Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company
vidhipandit.com/case/sc-2024-11-2173-2328
Headnote — Supreme Court Reports (editorial summary, not part of the judgment)
Issue for consideration
a) Whether an appointment process which allows a party who has an interest in the dispute to unilaterally appoint a sole arbitrator, or curate a panel of arbitrators and mandate that the other party select their arbitrator from the panel is valid in law; b) Whether the principle of equal treatment of parties applies at the stage of the appointment of arbitrators; and c) Whether an appointment process in a public-private contract which allows a government entity to unilaterally appoint a sole arbitrator or majority of the arbitrators of the arbitral tribunal is violative of Article 14 of the Constitution.
Arbitration and Conciliation Act, 1996 – Unilateral appointment clauses in a public-private contract:
Held
[Per Dhananjaya Y Chandrachud, CJI for himself and J.B. Pardiwala and Manoj Misra, JJ.] The possibility of bias is real in situations where an arbitration clause allows a government company to unilaterally appoint a sole arbitrator or control the majority of the arbitrators – Since the government has control over the arbitral tribunal, it can chart the course of the arbitration proceedings to the prejudice of the other party – Resultantly, unilateral appointment clauses fail to provide an effective substitute for judicial proceedings in India – Further, a unilateral appointment clause is inherently exclusionary and violates the principle of equal treatment of parties and procedural equality – Unilateral appointment clauses in a public-private contract fail to provide the minimum level of integrity required in authorities performing quasi-judicial functions such as arbitral tribunals – Therefore, a
Arbitration and Conciliation Act, 1996 – Whether the principle of equal treatment of parties applies at the stage of the appointment of arbitrators:
Held
[Per Dhananjaya Y Chandrachud, CJI for himself and J.B. Pardiwala and Manoj Misra, JJ.] Independence and impartiality of arbitral proceedings and equality of parties are concomitant principles – The independence and impartiality of arbitral proceedings can be effectively enforced only if the parties can participate equally at all stages of an arbitral process – Therefore, the principle of equal treatment of parties applies at all stages of arbitral proceedings, including the stage of the appointment of arbitrators. [Para 75] – [Per Pamidighantam Sri Narasimha, J. (concurring)] The text and the context of Section 18 as is evident from the scheme of the Act eschews application of Section 18 at the time of appointment – This is clear through two factors: first, through the placement of Section 18 in Chapter V, on ‘Conduct of arbitral proceedings’, which comes after Chapter III on ‘Composition of arbitral tribunal’; and second, through the wording of Section 18, which makes it clear that the obligation to treat the parties with equality is on the arbitral tribunal, rather than the parties to the arbitration agreement – The later portion of Section 18, which mandates that “each party shall be given a full opportunity to present his case”, further fortifies this view. [Para 54.3] – [Per Hrishikesh Roy, J. (concurring)] The principle of equality u/s.18 of the Arbitration and Conciliation Act,1996 applies at all stages of the proceedings including the stage of appointment of arbitrators – The Arbitration Act does not provide special or different treatment to government or government undertakings involved in arbitration. [Para 2]
Catchwords
Arbitration and Conciliation Act, 1996 – Application of Principle of Equal Treatment of Parties – Appoitment of Arbitrators:
Held
[Per Dhananjaya Y Chandrachud, CJI for himself and J.B. Pardiwala and Manoj Misra, JJ.] The principle of equal treatment of parties applies at all stages of arbitration proceedings, including the stage of appointment of arbitrators. [Para 169(a)]
Arbitration and Conciliation Act, 1996 – Does Arbitration Act prohibit PSUs from empanelling potential arbitrators:
Held
[Per Dhananjaya Y Chandrachud, CJI for himself and J.B. Pardiwala and Manoj Misra, JJ.] The Arbitration Act does
Arbitration and Conciliation Act, 1996 – Unilateral clause in the appointment of arbitrators:
Held
[Per Dhananjaya Y Chandrachud, CJI for himself and J.B. Pardiwala and Manoj Misra, JJ.] A clause that allows one party to unilaterally appoint a sole arbitrator gives rise to justifiable doubts as to the independence and impartiality of the arbitrator – Further, such a unilateral clause is exclusive and hinders equal participation of the other party in the appointment process of arbitrators. [Para 169(c)]
Arbitration and Conciliation Act, 1996 – Mandating the other party to select its arbitrator from a curated panel of potential arbitrators is against the principle of equal treatment of parties:
Held
[Per Dhananjaya Y Chandrachud, CJI for himself and J.B. Pardiwala and Manoj Misra, JJ.] In the appointment of a three-member panel, mandating the other party to select its arbitrator from a curated panel of potential arbitrators is against the principle of equal treatment of parties – In this situation, there is no effective counterbalance because parties do not participate equally in the process of appointing arbitrators – The process of appointing arbitrators in Central Organisation for Railway Electrification v. ECI-SPIC-SMOMCML (JV) A Joint Venture Company [2019] 16 SCR 1234 is unequal and prejudiced in favour of the Railways. [Para 169(d)]
Catchwords
Constitution of India – Art. 14 – Arbitration and Conciliation Act, 1996 – Whether unilateral appointment clauses in public-private contracts are violative of Article 14 of the Constitution:
Held
[Per Dhananjaya Y Chandrachud, CJI for himself and J.B. Pardiwala and Manoj Misra, JJ.] Unilateral appointment clauses in public-private contracts are violative of Article 14 of the Constitution. [Para 169(e)]
Held
[Per Dhananjaya Y Chandrachud, CJI for himself and J.B. Pardiwala and Manoj Misra, JJ.] The principle of express waiver contained under the proviso to Section 12(5) also applies to situations where the parties seek to waive the allegation of bias against an arbitrator appointed unilaterally by one of the parties – After the disputes have arisen, the parties can determine whether there is a necessity to waive the nemo judex rule. [Para 169(f)]
Arbitration and Conciliation Act, 1996 – The present judgment applies prospectively and to three-member tribunals:
Held
[Per Dhananjaya Y Chandrachud, CJI for himself and J.B. Pardiwala and Manoj Misra, JJ.] The law laid down in the present reference will apply prospectively to arbitrator appointments to be made after the date of this judgment – This direction applies to three-member tribunals. [Para 169(g)]
Arbitration and Conciliation Act, 1996 – Two independent yet interdependent principles:
Held
[Per Pamidighantam Sri Narasimha, J.] Dispute resolution through arbitration encompasses two independent yet interdependent principles: contractual freedom as party autonomy and statutory obligation as duty to constitute an independent arbitral tribunal. [Para 56(I)]
Catchwords
Arbitration and Conciliation Act, 1996 – Arbitration agreement – Party Autonomy:
Held
[Per Pamidighantam Sri Narasimha, J.] Party autonomy in making of an arbitration agreement is an essential feature of arbitration – It commences with choosing the members of the arbitral tribunal, extends to the procedure that would apply for its conduct, and concludes with the method by which an award could be challenged before a court – It is thus a brooding and guiding spirit of arbitration – Party autonomy is sufficiently incorporated in the Arbitration Act, along with a restraint on judicial intervention. [Para 56(II)]
Catchwords
Arbitration and Conciliation Act, 1996 – Contract Act, 1872 – s.23 – Statutory incorporation of duties of the parties to the arbitration agreement:
Held
[Per Pamidighantam Sri Narasimha, J.] The moment parties choose arbitration over ordinary civil proceedings for dispute
Arbitration and Conciliation Act, 1996 – When an arbitration agreement is not enabling constitution of an independent and impartial tribunal:
Held
[Per Pamidighantam Sri Narasimha, J.] If an arbitration agreement is considered by the court as not enabling constitution of an independent and impartial tribunal, any submission that the said agreement is a binding contract, or it is in exercise of party autonomy is not tenable as such an agreement will be against public policy and as such not an enforceable contract. [Para 56(IV)]
Catchwords
Arbitration and Conciliation Act, 1996 – Contract Act, 1872 – Statutory incorporation of duties – Necessity to apply public law principles:
Held
[Per Pamidighantam Sri Narasimha, J.] In view of the statutory incorporation of these duties, it is not necessary to apply public law principles evolved in constitutional and administrative laws – Sourcing these duty obligations from Contract Act and Arbitration Act is important to maintain the integrity of the party autonomy and restraint of judicial institutions. [Para 56(V)]
Arbitration and Conciliation Act, 1996 – Duty of the Court:
Held
[Per Pamidighantam Sri Narasimha, J.] The power to ensure that the arbitration agreement is compliant of the public policy requirement of establishing an independent and impartial tribunal is always of the Court – This principle is recognised and statutorily incorporated in the Contract Act and the Arbitration Act – It is the duty of the court to ensure that the arbitration agreement inspires confidence and it will enable establishment of an independent and impartial arbitral tribunal. [Para 56(VI)]
Arbitration and Conciliation Act, 1996 – Maintaining a panel of arbitrators:
Held
[Per Pamidighantam Sri Narasimha, J.] Neither public policy considerations under the Contract Act or the Arbitration Act restrain the parties to the arbitration from maintaining a panel of arbitrators in any manner – However, arbitration agreements enabling one of the parties to unilaterally constitute arbitral tribunal do not inspire confidence of independence and may violate the public policy requirement of constituting an independent and impartial tribunal – The court will, therefore, scrutinise the agreement and hold them to be invalid if it considers it appropriate. [Para 56(VII)]
Arbitration and Conciliation Act, 1996 – No two agreements are the same and it is necessary for the court to examine the text and context of the agreement:
Held
[Per Pamidighantam Sri Narasimha, J.] The occasion for the court to examine the constitution of the independent and impartial tribunal under the arbitration clause will arise when one of the parties makes an application under Sections 11, 14 or 34 – It is not permissible for the court to give an advance declaration that all such agreements which enable one of the parties to unilaterally constitute the arbitral tribunal would be void per se – No two agreements are the same and it is necessary for the court to examine the text and context of the agreement. [Para 56(VIII)]
Arbitration and Conciliation Act, 1996 – Test of establishment of an independent and impartial tribunal:
Held
[Per Pamidighantam Sri Narasimha, J.] All applications pending before the courts challenging the unilateral appointment clauses will be disposed of applying the test as to whether such a clause enables establishment of an independent and impartial tribunal. [Para 56(IX)]
Catchwords
Arbitration and Conciliation Act, 1996 – s.18 – Applicability of:
Held
