The Perkins principle and The TRF

principle - Has it come to stay - A critical

and analytical study
INTRODUCTION:
Arbitration as a private mode of dispute resolution is known for the fundamental principle of
party autonomy which provides parties the flexibility to choose the law and procedure for
adjudication of their disputes. Party autonomy also allows parties to decide the arbitrator(s),
however, independence and impartiality of arbitrator is of paramount importance. The
Arbitration and Conciliation Act, 1996 ("Act") under section 12, 13, 14, 5th and 7th Schedule
reflects the importance of the independence and impartiality of arbitrators. It is perceived that
arbitrator being appointed by the party may act in a manner which suits interest of the party
appointing them, therefore, to have a level playing field and balance the integrity of the
process, the independence and impartiality of arbitrators are considered to be of paramount
importance. Moreover, one of the principles of natural justice i.e. nemo judex in causa

sua which also supplements the scrutiny for independence and impartiality.

Independence and impartiality is not a new concept, it already existed in the Arbitration and
Conciliation Act, 1996. However the 2015 amendment gave a prescriptive guidelines of
independence and impartiality to make it convenient for the arbitrators, counsels and court
while appointing the arbitrators. These guidelines or safeguard were recommended by the
246th Law Commission in their report to ensure that the arbitration proceedings are unbiased
and efficient. The Apex court in the HRD Corporation vs. GAIL (India) Ltd1 while
interpreting 5th and 7th schedule of the Arbitration and Conciliation Act, 1996, held that "the
doubts as to the independence and impartiality of the arbitrator are justifiable only if a third
person would reach a conclusion that an arbitrator would be influenced by factors other than
the merits of the case. This test requires taking a broad common-sensical approach to the
Schedules – a fair construction neither tending to enlarge or restrict unduly."

1
HRD Corporation v. GAIL (India) Limited, 2017(5) ARBLR 1 (SC)
Appointment of arbitrator is generally done by the parties as per their convenience, however
if party fails to appoint then approaching the court under section 11 is the remedy. However,
there has been a lot of debate on the unilateral appointment clauses whereby only one-party
posses the right to appoint the arbitrator(s) or suggest the names of arbitrator(s) to the
opposite party. The perkins and trf case laws deal with the principle regarding the legality of
the person who is interested in the outcome can appoint the sole arbitrator.

THE TRF CASE AND PRINCIPLE:

The first case to deal with the issue was TRF Limited vs. Energo Engineering Project
Limited2

FACTS OF THE CASE:

In this case the respondents issued a purchase order to appellants to secure a performance
under purchase order. The appellants had submitted an advance bank guarantee and a
controversy arose regard to the encashment of bank guarantee. The appellants invoked
arbitration in terms of clause of general terms and conditions of purchase order. The
respondents nominated a former judge as sole arbitrator and the appellant preferred
application for appointment of arbitrator on ground that in view of sec 12(5) of Act 2015.
Accordingly, the Managing director has appointed but he was made ineligible by the law and
he nominated the former judge. The designated appointed the former judge as the arbitrator.
Aggrieved, appellants filed the present appeals.

ISSUE:

Whether person who was required to arbitrate becomes ineligible by operation of law, would
not be eligible to nominate a person as arbitrator?

REASONING:

The aforesaid authorities have been commended to us to establish the proposition that if the
nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to
carrying on the proceeding of arbitration by himself. According to learned counsel for the
appellant, ineligibility strikes at the root of his power to arbitrate or get it arbitrated upon by a
nominee.

2
TRF Limited v. Energo Engineering Projects Limited, AIR 2017 SC 3889.
In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like
the Managing Director, nominate an arbitrator, who may be otherwise eligible and a
respectable person. As stated earlier, we are neither concerned with the objectivity nor the
individual respectability. We are only concerned with the authority or the power of the
Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the
arbitrator has become ineligible by operation of law, he cannot nominate another as an
arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12 (5) of
the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a
person. Needless to say, once the infrastructure collapses, the superstructure is bound to
collapse. One cannot have a building without the plinth. Or to put it differently, once the
identity of the Managing Director as the sole arbitrator is lost, the power to nominate
someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court
is not sustainable and we say so.

