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the 2015 amendment, the Arbitration Act provides an extensive list of circumstances which may give rise to justifiable doubts as to an arbitrator’s independence or impartiality. The enumeration of categories under the Fifth and Seventh Schedules is inspired by the Orange and Red List of the IBA Guidelines on Conflicts of Interest in International Arbitration.215 In HRD Corporation (supra) this Court observed that the categories listed under the Fifth and Seventh Schedules must be construed by taking a “broad commonsensical approach” without restricting or enlarging the words.

111Copy pinpoint111. Section 12 of the Arbitration Act places a duty on a person who is approached for appointment as an arbitrator to disclose in writing any direct or indirect circumstances such as: (i) the existence of any direct or indirect past or present relationship with any of the parties; (ii) interest in any of the parties; or (iii) interest in relation to the subject-matter in dispute, whether financial, business, professional, or other kind. The disclosure of circumstances made by an arbitrator is a procedural safeguard which allows the parties to assess whether disqualification of the arbitrator is required for a case.216 Disclosure allows an arbitrator to overcome an appearance of bias. The parties may challenge the appointment of an arbitrator if the circumstances give rise to “justifiable doubts” as to their independence or impartiality.

112Copy pinpoint112. In Voestalpine (supra), this Court explained the distinction between independence and impartiality thus: “22. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the

215 IBA Guidelines on Conflicts of Interest in International Arbitration (25 May 2024) available at: https:// www.ibanet.org/document?id=Guidelines-on-Conflicts-of-Interest-in-International-Arbitration-2024 216 Koulis v. Cyprus, Application No. 48781/12. [“63. Given the importance of appearances, however, when such a situation (which can give rise to a suggestion or appearance of bias) arises, that situation should be disclosed at the outset of the proceedings and an assessment should be made, taking into account the various factors involved in order to determine whether disqualification is actually necessitated in the case. This is an important procedural safeguard which is necessary in order to provide adequate guarantees in respect of both objective and subjective impartiality.”]

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circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration proceedings.”

113Copy pinpoint113. The fundamental premise of arbitration is the impartial resolution of disputes between parties according to the arbitration agreement.217 Unlike a judge, an arbitrator is generally engaged in occupations and professions before, during, and after the arbitral proceedings. The arbitrators may also have had prior commercial or professional contacts and relationships with either of the parties to the dispute. In such circumstances, arbitration law has evolved safeguards and mechanisms to ensure the independence and impartiality of the arbitral procedure. The independence of an arbitrator is generally considered with respect to the relationships or links between the arbitrator and one of the parties, whether financial, professional, employment or personal.218 The independence of an arbitrator can be deduced objectively because the dependence arises from the relationship between an arbitrator and one of the parties, or somebody closely connected with one of the parties.219 In comparison, the existence of impartiality is inferred from facts and circumstances surrounding an arbitrator’s exercise of quasi-judicial functions.220

114Copy pinpoint114. An arbitrator will not be automatically disqualified in situations where the relationship of an arbitrator with parties does not fall under the categories mentioned under the Seventh Schedule. Yet, either of the parties may have “justifiable doubts” about the independence or impartiality of the arbitrator. The party challenging the appointment of an arbitrator does not need to demonstrate that the arbitrator lacks independence or impartiality. It only needs to show that there are possible “doubts” as to an arbitrator’s independence or impartiality.221 The purpose behind incorporating the word “justifiable” under Section 12 was to establish an objective standard for impartiality and independence.222 Resultantly, the possibility of “doubts” must

217 Jivraj v. Hashwani, [2011] UKSC 40 [45] 218 Redfern and Hunter (supra) 226 219 Article 3, IBA Rules of Ethics for International Arbitrator 1987 220 Peter Binder (supra) 117 221 Gary Born (supra) 1911, 1912. [Gary Born suggests that: “Statutory (and judicial) references to the “risks” or “possibility” of partiality are preferable to formulations including “doubt” or “suspicion.” The latter phrases connote a subjective inquiry, as well as a flavor of speculation, which are misleading. The better approach is instead to consider what objective risk (or possibility) of unacceptable partiality exists.”] 222 David Caron and Lee Caplan, The UNCITRAL Arbitration Rules: A Commentary (2nd edn, Oxford University Press, 2013) 208

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be “real” in the sense that they should be derived from the objective circumstances disclosed by an arbitrator.

115Copy pinpoint115. The consideration of possible “doubts” must be undertaken from the perspective of a “fair-minded and informed person” rather than the subjective views of the parties or the arbitrators. According to Gary Born, the standard of proof adopted under Article 12 of the Model Law is relatively low to ensure “the integrity of the arbitral tribunal and arbitral process, particularly given the extremely limited review available for substantive or procedural errors by the arbitrators.”223 The issue of arbitrator bias is to be resolved by applying the test of the real likelihood of bias in the given facts and circumstances.

116Copy pinpoint116. Section 12(5) automatically disqualifies any person whose relationship with the parties or counsel or subject matter of the dispute falls under any of the categories mentioned under the Seventh Schedule. The categories listed in the Seventh Schedule in essence denote situations where an arbitrator might have a pecuniary, proprietary, or cause-based interest in the arbitration. For instance, employees of either of the parties are barred from acting as an arbitrator because they have an immediate financial and cause-based interest in the arbitration. If such an employee is appointed as an arbitrator, they would be sitting as a judge in their cause because they have a pecuniary interest in the outcome of the case.

117Copy pinpoint117. In Voestalpine (supra), this Court observed that an individual who had previously served the government, a public sector corporation or a statutory corporation but had no connection to the party in dispute could not be held to be ineligible for appointment as an arbitrator. The Court observed: “25. 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

223 Garn Born (supra) 1912

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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.” The Court refers to the fact that the individual had no connection with DMRC, the party in dispute, at two places in the above extract. Hence, the fact that he had previously been employed with government or a corporation controlled by government (but not DMRC which was the disputant) was held not to render the individual ineligible.

118Copy pinpoint118. In G F Toll Road (supra), the arbitration contract between the State government and the contractor allowed for the constitution of a three- member arbitral tribunal “of whom each party shall select one and the third arbitrator shall be appointed under the Rules of Arbitration of the Indian Council of Arbitration.” After disputes arose between the parties, the State government appointed a retired Engineer-in- Chief as their arbitrator. The contractor and the Indian Council of Arbitration224 challenged the appointment of the State’s arbitrator on the ground that he was a former employee of the State government. The issue before this Court was whether Section 12(5) read with the Seventh Schedule disqualifies a former employee from being appointed as an arbitrator.

119Copy pinpoint119. Justice Indu Malhotra, writing for the Bench of two judges, held that the apprehension of bias against the State’s arbitrator was unjustified because: (i) the arbitrator was employed by the State over ten years ago; (ii) the use of the expression “is an” under Entry 1 of the Seventh Schedule indicates that an arbitrator is disqualified

224 “ICA”

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only if they are current employees of one of the parties; and (iii) the expression “other” under the said entry indicates a relationship other than an employee. It was observed that the expression “other” cannot “be used to widen the scope of the entry to include past/ former employees.”225

120Copy pinpoint120. The categories mentioned under the Seventh Schedule are such that it is difficult to distinguish the interests of an arbitrator from those of a party to which an arbitrator is connected. In such cases, the issue is whether the outcome of the arbitration will realistically affect the arbitrator’s interests. The law prioritises the objective criterion of independence over the subjective criterion of impartiality. Once it is established that an arbitrator falls under any of the categories mentioned in the Seventh Schedule, they are automatically disqualified without any investigation into whether or not there is any real likelihood of bias. Since the ineligibility envisaged under Section 12(5) goes to the root of the appointment, an application may be filed under Section 14(2) of the Arbitration Act to the court to decide on the termination of the arbitrator’s mandate.226

121Copy pinpoint121. An objection to the bias of an adjudicator can be waived.227 A waiver is an intentional relinquishment of a right by a party or an agreement not to assert a right.228 The Arbitration Act allows parties to waive the application of Section 12(5) by an express agreement after the disputes have arisen. However, the waiver is subject to two factors. First, the parties can only waive the applicability of Section 12(5) after the dispute has arisen. This allows parties to determine whether they will be required or necessitated to draw upon the services of specific individuals as arbitrators to decide upon specific issues. To this effect, Explanation 3 to the Seventh Schedule recognizes that certain kinds of arbitration such as maritime or commodities arbitration may require the parties to draw upon a small, specialized pool.229 The

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second requirement of the proviso to Section 12(5) is that parties must consciously abandon their existing legal right through an express agreement. Thus, the Arbitration Act reinforces the autonomy of parties by allowing them to override the limitations of independence and impartiality by an express agreement in that regard.