[Per Hrishikesh Roy, J.] Section 18 applies to all stages of arbitration including the stage of appointment of an arbitrator – The Arbitration Act does not provide for any special treatment to the government irrespective of whether the arbitration is by or against the government. [Para 43(a)]
Arbitration and Conciliation Act, 1996 – Unilateral appointment of Arbitrators is permissible as per the legislative scheme:
Held
[Per Hrishikesh Roy, J.] Unilateral appointment of Arbitrators is permissible as per the legislative scheme of the Arbitration Act – There is a distinction between ‘ineligibility’ and ‘unilateral’ appointment of arbitrators – As long as an arbitrator nominated by a party is eligible under the Seventh Schedule of the Act, the appointment (unilateral or otherwise), should permissible – It is only in cases of a complete lack of consensus that the court should exercise its power under Section 11(6) of the Arbitration Act to appoint an independent and impartial arbitrator as per Section 11(8) read with Section 12 and 18 of the Arbitration Act – At the appointment stage, the scope of judicial intervention is otherwise extremely narrow. [Para 43(b)]
Catchwords
Arbitration and Conciliation Act, 1996 – Independence and impartiality of the arbitrator – Examination of:
Held
[Per Hrishikesh Roy, J.] The independence and impartiality of the arbitrator must be examined within the statutory framework of the Arbitration Act, particularly Section 18 read with section 12(5) – Public Law constitutional principles should not be imported to arbitration proceedings particularly at the threshold stage of Section 11. [Para 43(c)]
Report as printed — headnote and judgment are not separated on this page
(Civil Appeal No(s). 9486-9487 of 2019)
* Author
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unilateral appointment clause is against the principle of arbitration, that is, impartial resolution of disputes between parties – It also violates the nemo judex rule which constitutes the public policy of India in the context of arbitration – Therefore, unilateral appointment clauses in public-private contracts are violative of Article 14 of the Constitution for being arbitrary in addition to being violative of the equality principle under the Arbitration Act. [Paras 162, 163] – [Per Pamidighantam Sri Narasimha, J. (dissenting)] One cannot, as an advance ruling, give a declaration that all arbitration clauses enabling unilateral appointments are null and void at this stage – A priori declaration that arbitration agreements that prescribe unilateral appointment procedures are invalid can lead to many problems in the day-to-day working of arbitral remedies – Particularly for institutions involving multiple transactions such as insurance claims, credit card defaults, etc. involving large number of cases but each claim may be of small sum – Our declaration of law substantially covers domestic arbitration, it will not be confined to high and international commercial arbitration – There could also be situations where the unilateral constitution of the panel of arbitrators could have credible members with respect to which no one can have an objection – Rather than declaring that all such agreements are void, it would be better to strengthen the remedial mechanisms available under the Act. [Paras 54.4 and 54.5] – [Per Hrishikesh Roy, J. (dissenting)] All unilateral appointments must not be declared void by way of a declaration of this Court – The 2015 Amendment in s.12(5) itself provides for a specific waiver i.e. (a) an express consent in writing and (b) the consent must be obtained after the dispute has arisen – Therefore, it is abundantly clear that an agreement between the parties (provided it satisfies the specific waiver requirements u/s.12(5)) can effectively cure any concerns about impartiality or independence in such cases – Adequate safeguards are provided within the Arbitration Act to ensure a level playing field – A search within the provisions of the Arbitration Act should first be made – The obligations of fair treatment should be grounded in the Arbitration Act rather than in the principles of Constitutional or administrative law – The choice of the parties in the agreement should not be disregarded without compelling reasons, through judicial intervention especially when the Arbitration Act provides clear remedies u/ss.12, 13, 14, and 15 of the Arbitration Act – It is only when there is a complete lack of consensus between the parties that the Court’s interference u/s.11 could be justified. [Paras 41, 42]
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not prohibit PSUs from empanelling potential arbitrators – However, an arbitration clause cannot mandate the other party to select its arbitrator from the panel curated by PSUs. [Para 169(b)]
Arbitration and Conciliation Act, 1996 – Arbitration and Conciliation (Amendment) Act 2015 – s. 12(5) – Application of s.12(5) where the parties seek to waive the allegation of bias against an arbitrator appointed unilaterally by one of the parties:
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resolution, their duty to establish an independent and impartial tribunal arises – The substitution of arbitration in place of civil courts as an exception under Section 28 of the Contract Act is only for a forum and not for contracting out of the most essential feature of a dispute resolution, i.e., independence and impartiality must exist in every forum – This essential feature is the inviolable public policy consideration under Section 23 of the Contract Act from which the parties cannot opt out – Arbitration agreements which are not compliant of this public policy consideration are void under Section 23 of the Contract Act – Thus, there is a statutory incorporation of duties of the parties to the arbitration agreement. [Para 56(III)]
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Case Law Cited
In the Judgment of Dr Dhananjaya Y Chandrachud, CJI, J.B. Pardiwala and Manoj Misra, JJ. Jaswant Sugar Mills Ltd. v. Lakshmi Chand [1963] Supp. 1 SCR 242 : 1962 SCC OnLine SC 20; Union of India v. Tulsiram Patel [1985] Supp. (2) SCR 131 : (1985) 3 SCC 398; In re Interplay Between Arbitration Agreements under Arbitration and Conciliation Act 1996 and the Stamp Act 1899, [2023] 15 SCR 1081 : 2023 INSC 1066; Mineral Area Development Authority v. Steel Authority of India [2024] 8 SCR 540 : 2024 SCC OnLine SC 1974; Bharat Aluminium Company v. Kaiser Aluminium Technical Services [2016] 1 SCR 364 : (2012) 9 SCC 552 – followed. Pam Developments Private Limited v. State of West Bengal [2019] 9 SCR 252 : (2019) 8 SCC 112; Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd. [2009] 13 SCR 510 : (2009) 3 SCC (Civ) 460;
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Madhyamam Broadcasting Limited v. Union of India [2023] 10 SCR 595 : 2023 SCC OnLine SC 366; P D Dinakaran v. Judges Inquiry Committee [2011] 10 SCR 1064 : (2011) 8 SCC 380; Supreme Court Advocates-on-Record Association v. Union of India [2015] 13 SCR 1 : (2016) 5 SCC 808; HRD Corporation v. GAIL (India) [2017] 11 SCR 857 : (2018) 12 SCC 471; Delhi Transport Corporation v. DTC Mazdoor Congress [1990] Supp. 1 SCR 142 : (1991) Supp. 1 SCC 600; Central Inland Water Transport Corporation v. Brojo Nath Ganguly [1986] 2 SCR 278 : (1986) 3 SCC 156 – relied on. Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd [2017] 1 SCR 798; TRF Ltd v. Energo Engineering Projects Ltd [2017] 7 SCR 409; Pratapchand Nopaji v. Kotrike Venkata Setty [1975] 3 SCR 1 : (1975) 2 SCC 208; Perkins Eastman Architects DPC v. HSCC (India) Ltd. [2019] 17 SCR 275; Central Organisation for Railway Electrification v. ECI-SPIC-SMOMCML (JV) A Joint Venture Company [2019] 16 SCR 1234; Union of India v. Tantia Constructions Limited, 2021 SCC OnLine SC 271; Lombardi Engineering Limited v. Uttarakhand Jal Vidyut Nigam Limited [2023] 13 SCR 943 : (2024) 4 SCC 341; Cox and Kings Ltd v. SAP India Pvt Ltd, 2023 INSC 1051 : [2023] 15 SCR 621; Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. [2016] 1 SCR 364 : (2016) 4 SCC 126; Centrotrade Minerals & Metals Inc v. Hindustan Copper Ltd. [2016] 9 SCR 83 : (2017) 2 SCC 228; N S Nayak and Sons v. State of Goa [2003] Supp. (1) SCR 69 : (2003) 6 SCC 56; Kamatchi Amman Constructions v. Railways [2010] 10 SCR 487 : (2010) 8 SCC 767; Shree Subhlaxmi Fabrics (P) Ltd. v. Chand Mal Baradia [2005] 2 SCR 1138 : (2005) 10 SCC 704; BSNL v. Motorola India (P) Ltd. (2009) 2 SCC 337; State of UP v. Babu Ram Upadhya [1961] 2 SCR 679; Raza Buland Sugar Co. Ltd. v. Municipal Board [1965] 1 SCR 970 : 1964 SCC OnLine SC 119; Datar Switchgears Ltd. v. Tata Finance Ltd. (2000) 8 SCC 151; Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd. [2009] 13 SCR 510 : (2009) 8 SCC 520; Denel (Proprietary) Ltd. v. Bharat Electronics Ltd. [2010] 6 SCR 784 : (2010) 6 SCC 394; Bipromasz Birpron Trading Sa v. Bharat Electronics Ltd. [2012] 5 SCR 743 : (2012) 6 SCC 384; Union of India v. Singh Builders Syndicate [2009] 3 SCR 563 : (2009) 4 SCC 523; North Eastern Railway v. Tripple Engg. Works [2014] 6 SCR 1143 : (2014) 9 SCC 288; Bharat Broadband Network Ltd. v. United Telecoms Ltd. [2019] 6 SCR 97 : (2019) 5 SCC 755; K K Saksena v. International Commission on Irrigation & Drainage [2014] 14 SCR 892 : (2015) 4 SCC 670;
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SCC 197; Vidya Drolia v. Durga Trading Corporation [2020] 11 SCR 1001 : (2021) 2 SCC 1; Eurasian Equipment & Chemicals Ltd. v. State of West Bengal [1975] 2 SCR 674 : (1975) 1 SCC 70; Ramana Dayaram Shetty v. International Airport Authority of India [1979] 3 SCR 1014 : (1979) 3 SCC 489; LIC v. Consumer Education & Research Centre [1995] Supp. 1 SCR 349 : (1995) 5 SCC 482; Somaiya Organics (India) Ltd. v. State of UP [2001] 3 SCR 33 : (2001) 5 SCC 519; Belsund Sugar Co. Ltd. v. State of Bihar [1999] Supp. 1 SCR 146 : (1999) 9 SCC 620; Sarwan Kumar v. Madan Lal Aggarwal [2003] 1 SCR 918 : (2003) 4 SCC 147; Bhatia International v. Bulk Trading S A [2002] 2 SCR 411 : (2002) 4 SCC 105 – referred to. R v. Bow Street Metropolitan Stipendiary Magistrate, ex parte Pinochet Ugarte (No. 2) [1999] UKHL 1; Dimes v. The Proprietors of the Grand Junction Canal (1852) 3 HLC 759; Locabail (UK) Ltd. v. Bayfield Properties Ltd [1999] EWCA Civ 3004; Dimes v. Grand Junction Canal (1852) 3 HL Cas 759; R v. Sussex Justices [1924] 1 KB 256; R v. Barnsley Licencing Justices (1960) 2 Q.B. 187; Metropolitan Properties Company v. Lannon [1968] EWCA Civ 5; Regina v. Gough [1993] UKHL 1; Webb v. The Queen, (1994) 181 CLR 41; re Medicaments and Related Classes of Goods (No. 2) [2001] 1 WLR 700; Porter v. Magill [2002] 2 AC 357; Lawal v. Northern Spirit Limited [2003] UKHL 25; Helow v. Secretary of State [2008] UKHL 62; Johnson v Johnson (2000) 201 CLR 488; Haliburton Company v. Chubb Bermuda Insurance Ltd. [2020] UKSC 48; Perry v. Thomas 482 US 483; Doctor’s Associates Inc v. Casarotto 517 US 681; Hume v. United States 132 US 406; Williams v. Walker-Thomas Furniture Co. 350 F.2d 445; Hooters of Am. Inc. v. Phillips 173 F.3d 933; Board of Education of Berkely County v. W Harley Miller Inc 236 S.E.2d 439; Ditto v. Remax Preferred Props 861 P.2d 1000, 1004; Harold Allen’s Mobile Home Factory Outlet Inc v. Butler 825 So.2d 779, 783; Graham v. Scissor Tail Inc 28 Cal 3d 807; Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith Inc 995 F.Supp 190, 208; McMullen v. Meijer 355 F.3d 485, 493; K/S Norjarl A/S v. Hyundai Heavy Industries Co. Ltd. [1992] QB 863; The King v. Sussex Justices [1924] 1 KB 256; Nicholas v. Cyprus Application No. 63246/10; Morice v. France, Application No. 29369/10; Micallef v. Malta Application No. 17056/06; Koulis v. Cyprus, Application No. 48781/12; Jivraj v. Hashwani [2011] UKSC 40; Janson v. Driefontein Consolidated Mines, Limited [1902] 2 AC 484; – referred to.
