REWIRING INDIA’S FRAMEWORK FOR APPOINTMENT OF AN ARBITRATOR

The recent judgment by the Supreme Court’s (“Court“) constitutional bench in Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV)¹ brings in a fresh vision for Indian arbitration law. The landmark judgment delivered by a five-judge bench headed by Chief Justice D.Y. Chandrachud addresses significant, longstanding concerns about the independence and impartiality of arbitral proceedings and the appointment of arbitral tribunals, particularly in cases wherein one of the parties to the arbitration proceedings is a government department or public sector undertaking (“PSU“). 

1. The Key Observations of the bench are as follows:

Whether the unilateral appointment of a sole arbitrator is lawful.

The Court ruled that clauses allowing for the unilateral appointment of a sole arbitrator in contracts between PSUs and private entities are violative of Article 14 of the Constitution of India (“Constitution“), which ensures equality before the law. This decision aims to prevent any undue advantage being given to one party in selecting an arbitrator, especially in cases where the arbitrator is appointed to resolve disputes between parties with unequal power or influence. The Court opined that any mechanism by which arbitrators were appointed on unilateral actions essentially nullified the fundamental purpose of arbitration, i.e. equality and impartiality between the parties.

Whether the principle of equal treatment of parties applies at the stage of the appointment of arbitrators.
The Court while addressing the issue pertaining to the applicability of the principle of equal treatment of the parties to different stages of an arbitration proceeding, highlighted Section 18 of the Arbitration and Conciliation Act 1996 i.e. the principle of equal treatment of parties, applies at all stages of arbitration proceedings. This principle would also apply to the first stage of any arbitral proceedings, i.e. the appointment of arbitrators. It is imperative to ensure that the arbitrator/s are impartial and independent while adjudicating the disputes between both the parties.

Whether an unilateral appointment process in arbitration between public-private parties is violative of Article 14.

The Court further held that although PSUs can maintain panels of potential arbitrators, they could not compel private parties to choose arbitrators from such panels alone. Such restrictions imposed on the private party would compromise fairness. Such a requirement is viewed as an hinderance to the equal participation of both parties in the selection process.

2. Impact of Precedents and Future Implications 

The judgment draws upon and further clarifies several important precedents. In TRF Ltd v Energo Engineering Projects Ltd.², it was decided that a person who is ineligible to be appointed as an arbitrator cannot appoint another person as an arbitrator either. The judgement progresses with this principle in order to answer systemic issues in the mechanisms followed in the appointment of arbitral tribunals for the resolution of disputes between public-private parties. Similarly, it reaffirms the principles laid down in A K Kraipak v. Union of India³ relating to the effect of the public’s perception of bias upon adjudicatory proceedings.

3. Divergent Judicial Perspectives and their Implications 

The verdict consists of three judgments: each is significant, and insightful with respect to the future of arbitration in India. The majority judgment involving Chief Justice D.Y. Chandrachud emphasizes that this is an exercise concerned with the principles of the Constitution and their applicability in arbitration, highlighting that public law shades over the private contours of dispute resolution, especially in disputes where state entities are involved.

In the concurring opinion of Justice Hrishikesh Roy, however, there is a more complex & delicate approach. Holding on to the ideology of equal treatment of the parties, he has reservations regarding the importation of constitutional principles into arbitration law, particularly that the threshold stage of the appointment of an arbitral tribunal. His focus on party autonomy as the “spirit” of arbitration goes towards calling for solutions based more on arbitration law than constitutional principles.

Justice P.S. Narasimha’s judgment brings in a new perspective to view arbitration behind dual spectacles: one of contractual freedom and the other of statutory obligation.

4. Judicial Interference and The Way Ahead

There needs to be careful consideration by the courts while intervening in arbitration proceeding. Keeping the principle of the minimal interference intact, the courts should ensure that the basic requirements for independence and impartiality are being met.

5. Conclusion: A New Era in Indian Arbitration

This judgment marks a significant step in Indian arbitration law, balancing party autonomy with the independency and impartiality of the tribunal appointed to resolve the dispute. It strengthens the arbitration system by instituting natural justice principles while maintaining effectiveness. The judgement ensures commercial stability while allowing reform at the same time. This decision thus marks another step closer toward making domestic practices in line with international standards as India continues to pose itself as one of the important arbitration hubs of the world.

¹Civil Appeal Nos. 9486-9487 of 2019.

²2017 8 SCC 377.

³1969 2 SCC 262.