122Copy pinpoint122. The proviso to Section 12(5) is a reflection of the common law doctrine of necessity. The nemo judex rule is subject to the doctrine of necessity and yields to it.230 The doctrine of necessity allows an adjudicator who may be disqualified because of their interest in the matter to continue to adjudicate because of the necessity of the circumstances.231 The proviso to Section 12(5) allows parties to exercise their autonomy to determine if there is a necessity to waive the applicability of the ineligibility prescribed under Section 12(5). Thus, common law principles and doctrines are adjusted to subserve the fundamental principles of arbitration by giving priority to the autonomy of parties.

123Copy pinpoint123. In Bharat Broadband Network Ltd. (supra), this Court held that the proviso to Section 12(5) requires an express agreement in writing, that is, an agreement made in words as opposed to an agreement that can be inferred by conduct.232 It was explained that such an agreement must be made by both parties with full knowledge of the fact that although a particular person is ineligible to be appointed as an arbitrator, the parties still have full faith and confidence in them to continue as an arbitrator.233 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. This balances the autonomy of parties and the principles of an independent and impartial arbitral tribunal.

230 Tulsiram Patel (supra) [101]; Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664 [44] 231 Charan Lal Sahu v. Union of India (1990) 1 SCC 613 [105] 232 Bharat Broadband Network Ltd. (supra) [20] 233 Bharat Broadband Network Ltd. (supra) [20] [This Court observed: “20. […] It is thus necessary that there be an “express” agreement in writing. This agreement must be an agreement by which both parties, with full knowledge of the fact that Shri Khan is ineligible to be appointed as an arbitrator, still go ahead and say that they have full faith and confidence in him to continue as such.”]

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vi. Unilateral appointment of arbitrators is violative of the equality clause under Section 18

124Copy pinpoint124. The doctrine of bias as evolved in English and Indian law emphasizes independence and impartiality in the process of adjudication to inspire the confidence of the public in the adjudicatory processes. Although Section 12 deals with the quality of independence and impartiality inherent in the arbitrators, the provision’s emphasis is to ensure an independent and impartial arbitral process.

125Copy pinpoint125. Fali Nariman, distinguished lawyer and erudite jurist, in an article on ‘Standards of Behaviour of Arbitrators’,234 opined that the level of probity expected of arbitrators is no less, and perhaps more stringent than what is expected of judges: “Though litigation is compulsory and arbitration is consensual, both are judicial processes of an adversarial character. That is why arbitration has always been regarded as quasi-judicial. Standards of behaviour expected of arbitrators – with reference to their impartiality and their independence – are no less stringent than that demanded of judges; in fact, arbitrators are expected to behave a shade better since judges are institutionally insulated by the established court-system, their judgments being also subjected to the corrective scrutiny of an appeal.”

126Copy pinpoint126. The agreement on the number of arbitrators is a matter of party autonomy. However, the choice of arbitrators has a direct effect on the conduct of arbitral proceedings. In commercial cases, the choice of the number of arbitrators is usually between one and three. The parties select the number of arbitrators by considering factors such as the needs of a particular dispute, costs, and efficiency.235 In case parties cannot agree upon the number of arbitrators, national arbitration legislation specifies the number of arbitrators to be appointed. For instance, Article 10(2) of the Model Law provides that if the parties fail to determine the number of arbitrators, three arbitrators will be appointed.236 Interestingly, the Arbitration Act departs from the

234 Fali Nariman, ‘Standards of Behaviour of Arbitrators’ (1988) 4(4) Arbitration International 311, 312. 235 Redfern and Hunter (supra) 210 236 Article 10(2), Model Law. [It reads: “Article 10. Number of arbitrators

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Model Law by providing that the arbitral tribunal shall consist of a sole arbitrator if parties fail to determine the number of arbitrators.237

127Copy pinpoint127. Reference of disputes to a sole arbitrator has various advantages, including easy arrangements of meetings or hearings, reduced expenses since the parties will only have to bear the expense of one arbitrator, and speedy decision-making.238 In the case of the appointment of a sole arbitrator, the decision-making vests in the hands of one person. This poses a greater risk of bias against the weaker party, especially if the arbitrator is unilaterally appointed by the other party.

128Copy pinpoint128. If a person having a financial interest in the outcome of the arbitral proceedings unilaterally nominates a sole arbitrator, it is bound to give rise to justifiable doubts on the independence and impartiality of the arbitrator. The possibility of bias by the arbitrator is real because the person who has an interest in the subject matter of the dispute can chart out the course of the entire arbitration proceeding by unilaterally appointing a sole arbitrator. A party may select a particular person to be appointed as a sole arbitrator because of a quid pro quo arrangement between them. Moreover, the fact that the sole arbitrator owes the appointment to one party may make it difficult to decide against that party for fear of displeasure. It is not possible to determine whether the sole arbitrator will be prejudiced, but the circumstances of the appointment give rise to the real possibility of bias.

129Copy pinpoint129. Equal treatment of parties at the stage of appointment of an arbitrator ensures impartiality during the arbitral proceedings. A clause that allows one party to unilaterally appoint a sole arbitrator is exclusive and hinders equal participation of the other party in the appointment process of arbitrators. Further, arbitration is a quasi-judicial and adjudicative process where both parties ought to be treated equally and given an equal opportunity to persuade the decision-maker of the merits of the case. An arbitral process where one party or its

(1) The parties are free to determine the number of arbitrators. (2) Failing such determination, the number of arbitrators shall be three.”] 237 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 a sole arbitrator.”] 238 Redfern and Hunter (supra) 211

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proxy has the power to unilaterally decide who will adjudicate on a dispute is fundamentally contrary to the adjudicatory function of arbitral tribunals.239

130Copy pinpoint130. In comparison, a three-member arbitral tribunal usually allows each party to nominate one arbitrator of their choice, with the third arbitrator being appointed either by the two party-appointed arbitrators or by agreement of parties.240 The fact that both parties nominate their respective arbitrators gives them “a sense of investment in the arbitral tribunal.”241 A three-member arbitral tribunal also enhances the quality of the adjudicative deliberations and ensures compliance with due process.242 According to Gary Born, the major advantage of a three-member tribunal is that the parties can participate in the selection of the tribunal to the maximum extent possible.243

131Copy pinpoint131. In a three-member tribunal, each of the parties seeks to appoint a co-arbitrator. However, the third arbitrator is usually appointed by a process which allows equal participation of both parties in the appointment process. The equal participation of parties enables the appointment of an independent and impartial third arbitrator. Hence, any perceived tilt of an arbitrator in favour of the party which nominated that arbitrator is offset by the appointment of the third arbitrator in the course of a deliberative process involving both the arbitrators or as envisaged in the agreement between parties. Perkins (supra) rightly observed 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.244 This counter-balancing will ideally apply only in situations where the arbitrators are appointed by the parties in the exercise of their genuine party autonomy. TRF (supra) and Perkins (supra) have been relied upon by this Court on numerous occasions, including in Glock Asia-Pacific Limited v. Union of India245 and Lombardi Engg Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd.246

239 Gary Born (supra) 1952 240 Ibid, 211 241 Ibid. 242 Gary Born (supra) 1794 243 Ibid, at 1796. 244 Perkins (supra) [16] 245 (2023) 8 SCC 226 [20] 246 (2024) 4 SCC 341 [85]

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132Copy pinpoint132. In Voestalpine (supra) and CORE (supra), one of the parties curated a panel of arbitrators and mandated the other party to select their arbitrator from the panel. Since the curation of the list is exclusively undertaken by one party, the other party is effectively excluded from the process of curating the panel from which exclusively, the appointment of an arbitrator is to be made. The other party has to mandatorily select its arbitrator from a curated panel, restricting their freedom to appoint an arbitrator of their choice. This is against the principle of equal treatment contained under Section 18. In this situation, there is no effective counter-balance because both parties do not participate equally in the process of appointing arbitrators. The party curating the panel can restrict the choice of the party only to a person who is on the panel selected by the other party and to no other person.