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In the Judgment of Pamidighantam Sri Narasimha, J. Vidya Drolia v. Durga Trading Corporation [2020] 11 SCR 1001 : (2021) 2 SCC 1; M/s Arif Azim Co. Ltd. v. M/s Aptech Ltd. [2024] 3 SCR 73 : (2024) 5 SCC 313; SBI General Insurance Co Ltd v. Krish Spinning [2024] 7 SCR 840 : 2024 SCC OnLine SC 1754; Centrotrade Minerals & Metals Inc v. Hindustan Copper Ltd. [2006] Supp. 2 SCR 146 : (2006) 11 SCC 245; Union of India v. Uttar Pradesh Bridge Corporation Limited (2015) 2 SCC 52; Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. [2016] 1 SCR 364 : (2016) 4 SCC 126; Cox and Kings v. SAP India Pvt Ltd [2023] 15 SCR 621 : (2024) 4 SCC 1; Indian Financial Association of Seventh Day Adventists v. M.A. Unneerikutty [2006] Supp. 3 SCR 762 : (2006) 6 SCC 351; Gherulal Parekh v. Mahadeodas Maiya (1959) Supp 2 SCR 406; Central Inland Water Transport Corpn Ltd v. Brojo Nath Ganguly [1986] 2 SCR 278 : (1986) 3 SCC 156; Rattan Chand Hira Chand v. Askar Nawaz Jung [1991] 1 SCR 327 : (1991) 3 SCC 67; Assistant General Manager v. Radhey Shyam Pandey [2020] 4 SCR 814 : (2020) 6 SCC 438; P. Rathinam v. Union of India [1994] 3 SCR 673 : (1994) 3 SCC 394; Central Inland Water Transport v. Brojo Nath Ganguly [1986] 2 SCR 278 : (1986) 3 SCC 156; S.K. Jain v. State of Haryana [2009] 2 SCR 1080 : (2009) 4 SCC 357; ICOMM Tele Limited v. Punjab State Water Supply and Sewerage Board [2019] 2 SCR 984 : (2019) 4 SCC 401; HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Ltd. [2017] 11 SCR 857 : (2018) 12 SCC 471; Chennai Metro Rail Ltd v. Transtonnelstroy Afcons (JV) [2023] 14 SCR 995 : (2024) 6 SCC 211; Bharat Broadband Network Limited v. United Telecoms Limited [2019] 6 SCR 97 : (2019) 5 SCC 755; Indian Oil Corporation v. Raja Transport Pvt Ltd [2009] 13 SCR 510 : (2009) 8 SCC 520; North Eastern Railway v. Tripple Engineering Works [2014] 6 SCR 1143 : (2014) 9 SCC 288; Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company [2008] 12 SCR 216 : (2008) 10 SCC 240; Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd. [2007] 4 SCR 777 : (2007) 5 SCC 304; Denel (Proprietary) Limited v. Bharat Electronics Limited [2010] 6 SCR 784 : (2010) 6 SCC 394; Bipromasz Bipron Trading SA v. Bharat Electronics Ltd. [2012] 5 SCR 743 : (2012) 6 SCC 384; Denel (Proprietary) Limited v. Ministry of Defence [2012] 2 SCR 897 : (2012) 2 SCC
p. 2186
759; Delhi Transport Corporation v. DTC Mazdoor Congress [1990] Supp. 1 SCR 142 : (1991) Supp. 1 SCC 600; Bidi Supply Co v. Union of India [1956] 1 SCR 267; Haryana Space Application Centre v. Pan India Consultants Private Limited [2021] 1 SCR 282 : (2021) 3 SCC 103; Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation [2017] 1 SCR 798 : (2017) 4 SCC 665; TRF Limited v. Energo Engineering Projects Limited [2017] 7 SCR 409 : (2017) 8 SCC 377; Perkins Eastman Architects DPC v. HSCC (India) Limited [2019] 17 SCR 275 : (2020) 20 SCC 760; Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) [2019] 16 SCR 1234 : (2020) 14 SCC 712; Union of India v. Parmar Construction Company [2019] 5 SCR 1009 : (2019) 15 SCC 682; Union of India v. Pradeep Vinod Construction Co [2019] 17 SCR 64 : (2020) 2 SCC 464; Govt. of Haryana PWD Haryana (B and R) Branch v. G.F. Toll Road (P) Ltd [2019] 1 SCR 270 : (2019) 3 SCC 505; Glock Asia-Pacific Limited v. Union of India [2023] 6 SCR 717 : (2023) 8 SCC 226; Lombardi Engineering Limited v. Uttarakhand Jal Vidyut Nigam Limited [2023] 13 SCR 943 : (2024) 4 SCC 341; Jaipur Zila Dugdh Utpadak Sahkari Sangh v. Ajay Sales & Suppliers [2021] 7 SCR 768 : (2021) 17 SCC 248; Ellora Paper Mills v. State of M.P [2022] 16 SCR 399 : (2022) 3 SCC 1 – referred to. Perry v. Thomas 482 US 483 (1987); Harold Allen’s Mobile Home Factory Outlet, Inc. v. Butler 825 So.2d 779,783-85 (Ala. 2002); Philipp Bros. v. Icco 1990 Rev. 880,883; Raffineries de Petrole d’Homs et de Banias v. Chambre de Commerce Internationale 1985 Recv. Arb. 141,146; Rosenberg v. Merril Lynch, Pierce, Fennner & Smith Inc. 995 F.Supp. 190,208; Harold Allen’s Mobile Home Factory Outlet, Inc. v. Butler 825 So.2d 779,783-85 (Ala. 2002); Hooters of America, Inc. v. Phillips 39 F. Supp. 2d 582 (D.S.C. 1998); Murray v. United Food and Commercial Workers Union 289 F.3d 297 (4th Cir.2002); McMullen v. Meijer, Inc 355 F.3d 485 (6th Cir. 2004); Board of Ed. v. W. Harley Miller, Inc. 160 W. Va. 473, 236 S.E.2d 439 (W. Va. 1977); Sumukan Ltd. v. Commonwealth Secretariat [2007] EWCA 1148; Swiss Federal Tribunal (Judgement of 26 November 2002, DFT 4P_129/2002); Court of Cassation (France) (Judgment of 31 January, 2002, 2003:2 Cahiers de l’Arbitrage 303); Judgement of 11 November 1981, DFT 107 Ia 155,158 (Swiss Fed. Trib.) – referred to.
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In the Judgment of Hrishikesh Roy, J. Interplay Between Arbitration Agreements under A&C Act, 1996 & Stamp Act, 1899 [2023] 15 SCR 1081 : (2024) 6 SCC 1 – followed. A.Ayyasamy vs A. Paramasivam [2016] 11 SCR 521 : (2016) 10 SCC 386 – relied on. Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman [2019] 12 SCR 123 : (2019) 8 SCC 714; Duro Felguera, S.A. v. Gangavaram Port Ltd [2017] 10 SCR 285 : (2017) 9 SCC 729; SBP & Co. v Patel Engineering [2005] Supp. 4 SCR 688 : (2005) 8 SCC 618; National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd [2008] 13 SCR 638 : (2009) 1 SCC 267; Executive Engineer, Irrigation Division, Puri v. Gangaram Chhapolia [1984] 3 SCC 627; Secretary to Government Transport Department, Madras v. Munusamy Mudaliar [1988] Supp. (2) SCR 673 : [1988] Supp. SCC 651; International Authority of India v. K.D. Bali and Anr [1988] 3 SCR 370 : [1988] 2 SCC 360; HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Ltd. [2017] 11 SCR 857 : (2018) 12 SCC 471; Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd [2017] 1 SCR 798 : (2017) 4 SCC 665; TRF Ltd. v. Energo Engg. Projects Ltd [2017] 7 SCR 409 : (2017) 8 SCC 377; Perkins Eastman Architects DPC v. HSCC (India) Ltd [2019] 17 SCR 275 : (2020) 20 SCC 760; Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) [2019] 16 SCR 1234 : (2020) 14 SCC 712; Union of India Vs. Parmar Construction Company [2019] 5 SCR 1009 : (2019) 15 SCC 682; Union of India vs. Pradeep Vinod Construction Company [2019] 17 SCR 64 : (2020) 2 SCC 464 – referred to.