Another facet needs to be addressed. The Designated Judge in a cryptic manner has ruled
after noting that the petitioner therein had no reservation for nomination of the nominated
arbitrator and further taking note of the fact that there has been a disclosure, that he has
exercised the power under Section 11 (6) of the Act. We are impelled to think that that is not
the right procedure to be adopted and, therefore, we are unable to agree with the High Court
on that score also and, accordingly, we set aside the order appointing the arbitrator. However,
as Clause (c) is independent of Clause (d), the arbitration clause survives and hence, the
Court can appoint an arbitrator taking into consideration all the aspects. Therefore, we
remand the matter to the High Court for fresh consideration of the prayer relating to
appointment of an arbitrator.

ORDER:

Resultantly, the appeals are allowed, the orders passed by the learned Single Judge are set
aside and the matters are remitted to the High Court for fresh consideration. In the facts and
circumstances of the case, there shall be no order as to costs.

COURTS’ VIEW PURSUANT TO TRF JUDGEMENT:

Subsequent to the TRF Judgement, the clauses similar to the TRF have been held by the
courts to be invalid. It is pertinent to refer to the recent decision of Supreme Court in
Broadband Network Limited v. United Telecoms Limited wherein the court examined the
aspect of waiver in terms of proviso to Section 12(5). In this case also the arbitration clause
was similar to the TRF Judgement and although the court primarily dealt with the aspect of
“express agreement in writing” in proviso to clause 12 (5), it also dealt with the ineligibility
of the arbitrator and the termination of mandate. Court held that if the person ineligible in
terms of the 12(5), in such a case, Section 14(1)(a) of the Act gets attracted inasmuch as the
arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under
Section 12(5), being ineligible to be appointed as an arbitrator. This being so, his mandate
automatically terminates, and he shall then be substituted by another arbitrator under Section
14(1) itself.

Therefore the Supreme Court has conclusively determined that in the clauses similar to TRF
Judgement, the arbitrator so appointed are ineligible to be appointed and the said ineligibility
renders the arbitrator ‘de jure’ incapable to perform his functions and therefore the mandate
of the arbitrator terminates automatically.

In order to examine the consistent applicability of the aforesaid principle, it becomes

quintessential to examine those cases pursuant to the TRF Judgement, which have dealt with
clauses, which were slightly different than TRF. In such clauses the employee of the
company was not the named arbitrator but was given the power to nominate an arbitrator.

Delhi High court in the decision of D.K. Gupta v. Renu Munjal dealt with one such clause.
The arbitration clause gave a choice to one of the parties viz. a lender to appoint an arbitrator.
The Delhi High Court differentiated the said clause from TRF stating that in TRF, the
Managing Director of the buyer, being an employee of the buyer in a way represents the
buyer itself, which is not the case here. The Court went on to hold as follows: “Admittedly
there exist no bar under the Act which restrains a party to appoint an Arbitrator. Rather
section 11(2) 9 of the Arbitration and Conciliation Act, 1996 empowers the parties to agree
on a procedure for appointment of an arbitrator, which exactly is the situation here. When
there exists no prohibition in the Act for a party to appoint an arbitrator, then a lender or a
buyer, per any agreement, may have a right to choose an arbitrator…”

In the decision of Bhayana Builders Pvt Ltd vs Oriental Structural Engineers 3 court dealt
with the application for termination of mandate of an arbitrator appointed by the Managing
Director of the Respondent. The court here made a clear distinction between the power to
nominate and the named arbitrator himself appointing the arbitrator. It was contended by the
appellants that the Arbitration Agreement in so far as that it provides that the Sole Arbitrator

3
Bhayana Builders Pvt Ltd vs Oriental Structural Engineers, (2018) 249 DLT 619
shall be nominated by the Managing Director of the Respondent, would no longer be
enforceable in view of the Section 12 (5) of the Act.

Vide said judgement the Delhi High Court spelt out various provisions of the Act, including
provisions of Section 11 of the Act and also referred to Law Commission recommendations 4
and stated that if the intent of the Legislature was that the procedure for appointment of
arbitrator cannot provide for one of the party alone making the appointment of Arbitrator, it
would have provided so in the amendment. The Delhi High Court therefore upheld the
appointment of arbitrator by the Managing Director.