133Copy pinpoint133. Many PSUs are regularly involved in arbitration disputes and constantly need the services of arbitrators. Such institutions often maintain a pool of potential arbitrators with the sole object of having a ready pool of qualified professionals who have committed their time and consented to act as arbitrators for fixed fees. The Arbitration Act does not prohibit parties to an arbitration agreement from maintaining a curated panel of potential arbitrators. However, the problem arises when the PSUs make it mandatory for other parties to select their nominees from the curated panel of arbitrators. When a PSU exercises its discretion to curate a panel, the very factor that the PSU is choosing only a certain number of persons as potential arbitrators and not others will raise a reasonable doubt in the mind of a fair-minded person. The PSUs may conceivably have nominated a person on the panel of potential arbitrators because they have a certain predisposition in favour of the former. This doubt is reinforced when the other party is given no choice but to select its arbitrator from the curated panel.

134Copy pinpoint134. In CORE (supra), the three-member tribunal was sought to be constituted in the following manner: (i) the Railways would suggest at least four names of retired railway officers; (ii) the contractor would select two names out of the panel for appointment as their arbitrator; (iii) The General Manager (of the Railways) would thereafter choose at least one person out of the two to be appointed as the contractor’s arbitrator; and (iv) The General Manager would proceed to appoint

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the balance arbitrators from the panel or outside the panel and also indicate the presiding arbitrator.

135Copy pinpoint135. Such an arbitrator-appointment clause is likely to give rise to justifiable doubts as to the independence and impartiality of arbitrators for two reasons: (i) the contractor is restricted to choosing its arbitrator from the panel of four arbitrators nominated by the party who is a disputant; and (ii) the contractor’s choice is further constrained because it is made subject to the decision of the General Manager who will choose one among the two persons suggested by the party. Since the contractor has to select its arbitrator from a curated panel, the arbitration clause does not allow the contractor equal participation in the appointment of their arbitrator. Moreover, the clause allows the General Manager to appoint the balance arbitrators from either the panel or outside the panel. Thus, the process of appointing the arbitrators is unequal because the General Manager can go beyond the panel of four potential arbitrators, while the contractor is bound by the names enlisted in the panel.

136Copy pinpoint136. In a three-member tribunal, the independence and impartiality of a third or presiding arbitrator are prerequisites to the integrity of the arbitral proceedings. In CORE (supra), the arbitration clause allowed the General Manager to unilaterally nominate the presiding officer out of the panel of three arbitrators. The clause does not countenance any participation from the contractor in the process of appointing or nominating the presiding officer. Thus, the process of appointing and nominating the presiding officer is unequal and prejudiced in favour of the Railways. The fact that the General Manager is nominating the presiding officer gives rise to a reasonable doubt about the independence and impartiality of the entire arbitration proceedings.

137Copy pinpoint137. Given the above discussion, it needs reiteration that the Arbitration Act does 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. The PSUs can give a choice to the other party to select its arbitrators from the curated list provided the other party expressly waives the applicability of the nemo judex rule.

G. Public-private contracts and public policy

138Copy pinpoint138. An arbitration is a creature of contract between the parties. An arbitration agreement must meet the criteria laid down under Section

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7, in addition to satisfying the principles of contract law prescribed under the Contract Act to be considered valid.247 According to the Contract Act, a promisor makes a proposal when they signify to the promisee their willingness to do or abstain from doing anything, to obtain the assent of the promisee to such act or abstinence. The proposal is said to be accepted when the promisee signifies their assent. A proposal becomes a promise upon acceptance. Every promise and every set of promises, forming the consideration248 for each other, is an agreement. An agreement enforceable by law is a contract.

i. Unconscionability under the Contract Act

139Copy pinpoint139. The Contract Act accounts for unconscionability under Section 16 relating to undue influence. It provides that a contract induced by undue influence is unconscionable. A contract is induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage.249 A contract induced by undue influence is voidable at the option of the party whose consent was caused by undue influence.250 Illustration (c) to Section 16 pertains to an unconscionable bargain:

247 See Cox and Kings [63]. 248 Section 2(d) defines consideration as follows: [“(d) When, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;”] 249 Section 16, Contract Act. [It reads: “16. “Undue Influence” defined – (1) A contract is said to be induced by “undue influence” where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. (2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another – (a) where he hold a real or apparent authority over the other or where he stands in a fiduciary relation to the other; or (b) where he makes a contract with a person whose mental capacity is temporarily or permanently affect by reason of age, illness, or mental or bodily distress. (3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other. Nothing in this sub-section shall affect the provision of Section 111 of the Indian Evidence Act, 1871 (I of 1872).”] 250 Section 19A, Contract Act.

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“(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was induced by undue influence.”

140Copy pinpoint140. Section 23 pertains to unlawful consideration or object of an agreement: “23. What considerations and objects are lawful, and what not – The consideration or object of an agreement is lawful, unless – it is forbidden by law; or is of such a nature that if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy.”

141Copy pinpoint141. Although the Contract Act does not define the expression “public policy”, it has generally been defined as a principle of judicial legislation or interpretation founded on the current needs of the community.251 Section 23 codified the common law position that “all contracts and agreements which have as their object anything contrary to principles of sound policy are void.”252 The prevalent view in the nineteenth century was that the doctrine of public policy should be governed by precedent and courts should refrain from inventing new heads of public policy. The purpose behind limiting the grounds of public policy was to respect the freedom of contract of parties, which was also considered as a paramount policy in common law.253 Under the common law, a contract for marriage brokerage, creation of a perpetuity, in restraint of trade, gaming or wagering, or assisting the King’s enemies were unlawful and opposed to public policy.254

251 Percy H Winfield, ‘Public Policy in the English Common Law’ (1928) 42(1) Harvard Law Review 76, 92. 252 Stephen Waddams, Principle and Policy in Contract Law (Cambridge University Press, 2011) 152. 253 Ibid, at 158 254 Janson v. Driefontein Consolidated Mines, Limited, [1902] 2 AC 484

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142Copy pinpoint142. This Court has adopted a flexible approach to the application of the doctrine of public policy to contracts. In Gherulal Parakh v. Mahadeodas Maiya,255 this Court had to decide on the validity of a wagering contract under Section 23 of the Contract Act. The three- Judge Bench observed that public policy is a branch of common law and can be applied in clear and incontestable cases of harm to the public. It was further observed that the doctrine could be invoked by evolving “a new head under exceptional circumstances of a changing world.” The court must determine public policy by considering the welfare of society and the social consequences of the rule propounded, especially in light of the factual evidence available to its probable result.256 In Delhi Transport Corporation v. DTC Mazdoor Congress,257 this Court held that courts can rely upon the Constitution as a source of public policy. In his concurring opinion, Justice Ramaswamy observed: “292. From this perspective, it must be held that in the absence of specific head of public policy which covers a case, then the court must in consonance with public conscience and in keeping with public good and public interest invent new public policy and declare such practice or rules that are derogatory to the Constitution to be opposed to public policy. The rules which stem from the public policy must of necessity be laid to further the progress of the society in particular when social change is to bring about an egalitarian social order through rule of law. In deciding a case which may not be covered by authority courts have before them the beacon light of the trinity of the Constitution and the play of legal light and shade must lead on the path of justice, social, economic and political. Lacking precedent, the court can always be guided by that light and the guidance thus shed by the trinity of our Constitution.”