Books and Periodicals Cited
In the Judgment of Dr Dhananjaya Y Chandrachud, CJI, J.B. Pardiwala and Manoj Misra, JJ. Law Commission of India, Amendments to the Arbitration and Conciliation Act 1996, Report No. 246 (August 2014); Emmanuel Gaillard, Legal Theory of International Arbitration’ (Brill, 2010); Peter Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdiction (2nd edn, 2005); Howard Holtzmann and Joseph Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration (Kluwer Law);
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UNCITRAL, 2012 Digest of Case Law on the Model Law on International Commercial Arbitration (2012); Fouchard, Gaillard and Goldman on International Commercial Arbitration (Emmanuel Gaillard and John Savage, eds. 1999); Koulis v. Cyprus, Application No. 48781/12; Shahla Ali and Odysseas G Repousis, ‘Appointment of Arbitrators’ in UNCITRAL Model Law on International Commercial Arbitration (Ilian Bantekas, et al eds, 2020); Gary Born, International Commercial Arbitration (3rd edn.,) 1783; Michael Pryles, ‘Limits to Party Autonomy in Arbitral Procedure’ (2007) 24(3) Journal of International Arbitration 327-339; Jody Freeman, ‘The Contracting State’ (2000) 28(1) Florida State University Law Review 155; Stavros Brekoulakis and Margaret Devaney, ‘Public-private arbitration and the public interest under English law’ (2017 Somaiya Organics (India) Ltd. v. State of UP, (2001) 5 SCC 519) 80(1) Modern Law Review 22, 30; Ilias Bantekas; Fouchard Gaillard Goldman on International Commercial Arbitration (Kluwer Law International, 1999); Jerry L Mashaw; William B Rubenstein; William Wade and Janson v. Driefontein Consolidated Mines, Limited, [1902] 2 AC 484 Christopher Forsyth, Administrative Law (12th edn, Oxford University Press); David Caron and Lee Caplan, The UNCITRAL Arbitration Rules: A Commentary (2nd edn, Oxford University Press, 2013); Fali Nariman, ‘Standards of Behaviour of Arbitrators’ (1988) 4(4) Arbitration International; S M Waddams, ‘Unconscionability in Contracts’ (1976) 39(4) Modern Law Review 369; John A Spanogle, ‘Analyzing Unconscionability Problems’ (1969) 117(7) University of Pennsylvania Law Review 931; Percy H Winfield, ‘Public Policy in the English Common Law’ (1928) 42(1) Harvard Law Review 76, 92; Stephen Waddams, Principle and Policy in Contract Law (Cambridge University Press, 2011); Arthur Allen Leff, ‘Unconscionability and the Code-Emperor’s New Clause’ (1967) 115(4) University of Pennsylvania Law Review 485.
In the Judgment of Pamidighantam Sri Narasimha, J. Pollock and Mulla, The Indian Contract and Specific Relief Acts, vol 1 (14th edn, Lexis Nexis 2013), 524; Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958; Geneva Protocol on Arbitration Clauses; German Code of Civil Procedure; Estonian Code of Civil Procedure.
In the Judgment of Hrishikesh Roy, J. Gary Born, International Commercial Arbitration (2nd edn, Kluwer 2014); UNCITRAL 2012 Digest of Case Law on the Model Law on
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International Commercial Arbitration; Howard M. Holtzmann and Joseph E. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration, at 479 (Kluwer 1989); 246th Report of the Law Commission.
List of Acts
In the Judgment of Dr Dhananjaya Y Chandrachud, CJI, J.B. Pardiwala and Manoj Misra, JJ. Arbitration and Conciliation Act 1996; Contract Act 1872; Code of Civil Procedure 1908; German Code of Civil Procedure 1877; Dutch Code of Civil Procedure, 2003.
In the Judgment of Pamidighantam Sri Narasimha, J. Arbitration and Conciliation Act, 1996; Indian Contract Act, 1872; UNCITRAL Model Law; Code of Civil Procedure, 1908; Spanish Arbitration Act, 2003.
In the Judgment of Hrishikesh Roy, J. Arbitration and Conciliation Act,1996; UNCITRAL Model Law; Arbitration Act, 1996.
List of Keywords
In the Judgment of Dr Dhananjaya Y Chandrachud, CJI, J.B. Pardiwala and Manoj Misra, JJ. Unilateral appointment of arbitrators; Qui facit per alium facit per se; Nemo judex; Doctrine of unconscionability; Party autonomy; Arbitration agreement; Consensual agreement; Freedom of the parties; International commercial arbitration; Principle of minimum judicial interference; Autonomy of the parties; Arbitral proceedings; Mandatory provisions; Waiver of the right of a party to object; Appointment of arbitrators; Independence and impartiality of arbitrators; Equality in the arbitral proceedings; Public-private arbitration; Arbitration as a quasi-judicial function; Article 14 of the Constitution; Doctrine of bias; Principles of natural justice; Integrity of arbitral process; Doctrine of Necessity; Principle of express waiver; Panel of potential arbitrators; Unconscionability under the Contract Act; US jurisprudence on unconscionability of arbitration agreements; Public policy of arbitration; Unilateral appointment clauses; Principle of equal treatment of parties.
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In the Judgment of Pamidighantam Sri Narasimha, J. Access to Justice; Arbitration; Party autonomy; Independent and impartial arbitral tribunal; Obligations of parties to the Arbitration Agreement; Distinct duties of Arbitrators and Arbitrating Parties; Legality of the contractual clause; Freedom of Contract; Statutory incorporation of duties of the parties to the arbitration agreement; Public Policy; Constitutional and Administrative laws; Restraint of judicial institutions; Advance declaration; Unilateral appointment procedures; Conduct of arbitral proceedings; Composition of arbitral tribunal.
In the Judgment of Hrishikesh Roy, J. Section 18 of the Arbitration and Conciliation Act,1996; Stage of appointment of arbitrators; Applicability of the equality principle; Equality Doctrine; Procedural protections; Judicial restraint; Principle of minimal judicial intervention; Unilateral Appointments; Independent and impartial tribunal; Failure or impossibility to Act; Termination of mandate and Substitution of Arbitrator; Ineligibility.
Case Arising From CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 9486-9487 of 2019 From the Judgment and Order dated 03.01.2019 and 29.03.2019 of the High Court of Judicature at Allahabad in ACA No.151 of 2018 With Special Leave Petition (C) Nos.15936 of 2020, 6125 of 2021, 9462 of 2022 and 21131 of 2023 And Diary Nos.7086 And 13670 of 2024
Appearances for Parties Tushar Mehta, Solicitor General, K.M. Nataraj, Arvind Kamath, A.S.Gs., Neeraj Kishan Kaul, Guru Krishnakumar, Mrs. Madhavi Divan, S.K. Gangele, Anand Padmanabhan, Naresh Kaushik, Mahesh Jethmalani, Nakul Dewan, Gourab Banerji, P.V. Dinesh, S. Mukunth, Sr. Advs., Amrish Kumar, Shashank Garg, Kanu Agrawal, Aman Mehta, Raman Yadav, Ms. Aastha Singh, Ms. Mili Bqaxi, Ms. Nishtha Jain, Ms. Jayashree Parihar, Raghav Bhatia, Arjun Sharma, Ms. Aradhya Chaturvedi, Kumar Vinayakam
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Gupta, S. Ravi Shankar, Pai Amit, Ms. Pankhuri Bhardwaj, Nikit Bala, Abhiyudaya Vats, Nikhil Pahwa, Kushal Dube, Ms. Ranu Purohit, Ms. Bhavana Duhoon, Tathagata Dutta, Sanjeev Kapoor, Mrs. Vanita Bhargava, Madhav Khosla, Samar Kachwaha, Rohit Ghosh, Ritwik Mohapatra, Varun Tyagi, Toshiv Goyal, Dhruv Sharma, Udit Sidhra, M/s. Khaitan & Co., Balaji Srinivasan, Vishwaditya Sharma, Ashwin K, Vishesh Goel, Ms. Harsha Tripathi, Aditya Nath, Shreyas Ranjan, Ms. Ritu Gangele, Ms. Priya Sharma, Prathvi Raj Chauhan, Ms. Aishani Narain, Ms. Nidhi Khanna, Ms. Aandrita Deb, Ms. Ruchi Arya, Arimardham Sharma, Ms. Divya Swami, Nikhil Swami, Dhruv Tamta, Suman K Doval, Nishchay Dutt, Mahesh Agarwal, Rishi Agrawala, Ankur Saigal, Rohan Talwar, Pranjit Bhattacharya, Dr. Sunil Mittal, Ms. Anu Tiwari, Chirag Nayak, Himanshu Saraswat, Pranav Saigal, E.C. Agrawala, Vardhman Kaushik, Nishant Gautam, Dhruv Joshi, Suyash Guru, Manan Sanghai, Mayank Sharma, Vinay Kaushik, Anilendra Pandey, Rajeev Kumar Ranjan, Manoj Kumar, Ms. Priya Kashyap, Aditya Narayan Singh, Sandeep, M/s. Ranjan & Company, Saurav Aggarwal, Mrs. Sonali Jaitley Bakhshi, Jaiyesh Bakhshi, Ravi Tyagi, Mayank Mishra, Gaurav Mishra, Daman Popli, Ms. Neetu Devrani, Anubhav Yadav, Sahil Dhawan, Anshuman Chawdhury, Ms. Kavya Pahwa, Ajay Sharma, Shivam Chaudhary, Ms. Saloni Paliwal, Subodh Kr. Pathak, Dharmendra Kumar Sinha, Shashi Ranjan, Subodh Kumar Pathak, Shashiranjan, Pawan Kumar Sharma, Ms. Priya Rastogi, A. Raghunath, Ms. Siya Choudhary, Ms. Serena Jethmalani, Ms. Nooreen Sarna, Ms. Meher Tandon, Soumil Jhanwar, Satyender Saharan, Sathvik Chandrashekhar, Anirudh Krishnan, Shiva Krishnamurti, Ramkishore Karnam, Anuraag Rajagopalan, Anirudh Ramkumar, Ms. Garima Jain, Ganesh Chandru, Siddharth Agrawal, Shashwat Dhyani, Vinayak Sharma, Apoorva Bhumesh, Chitransh Sharma, Tanmay Mehta, Sulaiman Mohd Khan, Mrs. Taiba Khan, Bhanu Malhotra, Gopeshwar Singh Chandel, Abdul Bari Khan, Rohit Amit Sthalekar, George Pothan Poothicote, Ms. Manisha Singh, Prakarsh Kumar, Ashu Pathak, Ms. Jyoti Singh, T.S. Sundaram, Venkata Supreeth, Mohit Pandey, Rakesh Talukdar, S.P. Mukherjee, Raka Chatterjee, Arunava Mukherjee, Somiran Sharma, Ms. Anna Oommen, Ms. Syed Nazarat Fatima, Suryanu Sengupta, Dhrubajit Saikia, Mrs. Prabha Swami, Advs. for the appearing parties.