It is worth mentioning here that the Supreme Court has vide order dated 21.03.2018 5 ordered
status quo to be maintained as to the arbitration proceedings, however, there is no stay on the
operation of the Delhi High Court Judgement.

Calcutta High Court also in the case of Rockwell Automation India Pvt Ltd v Steel Authority
Of India6 held that the prohibition of the Fifth or the Seventh schedule of the Act of 1996 and
the decision of the Supreme Court in case of TRF Ltd. is not applicable to a case when the
appointing authority himself being an employee of one of the parties is not competent to act
as the arbitrator and he is only empowered to appoint an arbitrator.

In conclusion, TRF Judgement although the court applied and acknowledged the international
principle of impartiality of appointing authorities, it did not conclusively determine the
applicability of the said principle in clauses wherein unilateral right of appointment of sole
arbitrator has been granted to one of the parties.

Therefore it was left open to the courts to balance the principle of impartiality of appointing
authorities vis-à-vis party autonomy by invalidating only those clauses wherein the named
arbitrators had the right to nominate. The consequence has also been courts resorting to
inexplicable methods of examining the similar clauses by looking into the parties’ internal
nomination procedure. In the case of Babaji Shivram Clearing and Carriers Pvt. Ltd. v.
Bharat Heavy Electricals Ltd7, the arbitration clause provided for disputes to be referred to
sole arbitrator i.e. General Manager, BHEL or his nominee appointed by him in writing. It
was contended that actual appointment of the arbitrator was not in fact done by the General
Manager but was done by the Directors/Board of the Respondent. The Bombay High Court

4
246th Report
5
ibid
6
Rockwell Automation India Pvt Ltd v Steel Authority Of India, decided on 16th January 2019
7
Babaji Shivram Clearing and Carriers Pvt. Ltd. v. Bharat Heavy Electricals Ltd, 2018 SCC OnLine Bom 4008
held that the arbitration clause under the Agreement does not provide that the Board of the
Respondent will nominate a sole arbitrator in case of disputes between the parties. The
Bombay High Court although held that the appointment of arbitrator was not valid in terms of
the TRF Judgement, it did not totally ignore the internal appointment mechanism and
recorded the arguments on the said ground.

Against the said decision of Bombay High Court, Special Leave Petition (SLP) was also filed
in the Supreme Court on the ground that Bombay High Court ignored the fact that the
decision to appoint the arbitrator was in fact taken by its Directors/Board and not by the
General Manager. The Supreme Court8 vide its order dated 16th November 2018, initially
grated stay on the operation of the impugned Bombay High Court Judgements. However,
later on the said SLPs were dismissed. It cannot be ignored that courts have to some extent
tried to notice the internal procedure in the organisation for appointment of arbitrator.

Rather than applying the principle of impartiality of appointing authority in its strict sense,
the Court in TRF could have determined as to whether the appointed arbitrator is independent
and impartial. Court ignored the fact that the Managing Director had appointed a retired
judge of the Supreme Court. Examining the impartiality and independence of the appointed
arbitrator in terms of Fifth and Seventh Schedule could have avoided the peculiar
implications. Court did not even consider the fact that it is not impossible for an employee of
the Party to appoint a neutral arbitrator.

Supreme Court in HRD Corporation v. GAIL (India) Ltd stated that “…Doubts as to the
above are only justifiable if a reasonable third person having knowledge of the relevant facts
and circumstances would reach the conclusion that there is a likelihood that the arbitrator
may be influenced by factors other than the merits of the case in reaching his or her decision.
This test requires taking a broad common-sensical approach to the items stated in the Fifth
and Seventh Schedules…”. The true test therefore to be applied is whether “a fair minded and
informed observer, having considered the facts, would conclude that there was a real
possibility that the tribunal was biased”.

This is what was done by English Court wherein they have emphasised on the said English
common law test rather than applying the IBA Guidelines in the strict sense. The same test
ought to have been looked into by the Indian courts as well, rather than relying on the strict
tests as laid down in the TRF Judgement.
8
Bharat Heavy Electricals Ltd v. Babaji Shivram Clearing and Carriers Pvt. Ltd., Diary No. 39227 of 2018 and
39233 of 2018
The perkins case and principle:
The courts faced a similar dilemma in the case of Perkins Eastman Architects DPC & Anr. v
HSCC (India) Ltd (“Perkins”)9, which was decided by a division bench of the Supreme Court
in November 2019. In the case of Perkins, the Supreme Court, while interpreting the
provisions of the Arbitration and Conciliation Act, 1996, and juggling between party
autonomy and the principles of natural justice, held that a person who has an interest in
outcome or award passed by the arbitrator during arbitration, cannot be entitled to appoint the
sole arbitrator, irrespective of the fact that the parties agreed to it at the time of entering into
the contract.

