Unilateral appointment of arbitrators in India

Arbitration can be defined as a mechanism wherein dispute is submitted to an impartial

outsider who makes a decision which is binding on both the parties. Arbitrator is generally
appointed by the parties with mutual consent. He is presumed to be a third person and would
give an unbiased decision. But lately, the concept of unilateral appointment of arbitrators has
arose which negates this basic important principle of mutual consent.
The Arbitration and Conciliation (Amendment) Act of 2015 has tried to resolve this issue. It
provides for various grounds in which an individual shall be ineligible for appointment as an
arbitrator in the said matter under Section 12(5) and Seventh Schedule of the Act. These also
include employee/consultant/advisor or has any part or present relationship with one of the
parties.

The first case to showcase this issue is TRF Limited v. Energo Engineering Projects Limited1
where the arbitration clause read as follows - "shall be referred to a sole arbitration of the
Managing Director of Buyer (Energo Engineering) or his nominee". The Supreme Court
addressed the issue of whether a person ineligible to be appointed as an arbitrator can
nominate an arbitrator. The Court held in the negative and said that such clause would be
invalid as it goes against the principle of neutrality. This case was used as a precedent in the
case of Perkins Eastman Architects DPC and another v. HSCC (India) Limited2 where the
High Court held that, in a situation where only one party has the right to choose the sole
arbitrator, there shall always remain a certain amount of bias and thus goes against the
principle of neutrality of arbitrator. Bharat Broadband Network Ltd. United Telecoms Ltd3,
following the TRF case held that such appointment shall be void as initio. It further held that,
it was a retrospective provision.

Further in Voestalpine Schienen GmbH vs. DMRC4, the appointment of arbitration clause was
such that the parties had to nominate arbitrators from a panel of arbitrators suggested by
DMRC. DMRC further chose 5 names from the panel and the parties were made to nominate
an arbitrator from the 5 names. This clause was challenged as being contrary to Section 12(5)
of the Act ie, ineligibility of appointment as arbitrator. The Supreme Court held that this
process of appointment was biased as the option for choosing the arbitrator was limited, thus
contrary to the principle of neutrality.

However, in the case of  Central Organisation for Railway Electrification v M/S ECI-SPIC-
SMO-MCML (JV)5, where the facts were similar to Voestalpine case, the Supreme Court
upheld the validity of the arbitration clause stating that retired employees cannot be said to be
biased.

Thus, the clause which provides for unilateral appointment of arbitrator is void ab initio.
Since arbitration as a means of dispute resolution is still evolving, there have been few
contradictory judgements on this issue. It is for the Supreme Court to keep in mind that India
is making attempts to be pro arbitration friendly and thus remove the ambiguity on this issue
as soon as possible.

1
AIR 2017 SC 3889
2
2019 SCC Online 1517
3
(2019) 5 SCC 755]
4
(2017) 4 SCC 665
5
2019 SCC OnLine SC 1635