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Judgment / Order of the Supreme Court#
Judgment
Dr Dhananjaya Y Chandrachud, CJI
Table of Contents*
A. Background ..................................................................... 4 i. Background to the reference ................................ 4 ii. The reference .......................................................... 11 B. Issues .............................................................................. 13 C. Submissions ................................................................... 13 D. Principles underpinning the Arbitration Act ............... 18 i. Party autonomy ...................................................... 20 ii. Mandatory provisions ............................................ 22 iii. Appointment of arbitrators ................................... 27 iv. Independence and impartiality of arbitrators ..... 32 v. Equality in the arbitral proceedings .................... 39 vi. Public-private arbitration ....................................... 41 E. The principle of equality applies at the stage of appointment of arbitrators ............................................ 43 i. Arbitration as a quasi-judicial function ............... 43 ii. Equality applies at the stage of appointment of arbitrators ............................................................... 48 F. Nemo judex rule and the doctrine of bias ................... 53 i. Principles of natural justice .................................. 54 ii. Doctrine of bias ...................................................... 57 iii. Test of real likelihood of bias ............................... 61 a. Automatic disqualification ................................ 61 b. Real likelihood of bias ..................................... 63
# Ed. Note: A total of three judgments were delivered. Hon’ble Dr Justice Dhananjaya Y Chandrachud, Chief Justice of India, pronounced judgment on behalf of himself, Hon’ble Mr Justice J.B. Pardiwala and Hon’ble Mr Justice Manoj Misra, Hon’ble Mr Justice Hrishikesh Roy and Hon’ble Mr Justice Pamidighantam Sri Narasimha pronounced their separate judgments. * Ed. Note: Pagination as per the original Judgment.
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iv. Indian approach to the bias test .......................... 71 v. Bias and doctrine of necessity in the context of the Arbitration Act .................................................. 75 vi. Unilateral appointment of arbitrators is violative of the equality clause under Section 18 .............. 83 G. Public-private contracts and public policy ................. 90 i. Unconscionability under the Contract Act .......... 90 ii. US jurisprudence on unconscionability of arbitration agreements .......................................... 98 iii. Public-private contracts and public policy of arbitration ................................................................ 102 H. Necessity of maintaining the principle of minimum judicial interference ....................................................... 107 I. Prospective Overruling .................................................. 109 J. Conclusion ...................................................................... 111
A. Background
11. In the present batch of appeals, this Court has to decide the contours defining the independence and impartiality of arbitral tribunals under the Arbitration and Conciliation Act 1996.1 The Arbitration Act allows parties to agree on a procedure for appointment of arbitrators. The sanctity inhering in the arbitration agreement underscores the autonomy of parties to settle their disputes by arbitrators of their choice. However, the Arbitration Act subjects party autonomy to certain mandatory principles such as the equality of parties, independence and impartiality of the tribunal, and fairness of the arbitral procedure. The reference to the Constitution Bench raises important issues of the interplay between party autonomy and independence and impartiality of the arbitral tribunal.
1 “Arbitration Act”
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i. Background to the reference
22. The Law Commission of India in its 246th Report opined that party autonomy cannot be stretched to disregard the principles of impartiality and independence of the arbitral process, specifically at the stage of constituting of an arbitral tribunal.2 Hence, the Law Commission suggested automatic disqualification of persons whose relationship with the parties falls under any of the categories specified by law. Following upon the recommendations of the Law Commission, Parliament enacted the Arbitration and Conciliation (Amendment) Act 20153 to incorporate Section 12(5).4 Section 12(5) renders a person whose relationship with the parties falls under any of the categories specified under the Seventh Schedule ineligible for appointment. Given the 2015 amendment, parties filed applications under Section 11(6) urging the invalidation of appointment procedures which gave one party dominance in appointing arbitrators.
33. In Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd.,5 the arbitration clause required the Delhi Metro Rail Corporation6
2 Law Commission of India, Amendments to the Arbitration and Conciliation Act 1996, Report No. 246 (August 2014). [The relevant observation reads: “57. The balance between procedural fairness and binding nature of these contracts, appears to have been tilted in favour of the latter by the Supreme Court, and the Commission believes the present position of law is far from satisfactory. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the arbitral tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles – even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties’ apparent agreement. A sensible law cannot, for instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the parties agreed. The Commission hastens to add that Mr. PK Malhotra, the ex officio member of the Law Commission suggested having an exception for the State, and allow State parties to appoint employee arbitrators. The Commission is of the opinion that, on this issue, there cannot be any distinction between State and non-State parties. The concept of party autonomy cannot be stretched to a point where it negates the very basis of having impartial and independent adjudicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator is that much more onerous – and the right to natural justice cannot be said to have been waived only on the basis of a “prior” agreement between the parties at the time of the contract and before arising of the disputes.”] 3 “2015 amendment” 4 Section 12(5), Arbitration Act. [It reads: “(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.”] 5 [2017] 1 SCR 798 6 “DMRC”
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Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company
to prepare a panel of engineers comprising of serving or retired engineers of government departments or public sector undertakings. The clause further stated that matters where the total value was below Rupees 1.5 million should be referred to sole arbitrators, and those exceeding the amount shall be arbitrated before a panel of three arbitrators. The relevant clause for disputes to be decided by three arbitrators was thus: “(c) For the disputes to be decided by three Arbitrators, the Purchaser will make out a list of five engineers from the aforesaid panel. The supplier and Purchaser shall choose one Arbitrator each, and the two so chosen shall choose the third Arbitrator from the said list, who shall act as the presiding Arbitrator.”
44. The issue before a two-Judge Bench of this Court was whether the panel of arbitrators prepared by DMRC violated Section 12 of the Arbitration Act. This Court emphasized that an arbitrator appointed in terms of the agreement between the parties must be independent of the parties. Further, this Court held that Section 12(5) read with the Seventh Schedule does not put an embargo on retired government employees from serving as arbitrators. It held that “[b]ias or even real likelihood of bias cannot be attributed to such highly qualified and experienced persons, simply on the ground that they served the Central Government or PSUs.”7
55. The Court held that the arbitration clause had the following adverse consequences: (i) the choice given by DMRC to the other party was limited; and (ii) the discretion given to DMRC to curate a panel of five persons gave rise to the suspicion that it “may have picked up its own favourites.” To remedy the situation, it was held that a
7 Voestalpine (supra) [25]. [It reads: “26. It cannot be said that simply because the person is a retired officer who retired from the government or other statutory corporation or public sector undertaking and had no connection with DMRC (the party in dispute), he would be treated as ineligible to act as an arbitrator. Had this been the intention of the legislature, the Seventh Schedule would have covered such persons as well. Bias or even real likelihood of bias cannot be attributed to such highly qualified and experienced persons, simply on the ground that they served the Central Government or PSUs, even when they had no connection with DMRC. The very reason for empanelling these persons is to ensure that technical aspects of the dispute are suitably resolved by utilising their expertise when they act as arbitrators. It may also be mentioned herein that the Law Commission had proposed the incorporation of the Schedule which was drawn from the red and orange list of IBA guidelines on conflict of interest in international arbitration with the observation that the same would be treated as the guide “to determine whether circumstances exist which give rise to such justifiable doubts”. Such persons do not get covered by red or orange list of IBA guidelines either.”]