FACTS OF THE CASE:

An agreement was entered into between HSCC (India) Ltd and a consortium, consisting of
Perkins Eastman Architects DPC and Edifice Consultants Private Limited on May 22, 2017.
Under the said agreement, the Appellant was to carry out certain architectural designing and
planning work for the Respondent. Certain disputes arose between the parties and in
accordance with the dispute resolution clause of the agreement, the Respondent unilaterally
appointed a sole arbitrator. The appointment of a sole arbitrator by the Respondent was
challenged by the Applicants before the Supreme Court. Further, the Applicant also sought
appointment of an arbitrator by the Supreme Court under Section 11(6) of the Act. The main
issue before the apex court was whether the Applicants had made out a case for the
appointment of an arbitrator by the Supreme Court under Section 11 (6) read with Section 11
(12) (a) of the Act.

ISSUE:

Whether a person can appoint a sole arbitrator who has interest in the outcome?

REASONING OF THE COURT:

The Supreme Court examined its decision in TRF Ltd. v Energo Engineering Projects
Ltd. (“TRF Limited”), wherein a three-judge bench had held that a party interested in the
outcome of a case cannot be the sole arbitrator in the dispute. The Supreme Court broadly
interpreted this to restrain a party interested in the outcome of the dispute to unilaterally
nominate a sole arbitrator. In the case of TRF Limited, the Supreme Court analyzed Section
12(5) of the Act (as amended by the Arbitration and Conciliation (Amendment) Act, 2015
9
Perkins Eastman Architects DPC v. HSCC (India) Ltd., 2019 SCC Online 1517
“Amendment Act of 2015”), and observed that “by our analysis, we are obligated to arrive
at the conclusion that once the arbitrator has become ineligible by operation of law, he
cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per
prescription contained in Section 12(5) of the Act. It is inconceivable in law that a person
who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure
collapses, the superstructure is bound to collapse. One cannot have a building without the
plinth. Or to put it differently, once the identity of the Managing Director as the sole
arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated.”

The Supreme Court also relied on its decision in the case of Walter Bau AG v Municipal
Corporation of Greater Mumbai (“Walter Bau AG”)10, wherein the apex court opined that
“Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the
Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such
appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be
countenanced in law”. Since the Supreme Court here had already observed that the
Respondent could not solely appoint the arbitrator, the said petition under Section 11(6) was
entertained.  

Further, in Voestapline Schienen Gmbh v. DMRC (“Voestapline”)11, the Supreme Court

relied on the 246th report of the Law Commission of India, wherein it was opined that “there
are certain minimum levels of independence and impartiality that should be required of the
arbitral process, regardless of the parties’ apparent agreement. A sensible law cannot, for
instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is
employed by (or similarly dependent on) one party, even if this is what the parties agreed”.

The Supreme Court after discussing the TRF judgment concluded that the Managing Director
in the said case had two capacities under the dispute resolution clause i.e. first, as an
arbitrator and secondly, as an appointing authority. In the first category of cases, the Supreme
Court held that the element of invalidity would be directly related to the disqualified person
as he will have interest in the outcome of the result and therefore disqualified under the Act.
Surprisingly, the Supreme Court extended the similar invalidity to the second category of
cases and held that if interest in outcome is to be taken as basis for possibility of bias, then it
will be present in both categories of cases. Hence, the Supreme Court held that the dispute
resolution clauses which merely provide rights to the Chief Managing Director of a party to

10
(2015) 3 SCC 800
11
(2017) 4 SCC 665
nominate an arbitrator will also be invalid and unsustainable under the Act. While arriving at
its decision, the Supreme Court was completely aware that this decision will disentitle any
party to an agreement to appoint a sole arbitrator. However, the Supreme Court was of the
view this is the logical deduction of TRF judgment. The Court clarified that the law has been
laid down by Supreme Court in the cases of Bharat Broadband Network Limited v. United
Telecoms Limited12 and TRF, wherein it was held that ineligibility under Section 12(5) read
with Schedule VII of the Act will have retrospective application and is not confined to only a
prospective application.