143Copy pinpoint143. In Central Inland Water Transport Corporation v. Brojo Nath Ganguly,258 this Court had to decide on the validity of Rule 9 of

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Central Inland Water Transport Corporation Ltd Service Discipline and Appeal Rules 1979 which empowered the corporation to terminate the employment of its permanent employees with three months’ notice. These rules constituted part of the contract of employment between the Corporation and its employees. The issue before this Court was whether Rule 9 was void under Section 23 of the Contract Act for being opposed to public policy. It was held that the court could refuse to enforce an unfair and unreasonable clause in a contract entered into between parties who are not equal in bargaining power: “89. […] The Constitution was enacted to secure to all the citizens of this country social and economic justice. Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussions on this part of the case is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in Article 14. This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and

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unconscionable a clause in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen and the contract is a commercial transaction. In today’s complex world of giant corporations with their vast infrastructural organizations and with the State through its instrumentalities and agencies entering into almost every branch of industry and commerce, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances.” (emphasis supplied)

144Copy pinpoint144. The Court held that Rule 9(i) was void under Section 23 of the Contract Act for being opposed to public policy. The principle of unconscionability cannot be applied to contracts where: (i) the bargaining power of the contracting parties is equal or almost equal;259 and (ii) both parties are businessmen and the contract is a commercial transaction. This Court has held that the doctrine of unequal bargaining of parties does not generally apply to arbitration agreements, which are in the nature of commercial contracts.260 However, the principles of non-arbitrariness continue to apply in situations where a government instrumentality enters into a contract with a private party.

259 See Indian Bank v. Blue Jaggers Estates Ltd. (2010) 8 SCC 129 [23] [“23. It must be remembered that the respondents were not in a position of disadvantage vis-à-vis the appellant. If they so wanted, the respondents could have declined to avail loan and other financial facilities made available by the appellant. However, the fact of the matter is that they had signed the agreement with open eyes and agreed to abide by the terms on which the loan, etc. was offered by the appellant. Therefore, the doctrine of unconscionable contract cannot be invoked for frustrating the action initiated by the appellant for recovery of its dues.”]; ICOMM Tele Ltd. v. Punjab State Water Supply and Sewerage Board (2019) 4 SCC 401 [11]. 260 S K Jain v. State of Haryana (2009) 4 SCC 357 [8] [“8. It is to be noted that the plea relating to unequal bargaining power was made with great emphasis based on certain observations made by this Court in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly [(1986) 3 SCC 156 : 1986 SCC (L&S) 429 : (1986) 1 ATC 103] . The said decision does not in any way assist the appellant, because at para 89 it has been clearly stated that the concept of unequal bargaining power has no application in case of commercial contracts.”]

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145Copy pinpoint145. The government has the freedom to enter into contracts with private parties. However, the award of governmental contracts is subject to the exercise of judicial review to prevent arbitrariness or favouritism.261 The government has to abide by the principles laid down under Article 14 while awarding contracts.262 In Food Corporation of India v. Kamdhenu Cattle Feed Industries,263 this Court held that in the “contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of the Constitution of which non-arbitrariness is a significant facet.” It was further observed that since a public authority possesses powers only to use them for the public good, they have a duty to act fairly and “to adopt a procedure which is ‘fair play in action’.”264

146Copy pinpoint146. In Tata Cellular v. Union of India,265 this Court held that contractual decisions of government and its instrumentalities “must be free from arbitrariness not affected by bias or actuated by mala fides.” In a public-private contract, the state must act fairly, justly, and reasonably.266 When a state acts contrary to the public good or public interest, it acts contrary to Article 14.267

147Copy pinpoint147. In ICOMM Tele Ltd. v. Punjab State Water Supply and Sewerage Board,268 this Court had to adjudicate on the validity of a pre-deposit arbitral clause in a public-private contract. According to the pre- deposit clause, a party invoking arbitration was required to furnish a “deposit-at-call” for ten percent of the amount claimed. To determine the validity of the clause from the viewpoint of arbitrariness, this Court held that a contractual clause would be arbitrary “which would be unfair and unjust and which no reasonable man would agree

261 Mahabir Auto Stores v. Indian Oil Corporation (1990) 3 SCC 752 [12]; Directorate of Education v. Educomp Datamatics Ltd. (2004) 4 SCC 19 [9] 262 Tata Cellular v. Union of India (1994) 6 SCC 651 [70]; Air India Ltd. v. Cochin International Airport Ltd. (2000) 2 SCC 617 [7] 263 (1993) 1 SCC 71 [7] 264 Kamdhenu Cattle Feed Industries (supra) [7] 265 (1994) 6 SCC 651 [94] 266 ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd. (2004) 3 SCC 553 [23] 267 ABL International (supra) [53]. [“53. From the above, it is clear that when an instrumentality of the State acts contrary to public good and public interest, unfairly, unjustly and unreasonably, in its contractual, constitutional or statutory obligations, it really acts contrary to the constitutional guarantee found in Article 14 of the Constitution.”] 268 (2019) 4 SCC 401

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to.”269 This Court termed the pre-deposit clause to be violative of Article 14 for being excessive and disproportionate. Importantly, the Court held that the pre-deposit requirement was contrary to the object of arbitration because it served as a deterrent for a party to invoke arbitration.270 The pre-deposit clause was termed arbitrary for defeating the purpose of arbitration.

148Copy pinpoint148. In Lombardi (supra), a decision of a three-Judge Bench of this Court, a term of contract mandated “the party initiating the arbitration claim […] to deposit 7% of the arbitration claim in the shape of fixed deposit receipt as security deposit” in a public-private arbitration agreement. This Court observed that an arbitration agreement has to comply with the “operation of law”, which includes the grundnorm. It was observed that the layers of grundnorm in the context of an arbitration agreement include (i) the Constitution of India; (ii) the Arbitration Act and any other Central and State law; and (iii) the arbitration agreement entered into by the parties under Section 7 of the Arbitration Act.271 Further, this Court observed that party autonomy “cannot be stretched to an extent where it violates the fundamental rights under the Constitution.”272 It was concluded that the pre-deposit clause violated Article 14 of the Constitution.

ii. US jurisprudence on unconscionability of arbitration agreements

149Copy pinpoint149. Section 2 of the Federal Arbitration Act provides that an agreement in writing to submit to arbitration an existing controversy arising out of a contract shall be “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any

269 ICOMM Tele (supra) [23] 270 ICOMM Tele (supra) [27] [“27. Deterring a party to an arbitration from invoking this alternative dispute resolution process by a pre-deposit of 10 per cent would discourage arbitration, contrary to the object of de-clogging the court system, and would render the arbitral process ineffective and expensive.”] 271 Lombardi (supra) [80] 272 Lombardi (supra) [83] [“83. The concept of “party autonomy” as pressed into service by the respondent cannot be stretched to an extent where it violates the fundamental rights under the Constitution. For an arbitration clause to be legally binding it has to be in consonance with the “operation of law” which includes the Grundnorm i.e. the Constitution. It is the rule of law which is supreme and forms parts of the basic structure. The argument canvassed on behalf of the respondent that the petitioner having consented to the pre-deposit clause at the time of execution of the agreement, cannot turn around and tell the Court in a Section 11(6) petition that the same is arbitrary and falling foul of Article 14 of the Constitution is without any merit.”]

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contract.”273 The US Supreme Court has held that issues concerning validity, irrevocability, and enforceability of arbitration agreements will be decided with reference to the state law grounds such as fraud, duress, and unconscionability.274 The doctrine of unconscionability has been codified by the Uniform Commercial Code and is now a part of American contract law. Section 2-302 of the Uniform Commercial Code allows courts to refuse enforcement of unconscionable contracts or limit the application of an unconscionable clause to avoid any unconscionable result.275

150Copy pinpoint150. The doctrine of unconscionability has roots in equity. An unconscionable contract “is a contract which no man in his senses, not under delusion, would make, on the one hand, and which no fair and honest man would accept on the other.”276 Unconscionability has also been defined to include: (i) an absence of meaningful choice on the part of one of the parties; and (ii) unreasonable contractual terms favourable to one party.277 The unconscionability doctrine seeks to balance the freedom of contract with the values of protecting the weaker parties from imposition and oppression.278

151Copy pinpoint151. Unconscionability focuses on abuses relating to the contract formation process (procedural unconscionability) and the substantive terms of the contract (substantive unconscionability).279 In determining procedural unconscionability, the court is concerned with factors such as the relative bargaining power of the parties and whether

273 Section 2, Federal Arbitration Act. [It reads: A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 274 Perry v. Thomas, 482 US 483 (1987); Doctor’s Associates Inc v. Casarotto, 517 US 681 (1996). 275 Section 2-302, Uniform Commercial Code. [It reads: If the court as a matter of law finds the contractor or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.”] 276 Hume v. United States, 132 US 406 (1889) 277 Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D C Cir. 1965) 278 S M Waddams, ‘Unconscionability in Contracts’ (1976) 39(4) Modern Law Review 369, 369. 279 John A Spanogle, ‘Analyzing Unconscionability Problems’ (1969) 117(7) University of Pennsylvania Law Review 931, 932.

