It used to be typical in the case of a Government Department or Undertaking to incorporate an arbitration clause in their Agreement providing a unilateral power for appointing a sole arbitrator to themselves. We have seen similar clauses also in private agreements, where the dominating party would reserve the right to appoint a sole arbitrator in case of a dispute. Before the 2015 Amendment in the Indian Arbitration and Conciliation Act, 1996, such an appointment was presumed valid.
A unilateral appointment of an Arbitrator was not contentious where the Arbitration Agreement itself provided for and empowered one of the parties to the Agreement to appoint an Arbitrator. In all other cases, the Arbitrator has to be appointed only with the concurrence and consent of both the parties. However, mere inaction by a party called upon by the other one to act, did not lead to an inference as to implied consent or acquiescence being drawn to such an appointment. A party not responding to the other’s proposal for joining in the appointment of a sole arbitrator named by him could not be construed as consent, and the only option open to the said party was to have invoked the jurisdiction of the court for appointment of an arbitrator under Section 11 of the Act. [Refer: Dharma Prathishthanam v. Madhok Construction (P) Ltd., (2005) 9 SCC 686]
The Arbitration Amendment Act, 2015 made sweeping changes in the landscape of arbitration by including, amongst other, the criteria for ineligibility for arbitrators’ appointment by inserting section 12 (5) and the schedule in the Act. The said amendment specifically made employees/consultants/advisors of the parties ineligible to be appointed as an arbitrator based on neutrality principles.
The import of Section 12 (5) of the Act has been clarified by the Supreme Court of India in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. This case has put the issue to rest, to a great extent, by rendering unilateral sole arbitrator appointments invalid under the 2015 amendments to the Indian Arbitration and Conciliation Act, 1996.
Relying on the above decision, the Delhi High Court in the case of Proddatur Cable TV Digi Services vs. SITI Cable Network Limited has held that while party autonomy is an underlying principle in an arbitration agreement, the procedure laid down in the arbitration clause cannot be permitted to override considerations of impartiality and fairness in arbitration proceedings. The Bombay High Court, also in the case of Lite Bite Foods Pvt Ltd vs. Airports Authority of India, has followed the Supreme Court in Perkins Eastman.
However, the seeds for Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. were sown in TRF Ltd. v. Energo Engineering casewhere the Supreme Court invalidated an arbitration clause that allowed the appointment of the Managing Director of one party, or his nominee, as the sole Arbitrator.
Invalidating unequal arbitration agreements where only one party would appoint the sole Arbitrator has brought Indian arbitration in line with international norms and practices.
However, things have not stopped at that, and the Indian courts are further endeavouring to preserve neutrality and fairness in the arbitration proceedings. The Delhi High Court recently, in the case of Oyo Hotels vs. Rajan Tiwari has while deciding a petition under Section 11 of the Arbitration and Conciliation Act, 1996, held that a court under Section 11 of the Act has the power to set aside an appointment of an arbitrator, if the appointment is ex-facie contrary to the arbitration clause, and thus is non-est in law.
It appears that the above principle would certainly apply also for seeking the removal of an arbitrator, who has been appointed under an arbitration agreement providing a unilateral appointment of the sole Arbitrator.