ORDER:

The Supreme Court, while relying on its findings in the cases of TRF Limited, Walter Bau
AG and Votesapline, held that the Respondent should not be permitted to unilaterally appoint
a single arbitrator and consequently, the application under Section 11(6) of the Act was
admitted. While exercising the powers under Section 11 (6) of the Act, the Supreme Court
appointed Retd. Justice Sikri as the sole arbitrator.

Legislative Intent and Judicial Interference

It is a cardinal rule of the interpretation of statute that the Court is bound to interpret a
provision according to the literal and plain meaning of the language used in the statute if no
ambiguity exists. The Court cannot add, alter or modify the statute. It has been consistently
held that the Court cannot be permitted to legislate in garb of the interpretation of the Statute.

The Constitution Bench of the Supreme Court in the judgment of Bharat Aluminium Co v. Kaiser
Aluminium Technical Services,13 held that where the meaning of the statutory words is plain and
unambiguous, it is not for the judges to add and amend or, by construction, make up
deficiencies which are left in the Act.

In another judgment delivered by a three-judge bench of the Supreme Court in the case
of Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc,14 upheld party
autonomy in commercial contracts and held as herein below:

“In the case before us, being a contract executed between the two parties, the court cannot
adopt an approach for interpreting a statute. In that context, particularly in agreements of
arbitration, where party autonomy is the ground norm, how the parties worked out the

12
Bharat Broadband Network Limited v. United Telecoms Limited, (2019) 5 SCC 755.
13
Bharat Aluminium Co. v. Kaiser Aluminium Technical Services, Inc., (2012) 9 SCC 552.
14
Bharat Aluminium Company v. Kaiser Aluminium Technical Services, Inc. AIR 2016 SC 1285.
agreement, is one of the indicators to decipher the intention, apart from the plain or
grammatical meaning of the expressions and the use of the expressions at the proper places in
the agreement.”

It would appear that the decision given by the High Court in the TRF judgment seems more
appropriate considering the 2015 amendment and the legislative intent behind it. The Perkins
judgment failed to consider para 17 of the TRF case which states that, “It has been observed
by the designated Judge that the amending provision does not take away the right of a party
to nominate a sole arbitrator, otherwise the legislature could have amended other provisions.
He has also observed that the grounds including the objections under the Fifth and the
Seventh Schedules of the amended Act can be raised before the Arbitral Tribunal and further
when the nominated arbitrator has made the disclosure as required under the Sixth Schedule
to the Act, there was no justification for interference.”

Both the judgments of the Supreme Court i.e. TRF and Perkins, expanded the intent of the
Parliament to an extent that it could be construed as judicial legislation. The Legislature was
never concerned with the powers of nomination of the appointing authority. The intent of the
legislation has been succinctly and logically summarized by the High Court of Delhi in the
case of Bhayana Builders.15 The relevant extracts of the judgment are reproduced
hereinbelow:

“In fact, paragraph 56 of the Report contains two issues: - (i) State appointing an arbitrator;
(ii) Such arbitrator being employee of the State. The Law Commission confined its
examination only to the second issue and made no comment/recommendation on the first.”

As noted above, the Agreements that provide for one of the party to choose the Arbitral
Tribunal for the parties have been in existence even prior to the insertion of the Section 12(5)
of the Act. If this was the mischief that the Law Commission as also the amendment by way of
insertion of Section 12(5) of the Act sought to remedy, it would have said so in clear and
unambiguous terms. The legislature, however, did not make such contracts unenforceable but
only proceeded to safeguard the parties against appointment of Arbitrators against whom
circumstances exist that can give rise to a justifiable doubt as to their independence or
impartiality.

Party autonomy, therefore, has been taken away only to a limited extent and circumstances
and it is not for this Court to expand such exclusion in the garb of interpretation of the Act.”
15
Bhayana Builders Pvt. Ltd. v. Oriental Structural Engineers Pvt. Ltd., 249 (2018) DLT 619
The Hon’ble Supreme Court in both TRF and Perkins judgment has added one more ground
of disqualification under the Schedules i.e. Fifth and Seventh Schedule of the Act which was
neither intended nor provided by the Parliament.

