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Case Analysis: Perkins Eastman Architects Dpc vs Hscc (India) Limited, 2019

A case heard by a two-judge bench comprising Justice U.U. Lalit and Justice Indu Malhotra, in the Supreme Court upon the appointment of Sole Arbitrator as per Section 11 of the Act. Mr Amar Dave, learned Advocate represented for the Applicants and Mr Guru Krishna Kumar, learned Senior Advocate for the respondent.
 
Perkins Eastman Architects DPC is an architectural firm having its headquarters in New York City, USA. Edifice Consultants Private Limited is a Mumbai-based firm. Both of them submitted their application in response to the proposal to HSCC and therefore were declared as successful bidders. Consequently, the project was awarded to the applicants. As per the contract, clause 24 stated that the chairman and the managing director of the respondent company should appoint a sole arbitrator to adjudicate upon the disputes arising between the parties.

It is important to note that the Applicants are a consortium. Following the Consortium Agreement, Perkins Eastman (the foreign party registered in New York City, United States of America) was the focal point for the Agreement.
 
Within six days of signing the work contract, the respondent alleged that there was a failure on the part of applicants to stop the said project. Subsequently, a termination notice was issued stating that there was a non-compliance of contractual obligations on the part of the applicants. The applicants denied such allegations.
 
On such a turf between the parties, clause 24 of the contract was invoked through the advocates of the applicants. Adhering to the terms enshrined in Clause 24 of the Agreement, a decision in regard to the notice was required to be taken within a month. But the communication was issued after the prescribed period of 30days which subsequently intimated that a reply to notice would be sent within 30 days.
 
An appeal was filed by the applicants before the director in terms of said clause 24, but there was a complete failure on the director ( Engineering ) to discharge the obligations in terms of said clause 24.
 
Therefore, by a letter addressed by the applicants, the chief managing director of the respondent was called upon to appoint a sole arbitrator. However, no appointment of an arbitrator was made within the stipulated 30 days. a letter was issued by the chief general manager of the respondent after the period of 30 days stating that Major General KT Gajria is appointed as the sole arbitrator.
 
The application was filed under section 11(6) read with section 11(12) of the Act before the Court seeking the appointment of a sole arbitrator in accordance with terms of the contract between the parties.
 
The issues brought in front of the bench were whether this arbitration is regarded as a case of International Commercial Arbitration and whether the Court can appoint the arbitrator in this present case?
 
The petitioner brought that as per the argument, the chairman and the managing director were the competent authorities to appoint a sole arbitrator. However, a failure on the part of the respondent in appointing an arbitrator within the stipulated period entitled the petitioners to seek such appointment under section 11 of the Act.
 
The chairman and managing director of the respondent would naturally be interested in the outcome or decision in respect of the dispute, and therefore the prerequisite element of impartiality would conspicuously be absent in the adjudication process.
 
Reliance was made on the case of TRF Ltd v Energo Engineering Projects Ltd in bringing contentions towards application, and furthermore, it was stated that this matter is to be regarded as an International Commercial Arbitration since, as per the Consortium Agreement entered between the Applicants, Perkins was described as the lead member of the consortium.
 
The respondents state that they exhausted the period of requisition on a Friday, and therefore the arbitrator was appointed on the very next working day. The appointment of the said arbitrator was made by the chairman and the managing director, but it was only communicated by the chief managing director and as such, infirmities were utterly non-existent.
 
It was contented by the respondents that this case does not qualify as a case of international commercial arbitration as clause 9 of the contract states that both the applicants were jointly responsible for the execution of the project.
 
The bench held that the issue arbitration was to be regarded as an international commercial arbitration as the lead member of the said consortium agreement was applicant no 1, Perkins Eastman, who has its headquarters in New York. Such a statement clarifies and satisfies the requirements of Section 2(1)f of the Act.
 
The bench also noted that the Court wouldn't have entertained this application under section 11(6) read with section 11(12) and of the Act if the said arbitration was an International Commercial Arbitration. Emphasis was made on Section 11(6) upon the powers vested to the competent Court when there is any trouble in appointing the arbitrator.
Section 11 (12) (a) read with Section 11 (6) provides that an Application for the appointment of an arbitrator can be maintained before the Supreme Court only if it is international commercial arbitration. Therefore, it was necessary to determine whether this specific dispute arose out of international commercial arbitration. In an arbitration with respect to a commercial dispute arising out of legal relationships, if one of the parties fall within the scope of sub-clauses (i) to (iv) of Section 2 (1) (f), the arbitration would be an international commercial one.
 
