The quest for analyzing the above question arose in mind after reading
the judgement passed by the Hon'ble Supreme Court in the case of Perkins Eastman
Architects DPC and Ors. v. HSCC (India) Ltd.
1 wherein the Hon'ble Supreme Court,
while relying upon the ratio settled by it earlier in the case of TRF Limited v.
Energo Engineering Projects Ltd.
2, Voestapline Schienen Gmbh v. Delhi Metro
Rail Corporation Ltd.
3 and the amendments brought in by the Arbitration and
Conciliation (Amendment) Act, 2015 (Act 3 of 2016) (the Amendment Act) and Law
Commission's report No. 246 (the Report) came to a conclusion that the Chairman
and Managing Director (CMD) of HSCC (India) Ltd.
Would also be
ineligible to appoint the Sole Arbitrator even if terms of the arbitration
clause provided the same in the agreement between the parties and an application
under Section 11(6) of the Arbitration and Conciliation Act, 1996 (the
Act) would be maintainable even if the appointment of the Sole Arbitrator has
been done, provided such appointment is ex facie invalid.
Perkins Eastman Architects DPC & Ors.
(Appellants) were awarded the
works contract by HSCC (India) Ltd. (Respondent). The Contract contained an
arbitration clause viz. clause 24, providing for disputes to be referred to
arbitration before a Sole Arbitrator who was to be appointed by the CMD of the
Respondent within 30 days of receipt of seeking reference.
Disputes arose between the parties and the Sole Arbitrator was appointed by the
Chief General Manager (CGM) (and not CMD) of the Respondent after 30
days of seeking reference by the Appellants. In view of the same, the Appellants
moved applications under Section 11(6) and 11(12)(a) of the Act before the
Hon'ble Supreme Court seeking appointment of the Sole Arbitrator in terms of
clause 24 of the Agreement executed between the parties.
Issues and Findings
Principally three issues were considered by the Court:
- whether the arbitration would be an International Commercial Arbitration
(ICA) in terms of Section 2(1)(f) of the Act or not,
- whether a case was made out for exercise of power by the Court to make
an appointment of an arbitrator, and;
- whether the power can be exercised by the Court under Section 11 of the
Act when the appointment of an arbitrator was already been made by the
While dealing with the first issue, relying on the ratio of Larsen and Toubro Limited SCOMI Engineering BHD4 and the Report and the Amendment Act, the
Court held that as the lead member of the Appellants was based in New York, the
"Central Management and Control" of the Appellants, being a consortium, and
covered under Section 2(1)(f)(iii) of the Act was held to be in a country other
than India, the requirements of Section 2(1)(f) of the Act were satisfied and in
view of the same, the arbitration proceedings in the case would be an ICA in
terms of the Act.
While dealing with the second issue, the Court interpreted para 50 of TRF Ltd.
(supra) which captured the essence of the Amendment Act and held that the
ineligibility referred therein, was as a result of operation of law, in that a
person having an interest in the dispute or in the outcome or decision thereof,
must not only be ineligible to act as an arbitrator but must also not be
eligible to appoint anyone else as an arbitrator and that such person cannot and
should not have any role in charting out any course of the dispute resolution by
having the power to appoint an arbitrator. 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.
The Court further relied on para 48 (vi) of its earlier decision
in Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd
.5 and held that if
there were 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.
The Court also delved upon the aspect of Independence,
Impartiality and Neutrality of the Arbitrator and while relying upon the paras
53 to 60 of the Report quoted in Voestapline (supra) and in Bharat Broadband
Network Limited v. United Telecoms Limited
6 allowed the application filed under
Section 11(6) and 11(12)(a) of the Act and removed the Sole Arbitrator appointed
by the Respondent and appointed another Sole Arbitrator in his place.
While dealing with the third issue, the Court relied upon Walter Bau AG,
Legal Successor of the Original Contractor, Dyckerhoff and Widmann, A.G. v.
Municipal Corporation of Greater Mumbai and Anr.
7 and TRF Limited (supra) and
agreed with the view 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 Act, acceptance of such appointment as a fait accompli to
debar the jurisdiction under Section 11(6) cannot be countenanced in law and in
the light of such authorities held that there was no hindrance in entertaining
the application preferred by the Applicants under Section 11(6) and 11(12)(a) of
the Act at such stage i.e. even after the appointment of the Sole Arbitrator was
made by the Respondent.