Lastly, the Supreme Court in the Perkins judgment while relying upon TRF judgment went a
step ahead than the said judgment by holding that the logical deduction of TRF judgment is
that the parties cannot nominate a sole arbitrator. The Supreme Court in its decision
of  Bhavnagar University v. Palitana Sugar Mill Pvt. Ltd. & Ors,16 has held that a decision, as
is well-known, is an authority for which it is decided and not what can logically be deduced
therefrom and a little difference in facts or additional facts may make a lot of difference in
the precedential value of a decision. It is pertinent to note that the dispute resolution clauses
in both TRF and Perkins judgment were completely different. Hence, the reliance of the
Supreme Court on the TRF judgment in the Perkins judgment and arriving at a conclusion by
logically deducing from the TRF judgment, something which was not provided under the said
judgment, is against the settled principles of law. Therefore, the Supreme Court committed a
grave error of law and should reconsider.

UNILATERAL APPOINTMENTS AND SECTION 12(5): THE TRF

AND PERKINS EASTMAN PRINCIPLE
The arbitration clause in TRF Ltd. v. Energo Enginneering Ltd provided that disputes should
be referred to the sole arbitration of the respondent’s managing director or his nominee. The
Supreme Court observed that under the amended regime, the managing director of the
company would be ‘ineligible’ to act as an arbitrator since he has a vested interest in the
outcome of the dispute. Further, such ineligibility would also extend to his power of
appointing a nominee arbitrator.

The TRF principle was recently fortified by the Supreme Court in Perkins Eastman
Architects DPC & Anr. v. HSCC (India) Ltd. The Court in this case classified two categories
of cases:

(i) The TRF category, where an employee of the interested party is either appointed as the
arbitrator or has the right to nominate the arbitrator; and

16
Bhavnagar University v. Palitana Sugar Mill Pvt. Ltd., AIR 2003 SC 511.
(ii) The Perkins category, where an employee of the interested party only has the right to
nominate the sole arbitrator.

The Court held that if under the TRF principle, an interested person cannot act as or nominate
an arbitrator, the sequitur must necessarily be that such person would be disentitled to
nominate an arbitrator, even if he were not acting as an arbitrator himself. The possibility of
bias would exist in both the categories.

THE ESCAPE MECHANISM: BACKDOOR ENTRY OF

UNILATERAL APPOINTMENTS
An exception to the TRF and Perkins doctrine has been carefully carved out in cases where
each party has a right to nominate its own arbitrator since the appointing right of a party
would be ‘counter balanced’ by a concomitant appointment right of the other party
(paragraph 21 of Perkins).

In Voestalpine Schiennen GmBH v. Delhi Metro Rail Corporation Limited17 and Central

Organization for Railway Electrification v. M/s ECI-SPIC-SMO-MCML (JV) 18, A joint
Venture Company, the Supreme Court had occasion to deal with such an exception.

Voestalpine – one step forward

the parties were required to nominate their respective arbitrators from a panel of arbitrators
suggested by DMRC. DMRC shortlisted 5 names from the panel and each party nominated
an arbitrator from the given list. The process was challenged being contrary to section 12(5)
of the Act. While dealing with such a scenario, the Apex Court held that the choice given to
opposite party is limited and there is no free choice to nominate a person out of the entire
panel prepared by DMRC. Further DMRC choosing 5 names out of the list and then opposite
party choosing their respective arbitrator from those 5 names, this would instill the idea of
bias in mind of opposite party. The opposite party shall be given the full freedom to nominate
an arbitrator from the entire panel. The Court also suggested that the panel should be broad-
based. It should not only contain retired government employees, but also experienced and
eminent engineers from private sector. While the Supreme Court upheld the validity of this
clause on the facts of the case, it has importantly observed that:

17
Voestalpine Schienen GmbH vs. DMRC, [(2017) 4 SCC 665]
18
Central Organisation for Railway Electrification v M/S ECI-SPIC-SMOMCML (JV), 2019 SCC OnLine SC
1635
(i) Discretion of the appellant was not unfettered since its choice of arbitrator was restricted
to the respondent’s panel (which could be tailor-made to suit the respondent).

