Author: Ahan Gadkari*
Party autonomy has significant importance in any arbitration proceeding. One of the most important aspects of party autonomy is that the parties can select their own procedure for arbitration. Indian Prime Minister Narendra Modi announced that the government would be working to make India a hub of arbitration in 2016. However, after this announcement, the Supreme Court laid down judgments interpreting the Arbitration and Conciliation (Amendment) Act, 2015, in a manner that could be construed to be inconsistent with party autonomy. This raises questions like, how did this blow to party autonomy occur? What was the legislative intent of the parliament while framing such an amendment act? Has the amendment act been interpreted in a manner that was consistent with the legislative intent? Will such judgments affect India’s progress in trying to become a hub for arbitration? This piece will look into these questions while examining the circumstances surrounding the amendment act, especially the 246th Law Commission Report. This piece will then state the effect of these judgments on arbitration in India and suggest a way forward.
Consider this paradox: the legislature intended to grant freedom to parties to select their arbitrator(s), but the Supreme Court of India has constantly been framing restrictions to narrow the freedom granted by these provisions. The face of arbitration law in India changed after the introduction of multiple amendments to the Arbitration and Conciliation Act, 1996 (hereafter “The Act”), the latest one being the Arbitration and Conciliation (Amendment) Act, 2021 (hereafter “The 2021 Amendment”). Similarly, the judiciary has played no small role in shaping the jurisprudence on arbitration either. The recent Perkins Eastman Architects DPC v. HSCC (India) Ltd. judgment looked into the annulment of awards due to the appointment of a sole arbitrator and bias. There have been multiple cases that have framed jurisprudence on the appointment of arbitrators. Nevertheless, the courts have always come up with new interpretations for existing law. Perkins laid down the rule that a single party can no longer “nominate” an arbitrator even if that is the procedure set out in the arbitration agreement. This had a domino effect and led to the cases like Proddatur Cable TV DIGI Services v. SITI Cable Network Limited, which sought the termination of the mandate of arbitrators appointed by one party to the arbitration agreement. This piece will look into the judgments that shaped the jurisprudence on the topic as well as the recommendations of the 246th Law Commission Report (hereafter “The Report”), which were included in the Arbitration and Conciliation (Amendment) Act, 2015 (hereafter “The 2015 Amendment”).
Prior to the 2015 Amendment
Arbitration contracts that have a provision for the appointment of a sole arbitrator are common. Major agreements by public sector undertakings and government contracts contain this provision as well. Consent is one of the most critical factors in an arbitration agreement and includes party autonomy while choosing the procedure for the arbitration. This procedure includes the nomination of an arbitrator. With respect to procedure, the Report had asked for party autonomy to be respected, but not at the cost of impartiality and independence. However, courts seem to have amplified the importance of this section of the Report and ignored the very next page, which asked for parties to be allowed to waive categories of ineligibility of arbitrators in favour of party autonomy.
The balance between party autonomy and the impartiality/independence of the arbitrator had previously been discussed in detail by the Supreme Court in Indian Oil Corporation v. Raja Transport (P) Ltd. The court looked into the issue of whether party autonomy would prevail in case the arbitration procedure allowed an employee of the company to serve as an arbitrator. The court held that the Act does not bar someone who has been working in the organisation from serving as an arbitrator, especially when the official asked to serve as an arbitrator is a senior official of the government body and has no relation to the execution of the contract. Although the court stated that there was no reason to doubt the arbitrator’s impartiality and independence, the court warned that there should be a bar on an employee-arbitrator from acting as the sole arbitrator so that it would increase the credibility of the arbitration process. In this initial case, party autonomy was upheld, and an employee-arbitrator was allowed to serve as the sole arbitrator since it was the procedure agreed upon by the parties.
After the 2015 Amendment
The 2015 Amendment included a fifth schedule which provided a comprehensive list of when an arbitrator would be considered independent or impartial. The Report, which was the driving force behind the amendment, discussed impartiality and independence of the arbitrator, and, significantly, not of the person nominating them. The Bombay High Court took a sound interpretation of this amendment with reference to the Report in DBM Geotechnics & Constructions Pvt Ltd v. Bharat Petroleum Corporation Ltd. In that case, the arbitration agreement stated that the managing director of BPCL was to either serve as an arbitrator or nominate someone else as the arbitrator. The question was whether the managing director of BPCL loses his power to nominate an arbitrator due to his ineligibility to serve as an arbitrator under the 2015 Act. The court decided to apply the doctrine of separability and held that the managing director might be ineligible to serve as an arbitrator, but that is distinct from his responsibility to nominate an arbitrator. According to the court, it is not uncommon for the invalid part of the agreement to be severed from the valid part and the managing director has not lost the power to nominate the arbitrator, even under the 2015 Act. The judgment by the high court was thought of as security for party autonomy within the country, but it all changed when a similar issue came up for discussion in the Supreme Court.
