In a short period, there is a heat of debate and a long chain of litigation. It took place and still ongoing, on the validity of clauses. Specially which provide the right to a single party for the unilateral appointment of Arbitrators. There are a variety of these clauses which are giving the sole right to one party to appoint an arbitrator or panel of them. Not giving the other party an equal opportunity for the same. These situations can mostly be seen in the agreements with Government/s or public sectors. They appoint arbitrators from their ranks, creating inherent biases in the arbitration process. The Arbitration and Conciliation (Amendment) Act, 2015 laid down provisions to prevent such bias by introducing Section 12(5)(1) and the 7th schedule to the Arbitration and Conciliation Act, 1996. It prohibits some categories of people to act as an arbitrator. It can disqualify the person to be an arbitrator.
TRF Limited v. Energo Engineering Projects Limited
In TRF Limited v. Energo Engineering Projects Limited, Supreme Court held that a person who is barred from being an arbitrator under Section 12(5) read with the Seventh Schedule of the Act, will also be barred from nominating an arbitrator. The court further states that it will be unfair to give power to the person who himself is disqualified from being an arbitrator. And doing so will put reasonable doubts in the mind of the parties. The court quotes a phrase that ‘once the infrastructure collapses, the superstructure is bound to collapse as well’. In this case, the Managing Director(MD) was disqualified from becoming an arbitrator. The Court says once the MD gets ineligible to be an arbitrator, he will not possess the right to appoint an arbitrator.
Perkins Eastman Architects DPC & Anr. V HSCC (India) Ltd
The same statement of the Supreme Court in another case of Perkins Eastman Architects DPC & Anr. V HSCC (India) Ltd, in which the Court observed that the disqualification of the Managing Director in TRF Limited case was due to his interest in the outcome of the dispute. This point was the possibility of bias by the court. Further, giving the sole right to one party will also give them the invisible power. It is to influence the conclusion which will arise out of the dispute. Therefore, the Amendment Act and the Judgment given in the former case will not prevent from having an interest in the outcome of the dispute.
Central Organisation for Railway Electrification v M/S EVI-SPIC-SMO-MCML (JV)
But keeping aside all the judgments, Supreme Court in Central Organisation for Railway Electrification v M/S EVI-SPIC-SMO-MCML (JV), held an arbitration clause validly. It gives power to one party to nominate a panel of four arbitrators of the same company. From which the opposite party will select their two nominees. The GM of former than select one of them as the opposite party nominee. And the third and final arbitrator will also be appointed on the panel.
It seems like the Supreme Court incorrectly interpret the saying in the TRF case. By giving the power to the ineligible person to nominate an arbitrator in Railway Electrification Case.
Taking account in all the cases, now we will see which appoints have been upheld and which precedents created ambiguities.
(2017) 8 SCC 377.
(2019) SC 1517.
Civil Appeal No. 9486-9487 of 2019 arising out of SLP (C) No. 24173-74 of 2019.