(ii) To dispel any apprehensions of impartiality, the panel of arbitrators should be broad
based.

The respondent was thus directed to prepare a broad-based panel consisting of lawyers,
accountants, private sector engineers etc.

Railway Electrification – two steps backward?

Under the arbitration clause in Railway Electrification, where the arbitration clause provided
the appointment of arbitrators from a panel of arbitrators(5 nominees) comprising of retired
railway officers, the apex court sitting in the capacity of division bench though relied on its
decision Voestalpine, upheld the arbitration clause and held that "merely being a retired
employee of an organisation does not necessarily attribute bias against such employee while
acting as an arbitrator. This decision has been criticised for taking the contrary view
from Perkins Eastman and Voestalpine. The Supreme Court has held this appointment
mechanism to be valid. The reasoning adopted by the Supreme Court and our humble opinion
in disagreement are as under:

(i) Reason – Procedure under the arbitration agreement ought to be followed. Reliance was
placed on Union of India v. Parmar Construction Company, and Union of India v. Pradeep
Vinod Construction Company.

Opinion – The Act, as amended, was held to be inapplicable in Parmar

Construction and Pradeep Construction. Railway Electrification was governed by the Act (as
amended), and ought to have been guided by TRF and Perkins.

(ii) Reason – TRF and Perkins held as inapplicable, since each party had a right to nominate
its own arbitrator.

Opinion – The respondent did not have the right to nominate its own arbitrator. Therefore,
the exception of ‘counter balancing’ of rights, could not have applied.

(iii) Reason – Limited reliance placed on Voestalpine to say that there was no bar on
employing retired employees as arbitrators.
Opinion – The Supreme Court ignored the more significant observations in Voestalpine i.e.,

(a) sufficient names from the panel were not forwarded to the respondent; and

(b) the panel was not broad-based. (It only consisted of retired railway officers.)

Current judicial trends

The issue of unilateral appointment of arbitrators has witnessed intense judicial scrutiny in
the recent past. Encouragingly, before Railway Electrification, various High Courts have
followed the Voestalpine principle and have either directed parties to prepare a broad-based
panel or appointed an individual arbitrator [See inter alia Simplex Infrastructures Ltd. v. Rail
Vikas Nigam Ltd. and ITD Cementation v. Konkan Railway].

A reference to Lite Bite Foods Pvt. Ltd. v. AAI19 would also be appropriate, as it effectively
harmonised the TRF and Perkins principles with Voestalpine. The arbitration clause provided
for the unilateral appointment of a sole arbitrator by the respondent. Relying
upon Perkins, the Court invalidated such an appointment procedure.

In addition, the Court negated the respondent’s without prejudice offer of appointing an
arbitrator from a panel for the reason that the panel was (a) narrowly-tailored; and (b) not
broad-based, hence being in conflict with the Voestalpine principle.

However, Railway Electrification seems to have diluted the principle of impartiality of

arbitrators, as enshrined in Voestalpine. Therefore, it would be fruitful to briefly analyze
subsequent judgments on the same.

The Delhi High Court in Proddatur Cable TV Digi Services v. Siti Cable Network Limited 20
while relying on the Perkins Eastman Case held that directors of a company ,as a part of
Board of Directors, would have a clear interest in the outcome of the arbitral proceedings and
therefore, the idea of bias would come in the mind of opposite party and therefore the
company acting through its Board of Directors would be ineligible under section 12(5) read
with schedule VII of the Act. The Delhi High court in the present matter held that be it a
company acting through its board of directors or the managing director as in the Perkins
Eastman's case, there cannot be any distinction and such a scenario is impermissible in the
law.
19
Lite Bite Food Pvt. Ltd. Vs. AAI MANU/MH/3423/2019
20
Proddatur Cable TV Digi Services  v.  SITI Cable Network Limited, 2020(2) ArbLR260(Delhi)
The Delhi High Court, in SMS Limited v. Rail Vikas Nigam Limited 21, and BVSR-KVR (Joint
Ventures) v. Rail Vikas Nigam Ltd22, was concerned with pari materia arbitration clauses that
envisaged the constitution of a three-member tribunal, with both the petitioner and the
respondent selecting one name each from the panel maintained by the respondent, and the
two nominators then selecting the presiding arbitrator from the same panel.