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the parties had a meaningful choice. Substantive unconscionability is geared towards pitting the substance of the contractual terms against the legitimate interests of the parties and considerations of public policy.280

152Copy pinpoint152. US courts have consistently held that an arbitration agreement which provides for the unilateral formation of a panel of arbitrators by one of the parties is inherently inequitable and unconscionable.281 The reason is that a unilateral arbitrator selection clause is inimical to the principle of arbitration, that is, the resolution of disputes through a fair and impartial tribunal. It has been held that an arbitration agreement that allows one of the parties to unilaterally control the arbitral tribunal conflicts with the “fundamental notions of fairness”282 and does not meet the “minimum levels of integrity which we must demand of a contractually structured substitute for judicial proceedings.” 283 The US courts have emphasised the importance of equality in the appointment process as a means to secure fairness in the arbitration proceedings.284

153Copy pinpoint153. In Hooters of Am. Inc. v. Phillips,285 the US Court of Appeals for the Fourth Circuit had to determine the validity of an arbitration agreement for employment-related disputes. The arbitration agreement provided for the formation of a three-member arbitral tribunal. The employer and employee select their arbitrators, who in turn select the third arbitrator. However, the employee’s arbitrator and the third arbitrator were selected from a list of arbitrators created exclusively by the employer. The Court observed that the arbitration agreement gave Hooters “control over the entire panel and places no limits whatsoever on whom Hooters can put on the list.” It was further observed: “Under the rules, Hooters is free to devise lists of partial arbitrators who have existing relationships, financial or familial, with Hooters and its management. In fact, the rules

280 Arthur Allen Leff, ‘Unconscionability and the Code-Emperor’s New Clause’ (1967) 115(4) University of Pennsylvania Law Review 485, 487. 281 Board of Education of Berkely County v. W Harley Miller Inc, 236 S.E.2d 439 (1977) 282 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 (Ala 2002) 283 Graham v. Scissor Tail Inc, 28 Cal 3d 807 284 Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith Inc, 995 F.Supp 190, 208 (D. Mass 1998) 285 173 F.3d 933

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do not even prohibit Hooters from placing its managers themselves on the list. Further, nothing in the rules restricts Hooters from punishing arbitrators who rule against the company by removing them from the list. Given the unrestricted control that one party (Hooters) has over the panel, the selection of an impartial decisionmaker would be a surprising result.” The Court noted that arbitration is a system where disputes between parties are resolved by an impartial third party and allowing one party to control the arbitral tribunal was against the principles of arbitration.286

154Copy pinpoint154. In McMullen v. Meijer,287 the issue before the US Court of Appeals for the Sixth Circuit was whether the arbitration agreement provided the employee “an effective substitute for the judicial forum”. The agreement allowed the employer to unilaterally select a pool of at least five potential arbitrators. The employer and employee were required to mutually select a sole arbitrator from that pool of arbitrators by alternatively striking names until only one remained. The Court held that the process of selection of the arbitrator prevented the arbitration from being an effective substitute for a judicial forum because: (i) the employer exercised unilateral control over the entire panel; (ii) the arbitrator selection procedure allowed the employer to create a symbiotic relationship with its arbitrators, which promulgated bias; and (iii) the arbitrator selection procedure inherently lacked fairness and neutrality.

iii. Public-private contracts and public policy of arbitration

155Copy pinpoint155. Although arbitration law is an autonomous legal field,288 it functions within the boundaries prescribed by the state. For instance, adjudication of certain proceedings is reserved by the legislature exclusively for the courts as a matter of public policy.289 The non- arbitrable proceedings generally include disputes relating to rights and

286 Hooters of Am Inc (supra) 939 287 355 F.3d 485, 493 288 Cox and Kings (supra) [95] 289 Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532 [35]; A Ayyasamy v. A Paramasivam (2016) 10 SCC 386 [38]; Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 [76]

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liabilities that give rise to or arise out of criminal offences, matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody, and guardianship matters.290 The safeguards of public policy ensure that arbitration proceedings, which are effective substitutes for civil courts, are conducted within a framework in the broader public interest.291

156Copy pinpoint156. Section 34 of the Arbitration Act specifies the grounds for setting aside an arbitral award. The grounds are separated into two categories: (i) Section 34(2)(a) contains those grounds that have to be proved by the parties; and (ii) Section 34(2)(b) contains grounds that a court has to examine ex officio. The challenge of arbitral awards on ex officio grounds is “of fundamental importance to the institution of arbitration as a whole.”292

157Copy pinpoint157. Section 34(2)(b) specifically provides that an arbitral award may be set aside if the court finds that the arbitral award conflicts with the public policy of India. The provision further clarifies “public policy of India” to only mean that: (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.

158Copy pinpoint158. This Court has construed the expression “public policy of India” appearing under Section 34 to mean the “fundamental policy of Indian law”.293 The concept of “fundamental policy of Indian law” has been held to cover compliance with statutes and judicial precedents, adopting a judicial approach, and compliance with the principles of natural justice.294 In OPG Power Generation Private Limited v.

290 Booz Allen & Hamilton Inc. (supra) [36]. [36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.] 291 Redfern and Hunter (supra) 552 292 Peter Binder (supra) 274 293 Ssangyong Engg. & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131 [34]; NHAI v. P Nagaraju (2022) 15 SCC 1 [39] 294 MMTC v. Vedanta Ltd. (2019) 4 SCC 163 [11];

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Enexio Power Cooling Solutions India Private Limited,295 this Court explained the concept of “fundamental policy of Indian law” thus: “The expression “in contravention with the fundamental policy of Indian law” by use of the word ‘fundamental’ before the phrase ‘policy of Indian law’ makes the expression narrower in its application than the phrase “in contravention with the policy of Indian law”, which means mere contravention of law is not enough to make an award vulnerable. To bring the contravention within the fold of fundamental policy of Indian law, the award must contravene all or any of such fundamental principles that provide a basis for administration of justice and enforcement of law in this country. Without intending to exhaustively enumerate instances of such contravention, by way of illustration, it could be said that (a) violation of the principles of natural justice; (b) disregarding orders of superior courts in India or the binding effect of the judgment of a superior court; and (c) violating law of India linked to public good or public interest, are considered contravention of the fundamental policy of Indian law.”

159Copy pinpoint159. In Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd.,296 this Court held that the most basic notions of morality and justice under the concept of “public policy” will include bias.

160Copy pinpoint160. The provisions of the statute, including Section 34, highlight the important role played by the Indian legal system in recognising and enforcing arbitral awards. It is one such instance where the Indian courts exercise a measure of control over the private arbitral process.297 This control over the arbitral process ensures that the arbitral awards are made by following certain minimum standards of due process and justice.298 Thus, the courts must ensure that the arbitral awards are consistent with the fundamental policy of Indian law such as compliance with the principles of natural justice. As a corollary, Section 34 places a responsibility on the arbitral tribunals

295 2024 SCC OnLine SC 2600 296 (2024) 7 SCC 197 [34] 297 Redfern and Hunter (supra) 58 298 Ibid.

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to ensure that the arbitral proceedings are consistent with the fundamental policy of Indian law.299

161Copy pinpoint161. By agreeing to arbitrate in a public-private contract, the government or its companies agree to settle their disputes with private contractors through arbitration. Since the activities of the government have a public element, it is incumbent upon the government to ensure that it enters into a contract with the public without adopting any unfair or unreasonable procedure.300 Every action of a public authority or a person acting in the public interest or any act that gives rise to a public element must be based on principles of fairness and non- arbitrariness.301 Therefore, government agencies have to consider the principles of equality and non-arbitrariness when crafting arbitration procedures, including the procedure for the appointment of arbitrators. The terms of the arbitration agreement must meet the minimum standards of equality and fairness. In a public-private contract, the government and its instrumentalities must ensure that the arbitral process contemplated by the contract is also fair to the other party to avoid arbitrariness.