The decision of the Supreme Court in this case is welcome step inasmuch
as it goes one step ahead, touches the element of bias (which the other party
will have in his mind) and settles the position that a person who might have an
interest in the outcome of the arbitration proceedings shall be ineligible to
act as an arbitrator as well as appoint an arbitrator.
However, at this point of
time, as a matter of abundant caution, a question which has been left unanswered
is that whether the clauses providing for the appointment of the sole arbitrator
by the companies/corporations/PSUs etc. will also fall under the ratio of
the Perkins Eastman (supra), as there are clauses in the agreements (which
agreements are drafted by the companies/corporations/PSUs etc. itself and the
other person entering into such contract either is not aware of such clause or
has no option but to sign on the dotted lines) wherein it is provided that in
case of any dispute between the parties, the matter shall be referred to the
sole arbitrator, which shall be appointed by the company.
Whether such an
appointment would be valid or not is the question that has also to be settled
inasmuch as even if the sole arbitrator is appointed solely by one party, it
would also raise an element of bias in the mind of the other party and whether
can it be said that the sole arbitrator be appointed with the consent of both
the parties as even if the sole arbitrator be qualified on paper in terms of the
Act, there would always remain an element of bias in the mind of the other party
and also many a times the Courts restrain themselves in interfering with such
appointment made by one of the parties.
The basic principle that the goal which
is to be achieved by way of the provisions in the Act is to have an
independent/impartial arbitration proceedings is seldom ignored in the absence
of the specific provisions in the Act itself, which, in turn, increases the
arbitration related litigation before the Courts.
The answer to the question framed before the writing of the present
article is that the ratio in the Perkins Eastman (supra) can, at best, be said
that as on date the nomination/appointment of a sole arbitrator by a
person/officer/official in the company (which is appointing the arbitrator) is
barred in law and not the nomination/appointment of a sole arbitrator by the
company itself meaning thereby that the right of the Company to appoint the sole
arbitrator remains valid and only the right of the official/officer of the
Company to nominate/appoint a sole arbitrator is void to such extent. So, it
cannot be specifically said that one party is barred in law from
nominating/appointing a sole arbitrator as a company, being a separate legal and
juristic person and such clauses forming part of the arbitration agreement shall
be valid provided the same are in terms of the Act.
Further, the three judge bench of the Hon'ble Supreme Court in the
subsequent case of Central Organisation for Railway Electrification vs.
ECI-SPIC-SMO-MCML (JV)8 has also held that:
when the agreement specifically provides for appointment of Arbitral Tribunal
consisting of three arbitrators from out of the panel serving or retired Railway
Officers, the appointment of the arbitrators should be in terms of the agreement
as agreed by the parties. That being the conditions in the agreement between the
parties and the General Conditions of the Contract, the High Court was not
justified in appointing an independent sole arbitrator ignoring Clauses 64(3)(a)(ii)
and 64(3)(b) of the General Conditions of Contract and the impugned orders
cannot be sustained.
And relying upon the same, the Hon'ble Madras High Court has also held in the
case of COPCO Engineering Pvt. Ltd. vs. Southern Railway
Therefore, now, in view of the majority judgment of the apex Court there is no
prohibition for appointment of retired employee and the contract also stipulates
the panel of arbitrators to be drawn from the retired employee, this court is of
the view that the independent Arbitrator cannot be appointed ignoring the very
provision of the contract.
It is in view of the above, one needs to be cautious and must wait and see
how the Hon'ble Supreme Court and/or the Hon'ble High Courts interpret the
ratio/findings in Perkins Eastman (supra) in their subsequent judgements/orders
as even after passing of the judgement in TRF Ltd. (supra), the Hon'ble Courts
have differentiated the findings in TRF Ltd. (supra) and have upheld the right
of the company/corporation/PSUs to appoint the sole arbitrator, which in fact,
is the unilateral appointment of a sole arbitrator by one of the parties.
- 2019 SCC OnLine SC 1517
- (2017) 8 SCC 377
- (2017) 4 SCC 665
- (2019) 2 SCC 271
- (2009) 8 SCC 520
- (2019) 5 SCC 755
- (2015) 3 SCC 800
- 2019 SCC OnLine SC 1635