The Court deliberated on the TRF case, where the Supreme Court observed that only one party has the right and power to appoint a sole arbitrator. Such choice shall hold an element of exclusivity in determining or charting the course for dispute resolution.
It furthermore noted that any person who holds an interest in the outcome of the dispute should not have the power to appoint a sole arbitrator in such a resolution process. This was made with the essence of amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 and the judgment of the TRF case.
 
Reliance was made to another Supreme court case, Indian Oil Corporation Limited v Raja Transportation P Ltd, 2009. wherein it was observed that if justifiable doubts are arising out in accordance to independence and impartiality of the person nominated as an arbitrator, and if other circumstances warrant the appointment of an independent arbitrator by ignoring the procedure prescribed, such appointment can be made by the competent Court in order to necessitate the importance of impartial and independent arbitrators.
 
The bench annulled the effect of the letter issued by the Supreme Court by the respondents appointing the sole arbitrator to adjudicate the dispute between the said parties.
Furthermore, the appointment of the said arbitrator was subject to the mandatory declaration under the amended Section 12 of the Act with respect to the independence and impartiality and the ability to devote sufficient time to complete the arbitration within the stipulated time as stated in the section 29A of the Act. Notably, the SC clearly indicated that its decision in no way reflected upon the appointed arbitrator's competence and standing. The SC further exercised its power under Section 11(6) of the Act and appointed Dr Justice A.K Sikri (Retd.) as the sole arbitrator.
 
On account of the far-reaching nature of its observations, there is a widely held belief that the judgment in Perkins is a panacea for any and all possibilities of a party attempting to secure a unilateral, possibly self-serving, appointment of a sole arbitrator. As a conceptual clarification, the unilateral appointment that is being adverted to for the present analysis is one where a party is ultimately able to, by whatever means, secure the appointment of a sole arbitrator purely of its choosing, even if the process of appointment itself might seem neutral in this regard. The appointment being considered is also in the limited context of a sole arbitrator. The power dynamics to appoint a nominee arbitrator or a presiding arbitrator are not being dealt with herein.

It is relevant to note at this juncture that the judgment in Perkins arrived at the conclusion that it did on the basic underlying premise that the significant and unfair advantage to be gained by a party to a dispute by being able to appoint a sole arbitrator of its choosing at the stage of the disputes having arisen was quite evident. However, it can well be argued that this underlying context of the judgment would limit its applicability to cases where this identification of the control exercised by one party would not be so evident.
 
However, the combined effect of the Supreme Court of both TRF and Perkins judgment has taken away the right to appoint the sole arbitrator by one of the parties to the arbitration agreement. As held in the discussion hereinabove, this was never the intent of Parliament, and the express provisions of the statute could not deduce the same.

The Supreme Court, through these two judgments, has made clear that the only option remaining with the parties is to approach the Court for appointment of an arbitrator in agreements which provide for the appointment of sole arbitrator agreement by one party if there is no consensus between the parties on the choice of arbitrator. Such practice will also be against the golden rule of minimum Court intervention, as provided under the Act.

As a result, all the ongoing arbitration proceedings where one party has appointed an independent and impartial sole arbitrator as per the Act and agreements where one party has the right to select the sole arbitrator have been put in jeopardy. 
 
The judgment in Perkins is, however, significant and breaks new ground because it is the most explicit recognition yet of a power imbalance in the methodology of appointment of an arbitrator being by itself an express indicator of a possibility of latent bias and the corresponding obligation of the Court to interfere in such a scenario, even if it means giving a go-by to the general principle of party autonomy.
 
References:
  • https://main.sci.gov.in/supremecourt/2019/27558/27558_2019_6_1501_18525_Judgement_26-Nov-2019.pdf
  • https://indiankanoon.org/doc/155925871/
  • https://www.mondaq.com/india/arbitration-dispute-resolution/878038/perkins-eastman-v-hscc-is-it-the-end-of-party-appointed-sole-arbitrators
  • http://arbitrationblog.kluwerarbitration.com/2020/03/03/the-legality-of-unequal-arbitrator-appointment-powers-in-india-the-clarity-the-mist/?print=print
  • https://www.barandbench.com/columns/unilateral-appointment-of-a-sole-arbitrator-exceptions-to-the-judgment-in-perkins-eastman-architects-dpc#:~:text=The%20Court%20in%20Perkins%20took,to%20maintain%20absolute%20fairness%20and
  • https://www.argus-p.com/papers-publications/thought-paper/perkins-a-critical-analysis/
  • https://www.obhanandassociates.com/blog/interested-persons-cannot-appoint-sole-arbitrator/
  • https://elplaw.in/wp-content/uploads/2019/12/ELP-Arbitration-weekly-update-Perkins-Eastman-Architects-DPC-and-Another-v.-HSCC-INDIA-Ltd..pdf

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