162Copy pinpoint162. 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

299 Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 [70] [“70. Arbitrators, like the courts, are equally bound to resolve and decide disputes in accordance with the public policy of the law. Possibility of failure to abide by public policy consideration in a legislation, which otherwise does not expressly or by necessary implication exclude arbitration, cannot form the basis to overwrite and nullify the arbitration agreement. This would be contrary to and defeat the legislative intent reflected in the public policy objective behind the Arbitration Act. Arbitration has considerable advantages as it gives freedom to the parties to choose an arbitrator of their choice, and it is informal, flexible and quick. Simplicity, informality and expedition are hallmarks of arbitration. Arbitrators are required to be impartial and independent, adhere to natural justice, and follow a fair and just procedure. Arbitrators are normally experts in the subject and perform their tasks by referring to facts, evidence, and relevant case law.”] 300 Eurasian Equipment & Chemicals Ltd. v. State of West Bengal (1975) 1 SCC 70 [17]; Ramana Dayaram Shetty v. International Airport Authority of India (1979) 3 SCC 489 [12] [12. It must, therefore, be taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largesse, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norms which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largesse including award of jobs, contracts, quotas, licences, etc. must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory.] 301 LIC v. Consumer Education & Research Centre (1995) 5 SCC 482 [23]

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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.

163Copy pinpoint163. 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 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.

H. Necessity of maintaining the principle of minimum judicial interference

164Copy pinpoint164. In re Interplay Between Arbitration Agreements under Arbitration and Conciliation Act 1996 and the Stamp Act 1899,302 a seven judge Bench of this Court emphasized the importance of minimal judicial interference by the courts at the Section 11 stage. This Court held that the scope of the proeceeding under Section 11 must be confined to the existence of an arbitration agreement. The Court further observed: “165. The legislature confined the scope of reference under Section 11(6-A) to the examination of the existence of an arbitration agreement. The use of the term “examination” in itself connotes that the scope of the power is limited to a prima facie determination. Since the Arbitration Act is a self-contained code, the requirement of “existence” of an arbitration agreement draws effect from Section 7 of the Arbitration Act. In Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd. (2017) 9 SCC 729: (2017) 4 SCC (Civ) 764], this Court held that the Referral Courts only need to consider one aspect to determine the existence

302 2023 INSC 1066

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of an arbitration agreement — whether the underlying contract contains an arbitration agreement which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. Therefore, the scope of examination under Section 11(6-A) should be confined to the existence of an arbitration agreement on the basis of Section 7. Similarly, the validity of an arbitration agreement, in view of Section 7, should be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. This interpretation also gives true effect to the doctrine of competence-competence by leaving the issue of substantive existence and validity of an arbitration agreement to be decided by Arbitral Tribunal under Section 16.

166. The burden of proving the existence of arbitration agreement generally lies on the party seeking to rely on such agreement. In jurisdictions such as India, which accept the doctrine of competence-competence, only prima facie proof of the existence of an arbitration agreement must be adduced before the Referral Court. The Referral Court is not the appropriate forum to conduct a mini-trial by allowing the parties to adduce the evidence in regard to the existence or validity of an arbitration agreement. The determination of the existence and validity of an arbitration agreement on the basis of evidence ought to be left to the Arbitral Tribunal. This position of law can also be gauged from the plain language of the statute.

167. Section 11(6-A) uses the expression “examination of the existence of an arbitration agreement”. The purport of using the word “examination” connotes that the legislature intends that the Referral Court has to inspect or scrutinise the dealings between the parties for the existence of an arbitration agreement. Moreover, the expression “examination” does not connote or imply a laborious or contested inquiry. On the other hand, Section 16 provides that the Arbitral Tribunal can “rule” on its jurisdiction, including the existence and validity of an arbitration agreement. A “ruling” connotes

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adjudication of disputes after admitting evidence from the parties. Therefore, it is evident that the Referral Court is only required to examine the existence of arbitration agreements, whereas the Arbitral Tribunal ought to rule on its jurisdiction, including the issues pertaining to the existence and validity of an arbitration agreement.” (emphasis supplied)

The Constitution Bench held that the nature of objections to the jurisdiction of an arbitral tribunal on the basis that stamp duty has not been paid or is inadequate cannot be decided on a prima facie basis.303 Hence, it was observed that objections of such a kind will require a detailed consideration of evidence and submissions and a finding as to the law as well as the facts.

165Copy pinpoint165. At the Section 11 stage, a referral court only has to determine the existence of arbitration agreement. The validity of the arbitration clause providing for the procedure for appointment of arbitrators will require the referral court to enter into a detailed consideration of evidence and render a finding as to law and facts. This issue should be left to be decided by the arbitral tribunal in view of the doctrine of competence-competence. The arbitral tribunal is competent to rule on its jurisdiction, including the issue of validity of the arbitration clause for violating the equality principle under the Arbitration Act.

I. Prospective Overruling

166Copy pinpoint166. A decision of this Court has retrospective effect unless expressly given a prospective effect. Commercial relations are structured on the basis of law. A change in law may have the effect of distorting established rights and commercial bargains between parties.304 To avoid large-scale social and economic disruption, this Court can exercise its discretionary jurisdiction under Article 142 to give prospective effect to its decisions.305 The application of the doctrine of prospective overruling results in the application of the law declared by

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this Court to cases arising in future.306 In Mineral Area Development Authority v. Steel Authority of India,307 eight Judges of this Court held that the doctrine of prospective overruling is applied to bring about a smooth transition of the operation of law without unduly affecting the rights of people who acted upon the overruled law.

167Copy pinpoint167. In Bharat Aluminium Company v. Kaiser Aluminium Technical Services,308 a Constitution Bench of this Court prospectively overruled Bhatia International v. Bulk Trading S A309 observing: “197. The judgment in Bhatia International [(2002) 4 SCC 105] was rendered by this Court on 13-3-2002. Since then, the aforesaid judgment has been followed by all the High Courts as well as by this Court on numerous occasions. In fact, the judgment in Venture Global Engg. [(2008) 4 SCC 190] has been rendered on 10-1-2008 in terms of the ratio of the decision in Bhatia International [(2002) 4 SCC 105]. Thus, in order to do complete justice, we hereby order, that the law now declared by this Court shall apply prospectively, to all the arbitration agreements executed hereafter.”

168Copy pinpoint168. In the present reference, we have upheld the decisions of this Court in TRF (supra) and Perkins (supra) which dealt with situations dealing with sole arbitrators. Thus, TRF (supra) and Perkins (supra) have held the field for years now. However, we have disagreed with Voestalpine (supra) and CORE (supra) which dealt with the appointment of a three-member arbitral tribunal. We are aware of the fact that giving retrospective effect to the law laid down in the present case may possibly lead to the nullification of innumerable completed and ongoing arbitration proceedings involving three- member tribunals. This will disturb the commercial bargains entered into by both the government and private entities. Therefore, we hold that 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 only applies to three-member tribunals.

306 Sarwan Kumar v. Madan Lal Aggarwal (2003) 4 SCC 147 [15] 307 2024 SCC OnLine SC 1974 308 (2012) 9 SCC 552 309 (2002) 4 SCC 105

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J. Conclusion

169Copy pinpoint169. In view of the above discussion, we conclude that: a. The principle of equal treatment of parties applies at all stages of arbitration proceedings, including the stage of appointment of arbitrators; b. The Arbitration Act does 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; c. 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; d. 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 CORE (supra) is unequal and prejudiced in favour of the Railways; e. Unilateral appointment clauses in public-private contracts are violative of Article 14 of the Constitution; f. 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; and g. 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.

170Copy pinpoint170. The reference is answered in the above terms.

171Copy pinpoint171. Pending application(s), if any, shall stand disposed of.

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Judgment

Hrishikesh Roy, J.