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choice must be given to both parties to nominate any person from the entire panel of arbitrators. Further, this Court observed that in case of a government contract where the authority to appoint an arbitrator rests with a government entity, there is an imperative to have a “broad based panel”8 to instil confidence in the mind of the other party and secure the principle of independence and impartiality at the stage of the constitution of the arbitral tribunal.9
66. In TRF Ltd v. Energo Engineering Projects Ltd,10 the purchase order issued by the respondent to the appellant contained an arbitration clause that stated that any dispute or difference between the parties in connection with the agreement shall be referred “to sole arbitration of the Managing Director of Buyer or his nominee.” After a dispute arose between the parties about the encashment of the bank guarantee, the Managing Director of the respondent appointed a former judge of this Court as the sole arbitrator in terms of the arbitration clause. The issue before the Bench of three Judges was whether the Managing Director was eligible to nominate a sole arbitrator because of Section 12(5) of the Arbitration Act. The Court distinguished the situation where both the parties appoint their arbitrators from a situation where a person ineligible to be appointed as an arbitrator nominates a sole arbitrator: “53. […] when there are two parties, one may nominate an arbitrator and the other may appoint another. That is
8 Voestalpine (supra) [28]. [“28. […] Keeping in view the spirit of the amended provision and in order to instil confidence in the mind of the other party, it is imperative that panel should be broadbased. Apart from serving or retired engineers of government departments and public sector undertakings, engineers of prominence and high repute from private sector should also be included. Likewise panel should comprise of persons with legal background like Judges and lawyers of repute as it is not necessary that all disputes that arise, would be of technical nature. There can be disputes involving purely or substantially legal issues, that too, complicated in nature. Likewise, some disputes may have the dimension of accountancy, etc. Therefore, it would also be appropriate to include persons from this field as well.] 9 Voestalpine (supra) [30] [“30. Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the Law Commission also in its report, duty becomes more onerous in government contracts, where one of the parties to the dispute is the Government or public sector undertaking itself and the authority to appoint the arbitrator rests with it. In the instant case also, though choice is given by DMRC to the opposite party but it is limited to choose an arbitrator from the panel prepared by DMRC. It, therefore, becomes imperative to have a much broadbased panel, so that there is no misapprehension that principle of impartiality and independence would be discarded at any stage of the proceedings, specially at the stage of constitution of the Arbitral Tribunal. We, therefore, direct that DMRC shall prepare a broadbased panel on the aforesaid lines, within a period of two months from today.”] 10 [2017] 7 SCR 409
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altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the “named sole arbitrator” and he has also been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction.”
77. The Court relied on the maxim qui facit per alium facit per se (what one does through another is done by oneself)11 to hold that a person who becomes ineligible to be appointed as an arbitrator cannot nominate another person as an arbitrator: “57. […] once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. …once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated...” (emphasis supplied)
88. In Perkins Eastman Architects DPC v. HSCC (India) Ltd.,12 the arbitration clause stipulated that disputes or differences between the parties to the contract “shall be referred for adjudication through arbitration by a sole arbitrator appointed by the CMD HSCC within 30 days from the receipt of request from the Design Consultant.” The Bench of two Judges held that the test to determine the possibility of bias is directly relatable to the interest the person appointing an arbitrator has in the outcome of the dispute. The Court held that
11 As applied by this Court in Pratapchand Nopaji v. Kotrike Venkata Setty (1975) 2 SCC 208 [9] 12 [2019] 17 SCR 275
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a person having an interest in the dispute “cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator.”13
99. TRF (supra) and Perkins (supra) both dealt with a situation where a person who was rendered ineligible in terms of Section 12(5) was making an appointment of a sole arbitrator. Consequently, Perkins (supra) relied on TRF (supra) to observe that a person who has an interest in the dispute or its outcome should not have the power to unilaterally appoint a sole arbitrator: “16. […] The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter-balanced by equal power with the other party. But, 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. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd.” (emphasis supplied)
1010. In Central Organisation for Railway Electrification v. ECI-SPIC- SMO-MCML (JV) A Joint Venture Company,14 the arbitration was to be held following Clause 64(3)(b) of the General Conditions of Contract. The clause reads thus: “64. (3)(b) Appointment of arbitrator where applicability of Section 12(5) of the A&C Act has not been waived off
13 Perkins (supra) [16] 14 [2019] 16 SCR 1234 [“CORE”]
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The Arbitral Tribunal shall consist of a panel of three retired railway officers retired not below the rank of SAO officer, as the arbitrator. For this purpose, the Railways will send a panel of at least four names of retired railway officer(s) empanelled to work as railway arbitrator indicating their retirement date to the contractor within 60 days from the day when a written and valid demand for arbitrators is received by the GM. Contractor will be asked to suggest to General Manager at least two names out of the panel for appointment as contractor’s nominee within 30 days from the date of dispatch of the request by the Railways. The General Manager shall appoint at least one out of them as the contractor’s nominee and will, also simultaneously appoint the balance number of arbitrators either from the panel or from outside the panel, duly indicating the “presiding arbitrator” from amongst the three arbitrators so appointed. The GM shall complete this exercise of appointing the Arbitral Tribunal within 30 days from the receipt of the names of contract’s nominees. While nominating the arbitrators, it will be necessary to ensure that one of them has served in the Accounts Department.”
1111. The first relevant issue before the Bench of three Judges was whether the appointment of retired railway officers as arbitrators was valid, given Section 12(5) read with the Seventh Schedule. The Court relied on Voestalpine (supra) to observe that Section 12(5) does not bar former employees of parties from being appointed as arbitrator. The other issue was whether the General Manager could appoint arbitrators. The Court held that the law laid down in TRF (supra) and Perkins (supra) was not applicable because “the right of the General Manager in formation of Arbitral Tribunal is counter- balanced by respondent’s power to choose any two from out of the four names and the General Manager shall appoint at least one out of them as the contractor’s nominee.” The Court upheld the validity of the arbitration clause and directed the constitution of the arbitral tribunal in terms of the agreement.
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ii. The reference
1212. In Union of India v. Tantia Constructions Limited,15 a three Judge Bench prima facie disagreed with CORE (supra), observing: "1. … on the facts of this case, the judgment of the High Court cannot be faulted with (sic). Accordingly, the Special Leave Petition is dismissed. However, reliance has been placed upon a recent three-Judge Bench decision of this Court delivered on 17.12.2019 in Central Organisation for Railway Electrification v. ECI- SPIC-SMO-MCML (JV) A Joint Venture Company, 2019 SCC OnLine SC 1635. We have perused the aforesaid judgment and prima facie disagree with it for the basic reason that once the appointing authority itself is incapacitated from referring the matter to arbitration, it does not then follow that notwithstanding this yet appointments may be valid depending on the facts of the case.
2. We therefore request the Hon’ble Chief Justice to constitute a larger Bench to look into the correctness of this judgment.” (emphasis supplied)
1313. When the reference came up on 12 July 2023, Mr R Venkataramani, the Attorney General for India, submitted that the Union Government had constituted an Expert Committee on Arbitration Law16 (chaired by Dr T K Viswanathan) to reconsider the provisions of the Arbitration Act. It was further submitted that the issues that have been raised in the present reference would fall within the broad remit of the Expert Committee. On 17 January 2024, the Constitution Bench provided three months to the Union Government to evaluate the recommendations of the Expert Committee. The Court was informed on 16 April 2024 that the government had not taken any decision on the recommendations of the Expert Committee. The Constitution Bench decided to take up the reference for final hearing.
15 2021 SCC OnLine SC 271. 16 “Expert Committee”
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B. Issues
1414. The following issues fall for the determination of this Court: a. Whether an appointment process which allows a party who has an interest in the dispute to unilaterally appoint a sole arbitrator, or curate a panel of arbitrators and mandate that the other party select their arbitrator from the panel is valid in law; b. Whether the principle of equal treatment of parties applies at the stage of the appointment of arbitrators; and c. Whether an appointment process in a public-private contract which allows a government entity to unilaterally appoint a sole arbitrator or majority of the arbitrators of the arbitral tribunal is violative of Article 14 of the Constitution.
C. Submissions
1515. Mr Gourab Banerji, Mr Neeraj Kishan Kaul and Mr S Ravi Shankar, senior counsel, and Mr Rohan Talwar, Mr George Poothan Poothicote and Mr Anirurdh Krishnan, counsel, made the following submissions: a. Party autonomy is subject to the mandatory provisions of the Arbitration Act such as Section 18 (equal treatment of parties) and Section 12(5) (independence and impartiality of the arbitration proceedings). A panel of potential arbitrators unilaterally controlled by one party suffers from a lack of independence and impartiality; b. An arbitration clause that gives one party the power to appoint a sole arbitrator will give rise to a reasonable apprehension of bias concerning the independence and impartiality of the tribunal. The test to determine the existence of reasonable apprehension of bias is that of a reasonable third person; c. Section 12(5) overrides an arbitration agreement because of the non obstante clause. Although the statute does not specifically bar an ineligible person from appointing an arbitrator, TRF (supra) and Perkins (supra) rightly held that an ineligible person could not appoint an arbitrator or curate a panel of arbitrators. The thread running through TRF (supra) and Perkins (supra) is that if a person has an interest in the outcome of the dispute,
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such person should not have any role in the process of appointing an arbitrator, including curation of a panel of potential arbitrators; d. TRF (supra) and Perkins (supra) only carved out an exception for situations where both parties are permitted to appoint an arbitrator of their choice; e. A unilaterally appointed panel is contrary to the principle of equal treatment of parties enshrined under Section 18, which is a mandatory provision. Although Section 18 is part of Chapter V dealing with the conduct of arbitral proceedings, it also applies at the stage of the constitution of arbitral tribunals. A lack of mutuality in the appointment process is a violation of Section 18 because it gives an unfair advantage to one party; f. In Lombardi Engineering Limited v. Uttarakhand Jal Vidyut Nigam Limited,17 this Court held that arbitration agreements must conform with the Constitution. An arbitration clause authorizing one party to unilaterally appoint an arbitrator or curate a panel of arbitrators is unconscionable and violative of Article 14. Section 23 of the Indian Contract Act 187218 also prohibits unconscionable contracts; g. In Voestalpine (supra), this Court directed the constitution of a broad-based panel of arbitrators. However, the constitution of such a panel restricts the choice of the other party and falls foul of the requirement of equality and impartiality; and h. CORE (supra) does not consider Voestalpine (supra), Section 11(8), and the principle of an independence and impartiality under Section 12. Further, the counter-balancing test evolved in Perkins (supra) is only applicable in situations where both parties have an equal and unfettered choice in appointing their arbitrators. It does not apply to situations where one party’s choice of arbitrators is restricted to a pre-selected list by the other party; and i. The prohibition on a person ineligible under Section 12(5) from nominating an arbitrator or a panel of arbitrators can be traced
17 [2023] 13 SCR 943 18 “Contract Act”
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to Section 18. Further, if the panel of arbitrators is curated and controlled by one party, it gives rise to “justifiable doubts” as to the independence and impartiality of the arbitrator under Section 12.