It bears reiterating that the Report is essential in interpreting the 2015 Act since this amendment was majorly encouraged by this report. The Report had made no mention of the ineligibility of the person appointing the arbitrator. Nevertheless, the Supreme Court decided that the person appointing the arbitrator also came under the fifth schedule’s purview. This could be clearly seen in TRF Limited v. Energo Engineering Projects Limited. In this case, the Supreme Court dealt with the issue of whether an ineligible arbitrator could nominate another arbitrator. The agreement between the parties stated that any dispute would be referred to arbitration with the managing director of the buyer acting as the sole arbitrator or nominating another arbitrator. The court held that an ineligible arbitrator nominating another person to act as a sole arbitrator would be “tantamount to carrying on the proceeding of arbitration by himself.” The court followed the line of logic that if the managing director is ineligible to act as an arbitrator, then that person cannot nominate another arbitrator. While dealing a considerable blow to party autonomy and contradicting the DBM Geotechnics judgment, the court failed to consider the perspective that the power to appoint an arbitrator is an independent right and separable from the right to act as an arbitrator. After this judgment, this issue was raised in multiple cases in high courts across India. However, many of the high courts did not agree with the view taken by the apex court in this judgment.
The Delhi High Court had a similar case in D.K. Gupta & Anr. v. Renu Munjal. The petitioners in that case argued that the arbitration clause was null and void, citing the TRF judgment. In the TRF judgment, the arbitration clause stated that the managing director could serve as the sole arbitrator or nominate one. In this case, the arbitration clause stated that “the arbitration shall take place before Sole arbitrator, to be appointed by the Lender.” The court, however, stated that there was a fundamental difference in this case from the TRF judgment. The Supreme Court held that the managing director could neither serve as an arbitrator nor nominate an arbitrator. In this case, it is not the managing director but the party that is appointing the arbitrator. Just because one party has the responsibility to appoint an arbitrator does not mean that the agreement is invalid. The party is responsible for selecting an impartial and independent arbitrator, as was agreed in the arbitration clause. This interpretation avoided the narrow interpretation of the TRF judgment wherein the Supreme Court stated that a similar agreement would be invalid under section 12(5) of the Act.
In Bhayana Builders Pvt. Ltd. v. Oriental Structural Engineers Pvt. Ltd. and Ors, the Delhi High court was faced with a similar set of facts. In this case, the arbitration clause simply stated that the managing director of the first party would nominate the sole arbitrator. The petitioners tried to argue that the precedent laid down in the TRF judgment applied here, and that the managing director was ineligible from nominating the sole arbitrator. However, the court held that since the option of the managing director acting as the sole arbitrator was not available in this case, the precedent laid down in the TRF judgment did not apply. More importantly, the court held that even if the option of the managing director being the sole arbitrator was available (referring to the facts in the TRF judgment), the agreement would still be valid. The court also referenced the D.K. Gupta judgment. The court held that if the parties agree that one party can choose the sole arbitrator, it does not in any manner disqualify the chosen person from appearing as an arbitrator or render the arbitration clause invalid. The court further emphasized that the Act empowers the parties to select their own procedure for arbitration, including the arbitrator’s appointment.
These judgments were slowly reversing the damage done by the TRF judgment, while further reviving jurisprudence supporting party autonomy,
Such judgments were not solely restricted to the Delhi High Court. The Calcutta High Court also gave a similar judgment in Divyendu Bose v. South Eastern Railway. In this case, the arbitrator was a retired chief engineer of South Eastern Railway appointed by the general manager. The petitioners argued that the general manager could not serve as an arbitrator or nominate an arbitrator. They further argued that since the general manager appointed the arbitrator, the precedent laid down in the TRF judgment applied, and the appointment should be declared invalid. The respondents argued that the TRF judgment did not apply. In the TRF judgment, the managing director was either supposed to serve as the sole arbitrator or nominate one. In this case, the general manager has not been asked to serve as the arbitrator and only been asked to nominate the arbitrator. Therefore, according to the respondents, the TRF judgment had no application in this case. The respondents further argued that the retired chief engineer was not disqualified under any of the grounds mentioned within the fifth schedule. Therefore, there should be no bar for him acting as an arbitrator for the dispute. The court agreed with both of the respondent’s arguments and rejected the application. The court went on to state that it is a well-established principle of law that “judgments should not be read as statutes.” A judgment should be understood as what was held in that situation and not as an authority for the subject. The court further stated that a small difference of facts might make a large difference in the precedential value of the decision. The holding of the court, in this case, was set as precedent and used for the determination of many further cases decided by the Calcutta High Court.
The judgments by the Delhi and Calcutta High Courts after the TRF judgment was a sign of hope. Parties were starting to regain their trust in the Indian arbitration system and its respect for party autonomy. After examining the different judgments, it almost seemed like the courts were overreaching their power of interpretation and were trying to craft their own provisions of law. Historically, courts have treaty laws like elements being experimented with within a laboratory. The respect for party autonomy garnered by the decisions of the Delhi and Calcutta High Courts was crushed by the iron fist of the Supreme Court in the Perkins judgment.