1. I have read the scholarly judgment of the learned Chief Justice DY Chandrachud and also the erudite one authored by brother Justice PS Narasimha.

2. I am in agreement with the view of the learned Chief Justice that the principle of equality under Section 18 of the Arbitration and Conciliation Act,1996(for short ‘Arbitration Act’) applies at all stages of the proceedings including the stage of appointment of arbitrators. His judgment offers a thorough examination (in Part D) of the mandatory provisions within the Model Law and the Arbitration Act, which underscores the applicability of the equality principle and the same is not reiterated here for the sake of brevity. It is also correct to say that the Arbitration Act does not provide special or different treatment to government or government undertakings involved in arbitration.

3. Nonetheless, it is not possible for me to agree with the view canvassed that the principles of constitutional law can be invoked to reinforce the equality doctrine in the realm of arbitration. On this aspect, Justice Narasimha has rightly opined that public law principles evolved in Constitutional and Administrative law, should not generally be imported to arbitration law.

4. Anchoring the principle of equality amongst the arbitrating parties from the framework of the Arbitration Act, rather than invoking constitutional and administrative law principles, in my opinion, will not only preserve impartiality in the appointment of arbitrator but will also ensure party autonomy. It is also imperative to observe that Courts should exercise judicial restraint at the threshold stage of appointing an arbitrator. This will then safeguard the core principles of equality, party autonomy, and minimal judicial intervention in the arbitration domain.

5. The notion that Alternative Dispute Resolution offers ‘rough justice’ rather than true justice, is no more in vogue although some scepticism towards arbitration was earlier noticed, across various jurisdictions.1 Trusting the arbitral process is essential and we must dispel the notion that arbitration provides ‘second-hand justice’. To lend credibility to the arbitral process, statutory procedural safeguards

1 Gary Born, International Commercial Arbitration (2nd edn, Kluwer 2014)

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promoting basic fairness must be given full play. A key factor in establishing arbitration’s legitimacy lies in ensuring independence and impartiality at all stages of the arbitral process. At the same time, excessive judicial intervention must be avoided. By striking this balance between procedural protections and judicial restraint, we can reinforce arbitration’s role as an autonomous system capable of delivering justice on par with traditional courts. Scope of Judicial Interference

6. The principle of minimal judicial intervention in the arbitral process is an integral element of the Indian arbitration law. The relevant part of the Statement of Objects and Reasons of the Arbitration Act is extracted below to press home this aspect: “(i) to comprehensively cover international commercial arbitration and conciliation as also domestic arbitration and conciliation; (ii) to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration; (iii) to provide that the arbitral tribunal gives reasons for its arbitral award; (iv) to ensure that the arbitral tribunal remains within the limits of its jurisdiction; (v) to minimise the supervisory role of courts in the arbitral process; (vi) to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes; (vii) to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court; (viii) to provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal; and (ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which

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one of the two International Conventions relating to foreign arbitral awards to which India is a party applies, will be treated as a foreign award.” [emphasis supplied]

7. Article 5 of the UNCITRAL Model Law(for short ‘Model law’) and Section 5 of the Arbitration Act is extracted below: “Article 5. Extent of Court intervention- In matters governed by this Law, no court shall intervene except where so provided in this Law.” “Section 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.”

8. The Statement of Objects and Reasons of the Arbitration Act read along with Section 5 of the Act makes it clear that the legislative intent behind the Arbitration Act was to, inter alia, minimise the intervention of the Courts and provide for timely resolution of disputes. It is also crucial to note that the Parliament in Section 5, made a significant departure from Article 5 of Model law by adding a non-obstante clause, ‘Notwithstanding anything contained in any other law’, emphasizing that the Courts should exercise restraint and other laws should not be made the basis for court’s intervention with the agreed arbitral process.

9. Section 11 deals with ‘Appointment of Arbitrator’. Section 11(2) provides that subject to Section 11(6), parties are ‘free to agree on a procedure for appointing the arbitrator or arbitrators’. At this stage, the language in Section 11(6) of the Arbitration Act needs to be noticed which reads thus: “(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”

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10. The consideration to be given to the agreed procedure is also clear from Section 11(8) of the Arbitration Act: [11(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to— (a) any qualifications required for the arbitrator by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.] [emphasis supplied]

11. In ad-hoc arbitration, the parties have the option to choose the arbitrator as per the procedure agreed between parties. It is only when ‘a party fails to act as required under that procedure’ as contemplated in Section 11(6) of the Act that the court’s intervention is expected. However, the term “fail(ure) to act” should not be interpreted to allow Courts to intervene particularly at the Section 11 stage. It is also essential to bear in mind that under Section 11(8) the Court, ‘shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12’, thereby underscoring the importance of impartiality and independence in the appointment of arbitrators. Therefore, essential safeguards are also provided under Section 11 for the appointment of arbitrator.

12. In the context of Article 11, UNCITRAL Digest of Case Law on the Model Law on International Commercial Arbitration2 provides as under: “20. Securing an independent and impartial tribunal was said in one case to be the major objective that ought to be pursued by the court or competent authority intervening on the basis of article 11, while in another case it was said to be the paramount consideration. It has also been explicitly identified as an important consideration in several other cases.”

2 UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration

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13. The Commentary on Article 11 by Howard M. Holtzmann and Joseph E. Neuhaus3 provides: “….. the working group cited as examples two articles that give rise to such restrictions: Article 12 concerning grounds for challenging arbitrators and Article 34 concerning court’s power to set aside arbitral awards. Thus, for example, if the procedure agreed on results in an arbitral tribunal that fails to meet the standard of impartiality and independence established by Article 12 the arbitrator would be subjected to challenge. ….The working group considered at some length adding to Article 11 an explicit on the parties’ freedom to determine the procedures for selection of arbitrators. The provision would have stated that a procedure agreed upon by the parties would be invalid if or to the extent that it gave one party a ‘predominant position’ or in the words of an alternate draft a ‘manifestly unfair advantage’ with regard to the appointment of arbitrators. This provision was later deleted because (1)the problem did not arise frequently; (2)other provisions of the law such as Article 12 and 34, could be used to address the problem and (3) the wording was regarded as too vague and thus could lead to dilatory tactics and potentially invalidation of ‘well- established and recognized appointment practices’’

14. The court’s role in ensuring an arbitrator’s impartiality and independence is indeed essential. However, this duty, as is clear from above, must be grounded in Section 12 of the Arbitration Act which provides adequate standards for dealing with potential conflicts or biases. By setting specific parameters for impartiality, Section 12 effectively limits arbitrary or unjustified challenges while still safeguarding the fairness of arbitration.

15. If the criteria for fairness, impartiality, or independence are not clearly defined, a party may challenge the appointment of an arbitrator on the ground that the procedure is “manifestly unfair” or that the other party holds a “predominant position.” In such cases, a party looking to delay proceedings could file baseless objections against appointments, leading to unnecessary judicial intervention and thereby

3 Howard M. Holtzmann and Joseph E. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration, at 479 (Kluwer 1989)

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delaying arbitration until these challenges are resolved. This tactic can effectively halt the arbitration process, leading to avoidable delays in resolution- a problem exacerbated by the broader issue of judicial backlog in India.

16. Section 11(6A) was inserted in the Arbitration Act through the 2015 Amendment: “11(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.” [emphasis supplied]

17. The language in Section 11(6A) read with Section 5 of the Arbitration Act, and an interpretation focusing on the legislative intent informs us about the narrow scope for court’s scrutiny under Section 11(6A), at the stage of appointment of arbitrators,.

18. In Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman,4 a three-Judge Bench of this Court affirmed the reasoning in Duro Felguera, S.A. v. Gangavaram Port Ltd.5 by observing that the examination under Section 11(6A) is “confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense.” It was also held that the position of law prior to the 2015 Amendment Act, as set forth by the decisions of this Court in SBP & Co. v Patel Engineering6 and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd,7 which widened the scope of judicial intervention, are legislatively overruled.