1616. Mr Tushar Mehta, Solicitor General of India, Mr K M Nataraj, Additional Solicitor General of India, Mr Arvind Kamath, Additional Solicitor General of India, Mr Mahesh Jethmalani, Ms Madhavi Divan, Mr Guru Krishna Kumar, Mr Anand Padmanabhan, Mr Naresh Kaushik, Mr Nakul Dewan, Mr P V Dinesh, senior counsel, and Mr Shashank Garg, counsel, made the following submissions: a. The principle of party autonomy is ingrained in the entire architecture of the Arbitration Act. Section 11(2) allows the parties to agree on a procedure for appointing arbitrators. The procedure contemplated under Section 11(2) can include one party preparing a panel of arbitrators and giving a choice to the other party to select its nominee from the panel; b. The duty of the Supreme Court or the High Court to appoint an independent and impartial arbitrator under Section 11(8) arises only in situations contemplated under Sections 11(4), 11(5), and 11(6) where parties fail to abide by the agreed procedure. The provision does not hinder the right of the parties to agree on a procedure for appointment of arbitrators under Section 11(2); c. The action of “appointing” or “enlisting” a person as an arbitrator is distinct from “acting” as an arbitrator. Section 12(5) expressly prohibits a person who is ineligible in terms of the Seventh Schedule from being appointed as an arbitrator. However, the Arbitration Act does not expressly prohibit such an ineligible person from appointing an arbitrator or enlisting a panel of potential arbitrators; d. The Arbitration Act does not recognize any presumed ineligibility concerning arbitrators. The ineligibility must be real and actual according to Section 12; e. The equality of treatment under Section 18 does not refer to inter se equality between the parties at the stage of agreeing upon a procedure for appointing an arbitrator. Section 18 mandates the arbitral tribunal to treat the parties with equality and give them a full opportunity to present their case. Further, Section
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18 only applies after the composition of the arbitral tribunal during the conduct of arbitral proceedings; f. The Arbitration Act provides adequate statutory safeguards for securing the independence and impartiality of arbitrators. These safeguards include: (i) Section 12(5) read the Seventh Schedule; (ii) mandatory disclosure under Sections 12(1) read with the Fifth Schedule; (iii) challenge procedures under Sections 13 and 14; and (iv) judicial review of the decision of an arbitrator under Section 34; g. Voestalpine (supra) has upheld the maintenance of a panel of potential arbitrators by public sector undertakings. It correctly laid down the broad-based principle for the operation of a panel of arbitrators. Further, it did not bar former employees of the parties to the arbitration agreement from serving as arbitrators; h. TRF (supra) erred by relying on the maxim qui facit per alium facit per se which is usually applied in the context of delegation of authority. The act of appointing or nominating an arbitrator under an arbitration clause is not an act of delegation of the appointing authority’s power. Rather, the arbitrator exercises an independent power of adjudication within the limits laid down by the pertinent arbitration agreement and the Arbitration Act; and i. Non-banking financial companies19 include arbitration clauses in the standard form contracts entered into with the borrowers. Since the nature of the dispute generally involves default in payment by the borrowers, the arbitration clause allows the NBFCs to appoint an arbitrator. Nevertheless, the arbitrator has to satisfy the criteria laid down under Section 12.
D. Principles underpinning the Arbitration Act
1717. Our courts have jurisdiction to try all suits of a civil nature except where cognizance is expressly or impliedly barred.20 Section 28 of the Contract Act bars any agreement that prohibits parties from enforcing
19 “NBFCs” 20 Section 9, Code of Civil Procedure 1908. [It reads: “9. Courts to try all civil suits unless barred – The Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.”]
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their rights under contract by usual legal proceedings in ordinary tribunals. However, the provision makes an exception to a contract by which two or more persons agree to refer the disputes that may arise between them in respect of any subject or class of subjects to arbitration.21 Thus, parties can contract out of the traditional justice dispensing mechanism to refer their disputes to arbitration.
1818. The Arbitration Act consolidates and amends the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards. It brings the domestic arbitration law in consonance with the UNCITRAL Model Law on International Commercial Arbitration 1985.22 One of the main objectives of the Arbitration Act is to make provision for an arbitral procedure that is fair, efficient and capable of meeting the needs of the specific arbitration.
1919. Article 2A of the Model Law enunciates the following principles to interpret the provisions of national arbitration laws: (i) regard for the arbitration law’s international origin; (ii) the need to promote uniformity in its application; and (iii) observance of good faith. It further provides that issues not expressly settled under the arbitration law are to be settled in conformity with the “general principles” on which the law is based.23
21 Section 28, Indian Contract Act 1872. [It reads: “28. Agreements in restraint of legal proceedings, void – Every agreement, - (a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or (b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights; is void to that extent. Exception 1 – Saving of contract to refer to arbitration dispute that may arise – This section shall not render illegal a contract, by which two or more person agree that any dispute which may arise between them in respect of any subject or class of subjects to arbitration, and that only the amount awarded is such arbitration shall be recoverable in respect of the dispute so referred. Exception 2 – Saving of contract to refer questions that have already arisen – Nor shall this section render illegal any contract in writing, by which two or more person agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration. 22 “Model Law” 23 Article 2A, Arbitration Act. [It reads: “Article 2A International origin and general principles (1) In the interpretation of this Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith. (2) Questions concerning matters governed by this Law which are not expressly settled in it are to be settled in conformity with the general principles on which this Law is based.”]
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2020. The principles of interpretation suggested by the Model Law require courts to assume a global perspective consistent with the prevailing practice in courts of other jurisdictions and arbitral tribunals.24 The Model Law encourages resort to “general principles” to fill the gaps in the national arbitration laws.25 The term “general principles” is intended to refer to principles widely accepted by legal systems.26 The above principles of interpretation will also apply when interpreting the provisions of the Arbitration Act.
i. Party autonomy
2121. Section 7 defines an arbitration agreement to mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The arbitration agreement records the consent of the parties to submit their disputes to arbitration.27 Arbitration is premised on a consensual agreement to submit disputes to (a) a decision-maker chosen by or for the parties; (b) to render a binding resolution of the dispute following adjudicatory procedures which afford the parties an opportunity to be heard. The right to arbitrate is a private right of the parties to adjudicate in personam disputes.
2222. The basis of any arbitration is the freedom of the parties to agree to submit their disputes to an individual or to a panel of individuals whose judgment they are prepared to trust and obey. Party autonomy is fundamental to international commercial arbitration because it allows the parties to design the arbitration proceedings to suit their needs and commercial reality. Party autonomy has been described by this Court as the “brooding and guiding spirit”28 and “backbone”29 of arbitrations. The principle of minimum judicial interference supplements the autonomy of parties by prohibiting courts from
24 Ilias Bantekas, ‘International Origin and General Principles’ in UNCITRAL Model Law on International Commercial Arbitration: A Commentary (Cambridge University Press, 2020) 44. 25 Ibid, at 48 26 Gary Born (supra) 2971; Emmanuel Gaillard, Legal Theory of International Arbitration’ (Brill, 2010) 55 27 Cox and Kings Ltd v. SAP India Pvt Ltd, 2023 INSC 1051 [60] 28 Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2016) 4 SCC 126 [5] 29 Centrotrade Minerals & Metals Inc v. Hindustan Copper Ltd. (2017) 2 SCC 228 [38]
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interfering in arbitral proceedings unless mandated by the law.30 This principle respects the autonomy of the parties to mutually chart the course of the arbitral proceedings.
2323. The Arbitration Act has given pre-eminence to party autonomy throughout the arbitral process. The Arbitration Act has used phrases such as “unless otherwise agreed by the parties”,31 “failing any agreement”,32 “the parties are free to agree”,33 “failing such agreement”, 34 and “unless the agreement on the appointment procedure provides other means”35 to recognise the autonomy of parties to determine the arbitral proceedings. The use of the above phrases also indicates that an arbitrator is bound by the procedures agreed upon between the parties.36
2424. Some of the relevant provisions of the Arbitration Act which reflect the principle of party autonomy are encapsulated below: a. Section 10 allows parties the freedom to decide the number of arbitrators; b. Section 11(2) allows parties the freedom to agree on a procedure for appointing the arbitrator or arbitrators; c. The Proviso to Section 12(5) allows parties to waive the applicability of the provision by an express agreement in writing after the dispute has arisen; and d. Section 14 allows parties to mutually terminate the mandate of an arbitrator.
2525. Additionally, the parties are free to agree on the procedures to be followed by the arbitral tribunal,37 the place of arbitration,38 the date
30 Section 5, Arbitration Act. [It reads: “5. Extent of judicial intervention – Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”] 31 Sections 3, 11(1), 14(2), 15(3), 15(4), 20(3), 21, 23(3), 24(1), 26, 29(1), 31(7a), 33(4), Arbitration Act 32 Sections 11(3), 11(5), 13(2), 19(3), 20(2), 22(2), Arbitration Act 33 Sections, 11(2), 13(1), 19(2), 20(1), 22(1), Arbitration Act 34 Section 34(2)(a)(v), Arbitration Act 35 Section 11(6), Arbitration Act 36 N S Nayak and Sons v. State of Goa (2003) 6 SCC 56 [14]; Sree Kamatchi Amman Constructions v. Railways (2010) 8 SCC 767 [19] 37 Section 19, Arbitration Act 38 Section 20, Arbitration Act
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of commencement of arbitral proceedings,39 the language to be used in the arbitral proceedings,40 procedure for hearings and written proceedings,41 consequence of a default by a party,42 appointment of experts,43 and the manner of decision making by the arbitral tribunal.44 Thus, the Arbitration Act recognises and enforces mutual commercial bargains and understanding between the parties at all stages of the arbitration proceedings. However, the autonomy of the parties under the Arbitration Act is not without limits. It is limited by certain mandatory provisions of the Arbitration Act.
ii. Mandatory provisions
2626. Part I of the Arbitration Act applies where the place of arbitration is in India.45 Section 4 deals with a waiver of the right of a party to object in the following terms: “4. Waiver of right to object. – A party who knows that – (a) any provision of this Part from which the parties may derogate, or (b) any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non- compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.”
