Abstract
An arbitrator is the lynchpin of the entire arbitration. Appointment of arbitrators has usually been a highly contentious issue between the disputants. In India, the law on this issue has come a long way in the last eight decades or so, from the Arbitration Act, 1940 to the Arbitration and Conciliation Act, 1996 and major amendments in 2015. For a long time, the government and public sector contracts have predominantly incorporated unilateral appointment of arbitrators in the arbitration clauses. The courts have done their best to find the right balance between party autonomy supporting unilateral appointment of arbitrators on the one hand and neutrality, fairness and impartiality on the other hand. This paper analyses the comprehensive overview of statutory and judicial developments, 2015 amendments, judicial interpretations, government and public sector policies and views of private businesses on the unilateral appointment of arbitrators. It also identifies the challenges faced by the government and public sector in appointment of arbitrators and the role of arbitral institutions in India in this regard.
Introduction
An arbitrator is the lynchpin of the entire arbitration process. As the choice of resolving disputes by arbitration is a mutual decision by the disputants, the appointment of an arbitrator(s) should ideally be mutual, however, there has been a long history of unilateral appointment of arbitrator(s) in India, especially in government and public sector contracts with private parties. The 2024 judgment of the Supreme Court of India in Central Organisation for Railway Electrification v. ECI-SPIC SMO-MCML (JV)[1](hereinafter referred to as “the CORE 2024”) has brought an end to this unfair practise. The Supreme Court reaffirmed the superiority of fairness and impartiality in the process of arbitration. The Court declared a one-sided arbitration clause giving one side absolute authority in the appointment of the arbitrator as void on the basis that such clauses are universally incompatible with the spirit of fairness enshrined in the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the 1996 Act’), particularly post-amendments of 2015 (hereinafter referred to as ‘the 2015 Amendments’).
The method of appointing arbitrators has been a contentious issue in the development of India’s arbitration system. The Arbitration Act of 1940 (hereinafter referred to as ‘the 1940 Act’) presented a vision of party autonomy checked by judicial control, being an accommodationist reaction to the then-prevailing procedural realities. Parties could agree on the appointment method, but the courts still had the power to step in when the parties did not agree or when one party hindered the process. This two-tiered system maintained the flexibility of arbitration while offering a safety valve against breakdown in procedure. The going was not smooth and there were often issues raised regarding the appointment of arbitrator(s). In case there were more than one arbitrator, both the parties usually appointed one arbitrator each. Interestingly, the 1940 Act permitted two arbitrators and if they differed, which happened very often, the matter was referred to an umpire. The courts intervened on numerous occasions resulting in delay and inaction. It continued till 1996 when the new law of arbitration – the 1996 Act – was enacted.
As economic liberalisation in the 1990s and India’s increasing global economic integration accelerated, the 1996 Act was passed to update the legal framework substantially from the UNCITRAL Model Law[2]. The 1996 Act drastically reduced judicial intervention, vesting parties with control over the appointment of arbitrators. Yet, due to the lack of specific provisions guaranteeing the impartiality of arbitrators, particularly in unilateral appointments, there has been a lot of controversy.
Unilateral appointments, where a single party (usually a more powerful party like a state agency) names the sole arbitrator, emerged as a nagging issue of contention. The courts at first upheld unilateral appointments in the interests of party autonomy, with the focus on procedure rather than material fairness. The deferential strategy undermined faith in the impartiality of arbitration hearings, especially where state agencies were involved in contracts.
The watershed moment arrived with the 2015 Amendment, which brought in elaborate disclosure obligations and a default bar on the appointment of interested parties’ employees as arbitrators. Judicial understanding after 2015, in judgments such as TRF Ltd. v Energo Engineering Projects Ltd.[3] and Perkins Eastman Architects DPC v HSCC (India) Ltd.[4], reinforced these legislative developments, underlining that the impartiality and independence of arbitrators are the building blocks of the legitimacy of arbitration.
This evolving change culminated in its latest and perhaps the most definitive expression in the CORE 2024[5] judgment in which the Supreme Court categorically overruled a unilateral appointment clause conferring exclusive authority to one party to appoint an arbitrator. The Court ruled that such provisions were in violation of the fundamental principles of fairness and impartiality inherent in the 1996 Act, especially in the wake of the 2015 Amendments. The ruling reaffirms one of the principal features of India’s new arbitration jurisprudence — a transition from party control to a levelled, fairness-driven appointment system.
On the basis of this overview of history and analysis, the paper here endeavours to evaluate the existing state of Indian law of arbitration with regard to unilateral appointments and suggest lines of future reform.
[1] Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), 2024 SCC OnLine SC 3219.
[2] UNCITRAL Model Law on International Commercial Arbitration, G.A. Res. 40/72, U.N. Doc. A/40/17 (June 21, 1985).
[3] TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 7 SCR 409.
[4] Perkins Eastman Architects DPC v. HSCC (India) Ltd,. (2019) 17 SCR 275.
[5]Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), 2024 SCC OnLine SC 3219.