19. In the concurring opinion in A.Ayyasamy vs A. Paramasivam,8 it was observed as under: “53. The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles

4 (2019) 8 SCC 714 5 (2017) 9 SCC 729 6 (2005) 8 SCC 618 7 (2009) 1 SCC 267 8 (2016) 10 SCC 386

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underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle.” [emphasis supplied]

20. In the significant decision on the Interplay Between Arbitration Agreements under A&C Act, 1996 & Stamp Act, 1899,9 7 judges of this Court had emphasized on the minimal supervisory roles of Court in arbitral process: “81. One of the main objectives behind the enactment of the Arbitration Act was to minimize the supervisory role of courts in the arbitral process by confining it only to the circumstances stipulated by the legislature. For instance, Section 16 of the Arbitration Act provides that the arbitral tribunal may rule on its own jurisdiction “including ruling on any objection with respect to the existence or validity of the arbitration agreement.” The effect of Section 16, bearing in view the principle of minimum judicial interference, is that judicial authorities cannot intervene in matters dealing with the jurisdiction of the arbitral tribunal. Although Sections 8 and 11 allow courts to refer parties to arbitration or appoint arbitrators, Section 5 limits the courts from dealing with substantive objections pertaining to the existence and validity of arbitration agreements at the referral or appointment stage. A referral court at Section 8 or Section 11 stage can only enter into a prima facie determination. The legislative mandate of 1prima facie determination ensures that the referral courts do not trammel the arbitral tribunal’s authority to rule on its own jurisdiction.”

21. While reiterating on the limited scrutiny of courts at the stage of initiating the arbitral process, the 7-judge bench also emphasized

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that while Section 16 deals with both ‘existence’ and ‘validity’, Section 11 deals only with ‘existence’ of the arbitration agreement.

22. In view of the above authoritative pronouncement by the 7-Judge bench, critical scrutiny at the Section 11 stage would be antithetical to the objective of the Arbitration Act and this will also impinge on the principle of party autonomy. As we have noted earlier, Section 11(8) itself provides for the requirement of disclosure under Section 12 and therefore importing principles of constitutional law to justify intervention at the Section 11 stage, would surely defeat the very objective of the Arbitration Act. This will also be a departure from the expected norm of minimal judicial intervention. Unilateral Appointments- Whether Permissible?

23. One of the core issues to be considered here is whether unilateral appointment of arbitrators is permissible. While such appointments were a norm and approved by Courts prior to the 2015 Amendment,10 the legal terrain has been altered with the changed provisions.

24. Significantly, the 246th Report of the Law Commission addressed the issue of party autonomy and the independence and impartiality of arbitrators in the following words: “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.”

25. The Law Commission report also made the following critical observation: “60. The Commission, however, feels that real and genuine party autonomy must be respected, and, in certain situations, parties should be allowed to waive even the categories of ineligibility as set in the proposed Fifth Schedule. This could be in situations of family arbitrations or other arbitrations where a person commands the blind

10 Executive Engineer, Irrigation Division, Puri v. Gangaram Chhapolia, [1984] 3 SCC 627; Secretary to Government Transport Department, Madras v. Munusamy Mudaliar, [1988] (Supp) SCC 651; International Authority of India v. K.D. Bali and Anr, [1988] 2 SCC 360

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faith and trust of the parties to the dispute, despite the existence of objective “justifiable doubts” regarding his independence and impartiality. To deal with such situations, the Commission has proposed the proviso to section 12 (5), where parties may, subsequent to disputes having arisen between them, waive the applicability of the proposed section 12 (5) by an express agreement in writing. In all other cases, the general rule in the proposed section 12 (5) must be followed. In the event the High Court is approached in connection with appointment of an arbitrator, the Commission has proposed seeking the disclosure in terms of section 12 (1). and in which context the High Court or the designate is to have “due regard” to the contents of such disclosure in appointing the arbitrator.” [emphasis supplied]

26. The Law Commission also significantly noted that if the appointing authority is the State, it is even more essential to have an independent and impartial tribunal. Weighing the observations of the 246th Report of the Law commission, India has formally incorporated the International Bar Association(IBA) Guidelines into its statutory framework, introducing a comprehensive system of checks and balances.11

27. Section 12 of the Arbitration Act provides a mechanism to address issues, if any, that may arise pertaining to impartiality of arbitrators. An amendment was carried out in Section 12 and significantly, the Fifth and Seventh Schedule were adopted in the Arbitration Act which provides a statutory reference point to determine independence and eligibility. Section 12(5) reads as under: [(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 subsection by an express agreement in writing.]”

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28. The Fifth Schedule adopts the Orange List from the IBA Guidelines on Conflicts of Interest in International Arbitration(for short ‘IBA Guidelines’) requiring arbitrators to disclose any circumstances that might reasonably affect their impartiality, including relationships with the parties, counsel, or subject matter of the dispute. The Sixth Schedule specifies the requirement of disclosure to be made by an arbitrator. The Seventh Schedule incorporates the ‘Red List’ of the IBA Guidelines, outlining scenarios of relationship conflict that would result in de jure ineligibility of the arbitrator. Therefore, the interpretation that all unilateral appointments are automatically nullified under Section 12(5) of the Act, would go way beyond the legislative intent of the Arbitration Act. If the Legislature had intended such a rigid restriction, there would be no need for the proviso to Section 12(5), which explicitly permits parties to waive this requirement through an agreement in writing. This again underscores the emphasis on party autonomy, in the arbitral process.

29. Section 13 outlines the challenge to the procedure in respect of grounds under Section 12(3). Section 13(1) states that parties are free to agree on a procedure to challenge an arbitrator. Section 13(2) provides as under: “13(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.” Section 13(4) next states that if a challenge to an arbitrator under 13(1) or 13(2) is not successful; the tribunal shall continue with the proceedings.

30. Section 14 is titled ‘Failure or impossibility to Act’. It provides for the termination of an arbitrator’s mandate if he, de facto or de jure, becomes unable to perform his functions or for other reasons, fails to act without undue delay. Unless agreed otherwise, one can apply to ‘Court’ to decide on the termination of a mandate. It is crucial to note that the term ‘Court’ herein is not the Section 11 Court.

31. Section 15 is titled ‘Termination of mandate and Substitution of Arbitrator’. Section 15(1) states that in addition to the circumstances mentioned in Section 13 and 14, the mandate of an arbitrator shall

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terminate when he withdraws from office for any reason, or by (or pursuant to) an agreement of the parties. Section 31 provides for the form and contents of the arbitral award. Section 32 provides for the termination of the arbitrator’s mandate, either by delivery of a final award or any of the circumstances mentioned in Section 32(2) such as withdrawal of the claim by the claimant, agreement between parties to terminate proceedings, or continuation of proceedings having become unnecessary or impossible.

32. What follows from the above is that if the Arbitrator has any relationship with any of the parties that raises a reasonable apprehension of bias, such an arbitrator can anyway be de jure barred under Sections 12 and 14, read with the Fifth and the Seventh Schedules of the Arbitration Act. Post-appointment also, a challenge can be made under Section 13(2) of the Arbitration Act against appointment. It is also possible to finally set aside an award for procedural violations, under Section 34(2)(iii) or 34(2) (v) of the Arbitration Act.

33. Importantly, the Arbitration Act does not per se prohibit unilateral appointment of arbitrators. If those nominated in the panel fit into the limiting factors, underscored in Section 12(5) read with the Fifth and Seventh Schedule of the Act, the same will not upset the level playing field to be provided to the arbitrating parties. The 2015 Amendment, addressed specific concerns regarding fairness, potential advantage to one party as well as independence and impartiality of an unilaterally appointed arbitrator under the IBA Guidelines. An eligible arbitrator, not otherwise disqualified under Schedule VII of the Act, can be appointed unilaterally, and courts should refrain from imposing their own opinion countermanding the clear intent of the parties. The statutory safeguards, under the Arbitration Act provide a checklist and a counterbalance and thereby rule out inequality for the arbitrating parties.

34. The judgments in Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd12 (for short ‘Voestalpine’), TRF Ltd. v. Energo Engg. Projects Ltd13 (for short ‘TRF’), Perkins Eastman Architects DPC v. HSCC (India) Ltd.14 (for short ‘Perkins’), and Central Organisation

12 2017) 4 SCC 665 13 (2017) 8 SCC 377 14 (2020) 20 SCC 760

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