2727. Section 4 is a deeming provision.46 It deems that a party has waived its right to object if it proceeds with the arbitration without stating its objection to non-compliance of any provisions from which the parties may derogate or of any requirement under the arbitration
39 Section 21, Arbitration Act 40 Section 22, Arbitration Act 41 Section 24, Arbitration Act 42 Section 25, Arbitration Act 43 Section 26, Arbitration Act 44 Section 29, Arbitration Act 45 Section 2(2), Arbitration Act 46 Shree Subhlaxmi Fabrics (P) Ltd. v. Chand Mal Baradia (2005) 10 SCC 704 [9]
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agreement.47 Importantly, Section 4 distinguishes between derogable (non-mandatory) and mandatory provisions.48
2828. Section 4 is based on Article 4 of the Model Law.49 The purpose of incorporating Section 4 is to inform the arbitrators of the principle of waiver.50 Peter Binder suggests that Article 4 aims to prohibit the adoption of delay tactics by parties and contribute to the fluency of the proceedings.51 A party to arbitration has a right to object to any non-compliance with procedural requirements. Section 4 implies a waiver of this right under certain conditions based on the principle of waiver or estoppel.52 The procedural default at issue must be stipulated either in the arbitration agreement or a non-mandatory provision under Part I of the Arbitration Act. If the arbitration agreement is silent on a procedural point, the provisions of the Arbitration Act take effect. According to Section 4, a party cannot insist on compliance with non-mandatory provisions of the Arbitration Act if it fails to make a timely objection.53 Section 4 of the Arbitration Act necessarily implies that parties cannot proceed with arbitration in derogation of a mandatory provision.
2929. The initial draft of Article 4 of the Model Law did not make an exception for mandatory provisions. Therefore, suggestions were made to “soften” the provision by limiting “the waiver rule to non-compliance with non-mandatory provisions.”54 Further, a proposal was also made to include a list of mandatory provisions under the Model Law. It was suggested that such a list “would make it unnecessary to include in
47 BSNL v. Motorola India (P) Ltd. (2002) SCC 337. [“39. Pursuance to Section 4 of the Arbitration and Conciliation Act, 1996, a party which knows that a requirement under the arbitration agreement has not been complied with and still proceeds with the arbitration without raising an objection, as soon as possible, waived their right to object.”] 48 A/CN.9/246 (44) 49 Article 4, Model Law [It reads: “A party who knows that any provision of this Law from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time-limit is provided therefor, within such period of time, shall be deemed to have waived his right to object.”] 50 Howard Holtzmann and Joseph Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration 196 51 Peter Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdiction (2nd edn, 2005) 49 52 A/CN.9/264 (17) 53 Howard Holtzmann and Joseph Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration (Kluwer Law) 197 54 A/CN.9/245 [178]
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the non-mandatory provisions such wording as “unless otherwise agreed by the parties.”55 The Secretariat considered it unnecessary to include a list of mandatory provisions given the overall scheme of the Model Law.56 It was also of the opinion that mandatory provisions could be discerned from the content of such provisions.
3030. Holtzmann and Neuhaus give the following examples of mandatory provisions under the Model Law: “Examples of provisions that appear to be mandatory and therefore cannot be waived under Article 4 are the following: the requirement that the arbitration agreement be in writing (Article 7(2)); the requirement that the parties be treated with equality and that each party be given a full opportunity of presenting his case (Article 18); the requirement that a party be given notice of any hearing and be sent any materials supplied to the arbitral tribunal by the other party (Article 24(2), (3)); the requirement that an award – including an award on agreement terms – be in writing, that it state its date and place, and that it be delivered to the parties (Article 30(2), 31(1), (3), (4))”57
3131. The above extract suggests that an arbitration agreement entered into by the parties is subject to certain well-defined and mandatory legal principles. For instance, Section 34(2)(a)(v) allows for refusal of enforcement of arbitral awards if the composition of the arbitral tribunal or arbitral procedure was not following the agreement of the parties unless such agreement conflicts with the mandatory provisions
55 Composite draft text of a model law on international commercial arbitration: some comments and suggestions for consideration, A/CN.9/WG.II/WP.50 56 Composite draft text of a model law on international commercial arbitration: some comments and suggestions for consideration: note by the secretariat (A/CN.9/WG.II/WP.50) [The secretariat gave the following reasons for not providing a list of mandatory provisions in the Model Law itself: “Firstly, a considerable number of provisions are obviously by their content of a mandatory nature. Secondly, there are a number of provisions granting freedom to the parties, accompanied by suppletive rules failing agreement by the parties; here the question of mandatory nature seems to be a philosophical one and equally redundant. Thirdly, with respect to some draft articles only a part of the provisions (e.g. a time limit) is non-mandatory. Fourthly, in respect of some of the provisions already decided to be non- mandatory, the Working Group was of the view that this should, for the sake of emphasis, be expressed in the individual provision, despite the general listing in article 3. Fifthly, it is suggested that, in addition to the provisions already decided to be non-mandatory and drafted accordingly, […] there are only few further provisions which may be regarded as non-mandatory and, if so, could be easily marked as such by adding the words “unless otherwise agreed by the parties;”] 57 Holtzmann and Neuhaus (supra) 198
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of the law.58 The composition of the arbitral tribunal or the arbitral procedure must not only be in accordance with the agreement of the parties but also be consistent with the mandatory standards laid down under the Arbitration Act.59 In case of a conflict, mandatory provisions of the Arbitration Act prevail over the arbitration agreement between the parties.60
3232. Under the Arbitration Act, the mandatory provisions must be deduced from their content. For instance, the use of the phrase “unless otherwise agreed by the parties” is an indicator of the fact that the provision is derogable because it gives priority to the agreement of the parties. In contrast, the use of the word “shall” in a provision is an indicator that the legislature intended to give it a mandatory effect. However, the use of “shall” is not the sole indicator to determine the mandatory nature of a provision. The provision must be interpreted by having regard to its text and the context to determine its nature.61
3333. As opposed to the Indian approach, the UK Arbitration Act 1996 lists the mandatory provisions under Schedule I.62 In this context, Section 4 provides that the mandatory provisions have effect notwithstanding any agreement to the contrary.63 It further provides that the non-
58 Section 34(2)(a)(v), Arbitration Act. [It reads: “(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or failing, such agreement, was not in accordance with this Part.”] 59 Report of the United Nations Commission on International Trade Law on the work of its eighteenth session (3-21 June 1985) Supplement No. 17 (A/40/17) [290]. [The report states: “290. As regards the standards set forth in the subparagraph, it was understood that priority was accorded to the agreement of the parties. However, where the agreement was in conflict with a mandatory provision of “this Law” or where the parties had not made an agreement on the procedural point at issue, the provisions of “this Law”, whether mandatory or not, provided the standards against which the composition of the arbitral tribunal and the arbitral procedure were to be measured.”] 60 A/CN.9/246, para 135 61 State of UP v. Babu Ram Upadhya (1961) 2 SCR 679 [29]; Raza Buland Sugar Co. Ltd. v. Municipal Board, 1964 SCC OnLine SC 119 [8] 62 Schedule I, UK Arbitration Act 1996. [Section 33 which imposes a legal duty on the tribunal to act fairly and impartially is one of the mandatory provisions under the UK legislation.] 63 Section 4, UK Arbitration Act. [It reads: “4. Mandatory and non-mandatory provision. The mandatory provisions of this Part are listed in Schedule 1 and have effect notwithstanding any agreement to the contrary. The other provisions of this Part (the “non-mandatory provisions”) allow the parties to make their own arrangements by agreement by provide rules which apply in the absence of such agreement. The parties may make such arrangements by agreeing to the implication of institutional rules or providing any other means by which a matter may be decided. It is immaterial whether or not the law applicable to the parties’ agreement is the law of England and Wales or, as the case may be, Northern Ireland.
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mandatory provisions allow the parties to make their arrangements by agreement. Lord Mustill and Stewart Boyd term Section 4 as one of the ‘four pillars’ of the UK Arbitration Act.64 They observe that the provision is one of the instances indicating the influence of the state on the internal law of arbitration.65
iii. Appointment of arbitrators
3434. Section 10 provides that “parties are free to determine the number of arbitrators, provided that such number shall not be an even number.”66 If parties fail to determine the number of arbitrators, the arbitral tribunal shall consist of a sole arbitrator. Section 11 pertains to the appointment of arbitrators. Section 11(2) provides that subject to Section 11(6), parties “are free to agree on a procedure for appointing the arbitrator or arbitrators.” Section 11 provides recourse to the following contingencies if the parties fail to adhere to the agreed procedure for the appointment of an arbitrator or arbitrators: “(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator; (4) If the appointment procedure in sub-section (3) applies and – (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the
The choice of law other than the law of England and Wales or Northern Ireland as the applicable law in respect of a matter provided for by a non-mandatory provision of this Part is equivalent to an agreement making provision about that matter. For this purpose an applicable law determined in accordance with the parties’ agreement, or which is objectively determined in the absence of any express or implied choice, shall be treated as chosen by the parties.”] 64 Lord Mustill and Stewart Boyd, Commercial Arbitration (2nd edn, Butterworths 2001) 23. 65 Ibid, at 57. 66 Section 10, Arbitration Act. [It reads: “10. Number of arbitrators – (1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number. (2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of sole arbitrator.”]
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Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company
third arbitrator within thirty days from the date of their appointment, The appointment shall be made, on an application of a party, by the Supreme Court or, as the case may be, by the High Court or any person or institution designated by such Court. (5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court. (6) Where, under an appointment procedure agreed upon by the parties, - (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, A party may request the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court to take necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.”
3535. In terms of the legislative scheme in Section 11, parties are free to agree on a procedure for appointing the arbitrator or arbitrators. The procedure for appointment agreed by the parties is subject to the power of the Supreme Court or the High Courts under Section 11(6) to appoint an arbitrator in cases where the parties do not agree on a procedure or if the parties or the arbitrator fail to act following the agreed procedure. Thus, Section 11(6) allows judicial involvement as a default mechanism and not as an independent basis for choosing the arbitrators irrespective of the parties’ agreement. Further, parties can invoke Sections 11(3), 11(4) or 11(5), as the case may be, only upon the failure of the agreed procedure for appointment of arbitrators.
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