The Court, while setting aside the appointment procedure, observed that the panel was not
broad-based, as it majorly included retired or serving employees of the respondent, creating a
reasonable apprehension of bias and impartiality. Accordingly, allowing the appointment of
an arbitrator from such a panel would ex facie contravene the Voestalpine principle of broad-
based panels.

It is interesting to note that both SMS Limited and BSVR – KVR (authored by the same judge)

do not make any reference to Railway Electrification. It can certainly be argued that the
clauses in both these cases would have passed the Railway Electrification muster, since each
party had the right to appoint its own nominee arbitrator.

CONCLUSION
As discussed in this paper, the Courts have perceived the agreement for procedure of
arbitration between the parties as a manifestation of party autonomy in arbitration
proceeding. In fact, the Courts have called party autonomy as a cornerstone of arbitration
process. In view of the same, the Act provides an option to the parties to an arbitration
proceeding to get their disputes resolved through a sole arbitrator as the method is fast and
cost-effective. The amendments made to the Act in the year 2015 were a laudable attempt of
the Parliament to strike a balance between independence/impartiality, neutrality of an
arbitrator and party autonomy through the amendments made under Section 11 and 12 of the
Act and introduction of Fifth, Sixth and Seventh Schedule to the Act in order to increase the
credibility of arbitration proceeding. Hence, the intent of the Parliament was very clear that,
irrespective of the party who is appointing an arbitrator, it must be ensured that the person
who is appointed as an arbitrator is a neutral, independent and impartial arbitrator. The Courts
have called this as limited curtailment of party autonomy of the parties.

However, the combined effect of Supreme Court of both TRF and Perkins judgment has
taken away the right to appoint the sole arbitrator by one of the parties to the arbitration
21
SMS Ltd. Vs. Rail Vikas Nigam Ltd 2020(2)ArbLR376(Delhi)
22
BVSR-KVR(JV) vs. Rail Vikas Nigam Ltd [2020 (1) ArbLR 580 (Delhi)].
agreement. As held in the discussion hereinabove, that this was never the intent of Parliament
and the same could not be deduced by the express provisions of the statute. The Supreme
Court, through these two judgments, has made clear that the only option remaining with the
parties is to approach the Court for appointment of an arbitrator in agreements which provide
for appointment of sole arbitrator agreement by one party if there is no consensus between
the parties on the choice of arbitrator. Such practice will also be against the golden rule of
minimum Court intervention, as provided under the Act.  As a result, all the ongoing
arbitration proceedings where one party has appointed an independent and impartial sole
arbitrator as per the Act and agreements where one party has the right to appoint the sole
arbitrator have been put in jeopardy.  

In an attempt to find a middle ground, a three judge bench of Hon’ble Supreme Court in the
judgment of Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML
(JV),23 held that the power to nominate the arbitrator is counter-balanced by the power of
choice given to the other party to select its nominee Arbitrator from the panel of arbitrators
proposed by Railways. Interestingly the Railways had the right to appoint its nominee
including the appointment of the presiding officer of the Tribunal. The other party had the
choice of proposing two names from a panel of four given by Railways, of which the
Railways had to right to choose one as the other party’s nominee. The said judgment in a way
upholds Railways right to constitute the Tribunal in terms of the agreement. The Court passed
the said judgment after taking note of TRF and Perkins judgment. The Supreme Court also
dismissed the view of High Court wherein it has observed that the powers of the Court to
appoint arbitrator are independent of the contract between the parties and no fetters could be
attached to the powers of the court. Therefore, the Supreme Court in above judgment has in a
way diluted the effect of Perkins judgment. If Perkins has to be applied strictly in the facts of
the above case, Railways had no right to compel the other party to choose its nominee from
the panel suggested by Railways, as they will be interested in the outcome, by applying the
extended logic of disqualification.

Therefore, the law regarding right of a party to appoint the sole arbitrator in cases where the
agreement clearly provides for the same, requires reconsideration and law requires to be
settled to clear the doubts. Either the Parliament should amend the law in line with the
Perkins judgment or the Supreme Court has to reconsider its decision in the light of the
statutory provisions, which it has not considered while rendering the Perkins judgment.
23
ibid