the parties, and the Respondent unilaterally chose a lone arbitrator in line with the agreement's dispute resolution provision.
The Applicants challenged the Respondent's selection of a lone arbitrator in the Supreme Court. The Applicant further asked the Supreme Court to appoint an arbitrator under Section 11(6) of the Act. The Supreme Court was asked whether the Applicants had made out a case for the Supreme Court to appoint an arbitrator under Section 11 (6) read with Section 11 (12) (a) of the Act.
1. Will the arbitration in this matter be conducted under the rules of "International Commercial Arbitration"?
2. Whether the Court's authority to select an arbitrator had been justified?
On the question of whether the arbitration would be an “International Commercial Arbitration,” it was determined that because Applicant No. 1 had its registered office in New York, the requirements of Section 2(1)(f) were met. The arbitration, in this case, would be an “International Commercial Arbitration.”
The Hon'ble Supreme Court further said that if the arbitration was not an International Commercial Arbitration, it could not have dealt with the application under Section 11 (6) read with Section 11(12)(a) of the Act.
Furthermore, the Hon'ble Court noted that whenever only one party can nominate a solitary arbitrator, its choice would always have an element of exclusivity in establishing or charting the route for conflict settlement.
Furthermore, the person who has an interest in the result of the dispute should not be able to choose alone arbitrator, which is the substance of the revisions made by the Arbitration and Conciliation (Amendment) Act, 2015.
The Supreme Court cited the ruling in Indian Oil Corporation Limited v Raja Transport (P), which stated that if there are reasonable doubts about the independence and impartiality of the person nominated as an arbitrator, and if other circumstances warrant appointing an independent arbitrator without following the prescribed procedure, the appointment can be made by the compiling authority.
Furthermore, on the issue of the arbitrator's appointment by the Hon'ble Supreme Court, it was held that, unless the arbitrator's appointment is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Act, acceptance of such appointment as a fait accompli to debar the jurisdiction is unconstitutional.
Applying the principles above to the circumstances of the case, the Hon'ble Supreme Court declared the impact of the Respondent's letter designating the lone arbitrator null and void. It appointed an arbitrator to resolve the parties' disagreements. The Supreme Court went on to say that the arbitrator's appointment would be subject to a mandatory declaration under the amended Section 12 of the Act regarding independence and impartiality, as well as the ability to devote sufficient time to complete the arbitration within the time limit outlined in Section 29A of the Act.
The Hon'ble Supreme Court's decision reaffirms the importance of fostering a healthy arbitration environment and is consistent with the Act's revisions. The Supreme Court of India has stated that to achieve a completely unbiased arbitral realm, no one with a financial stake in the proceedings can nominate a lone arbitrator. The abovementioned requirement has been tightly enforced to minimise favouritism and worries about the arbitrator's independence, to make India more hospitable to arbitrations. Furthermore, the Hon'ble Supreme Court has recognised that a court of competent jurisdiction has the authority to cancel an arbitrator's appointment to provide the parties with justified and impartial redress.
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