The Perkins Judgment
The highly controversial Perkins judgment arrived in the backdrop of multiple Indian high courts supporting party autonomy. The stage was set for the Supreme Court to make a definitive ruling supporting the same, but the exact opposite happened. The issue before the court was whether any single party to an arbitration clause could appoint an arbitrator. The court also went to rule on whether courts can interfere in such appointment and whether such appointment was legal. The Supreme Court examined the TRF judgment and stated that the managing director was a part of two categories. First, as an arbitrator, he was disqualified directly as he had an interest in the outcome of the case and thus would not act in an impartial manner. Second, as an appointing party, the court ruled that if interest in the outcome is an indicator of a possibility of bias, then it should extend to appointment by a single interested party as well. The court then further held that an arbitration clause which only grants powers to the chief managing director is invalid under the 2015 Act.
Significantly, this holding also meant that this judgment would disentitle any single party to the appointment of a sole arbitrator and is a massive injury to parties’ freedom in arbitration in India. Nevertheless, the court decided to interpret the TRF judgment in this manner. The court further held that, keeping in mind Bharat Broadband judgment, the current judgment would apply retrospectively. This holding will open pandora’s box of challenges to previous arbitration awards since the single party appointment model is widely used in arbitration agreements in India.
Also, it is essential to note that the application before the court in Perking was brought under section 11(6) of the Act. The Act does not have any provision for the challenge of the arbitrator under section 11(6) of the Act. The section clearly states that only upon failure to comply with the procedure stated in the arbitration clause can the parties ask the court to take measures before the appointment of an arbitrator can be sought. This is meant for stopping activities that could result in damage to the fairness of the arbitration proceeding before it begins. An application to challenge the arbitrator under section 13 or 24 and 32 for challenging the award is understandable. The court erred in allowing a party to take refuge under section 11(6) of the Act for challenging the appointment of an arbitrator. This judgment has set a dangerous precedent and once again raises questions regarding judicial interference with legislative intent.
How come? First, in order to determine legislative intent, the contents of the 2015 Act must be examined. Under Section 11 of the Act, the parties are free to choose their procedure for arbitration, and the court can be requested to appoint an arbitrator only upon the failure of such procedure. It is evident that the parliament has allowed for the appointment of a sole arbitrator by one party. If the parties agree to an arbitration agreement wherein a single party can appoint the arbitrator, they should have the right to do so. This right is part of party autonomy. It is important to note that speculation regarding bias cannot be a solid ground for the invalidity of an appointment. If the parliament intended to do away with single party appointment of arbitrators, it could have been included in the Act. But the reading of none of these amendment seems to suggest the same. Limiting the right to select their own procedure for arbitration crushes the backbone of party autonomy in arbitration proceedings.
Second, the judicial interference with established legislative intent. The parliament has the role of creating laws and not the courts. The Supreme Court cannot extend the scope of the fifth and sixth schedule based on their speculation of bias. Section 5 of the Act even states that courts should endeavour to keep their interference to a minimum in arbitration proceedings. In the Bharat Aluminium judgment, a constitutional bench of the Supreme Court held that judges should not add or extend the scope of a statute if the “meaning of the statutory words is plain and unambiguous.” It is also important to note that although the Perkins judgment was based on the TRF judgment, the latter had mentioned that the 2015 Act does not take away the right of a single party to appoint a sole arbitrator. It seems like the new set of restrictions created by the TRF judgment and the Perkins judgments are laws created by the judiciary rather than that created by the parliament.
Conclusion and a way forward
Interestingly, it may be noted that there has been some concession from the Supreme Court on this issue. In Central Organisation for Railway Electrification versus ECI-SPIC-SMO-MCML (J.V.), a three-judge bench of the court dealt with the issue that if the other party is given a choice to select an arbitrator from a panel prepared by one party; will the appointment stand valid? The court looked into the Perkins and TRF judgments while taking a moderate view. The court held that since a choice was given to the other party for the arbitrator’s appointment, then the appointment would be valid. This holding can be said to be a diluted version of the Perkins judgment.
Keeping the current circumstances in mind, this piece suggests two recommendations that could aid the arbitration system in India. First, the law regarding the appointment of an arbitrator by a single party needs to be settled. Unless this matter is settled, the uncertainty between parties will grow, and India will never be perceived as a safe hub for arbitration. The Supreme Court must reconsider its decision in the Perkins judgment to clarify and restore party autonomy in India. Second, the parliament can further amend the Act to clarify their position supporting party autonomy. If this is not achieved, then there is a further chance of an erroneous interpretation being taken up by courts in the future. The damage to party autonomy is already considerable, but uncertainty on the issue will sound the death knell of arbitration in India.
To achieve the target set out by Modi of making India an arbitration hub, these issues need clarification. Steps are being taken like the development of the International Centre For Alternative Dispute Resolution. Nevertheless, without respect for party autonomy, it would not make sense for parties to choose India for their arbitration proceedings. The Supreme Court must either review the Perkins judgment, or the parliament should pass an amendment clearing the uncertainty on the issue. Either of these would certainly help India in becoming a hub for arbitration.
* Ahan Gadkari is a penultimate year BA LLB candidate at Jindal Global Law School. He serves as a Research Assistant under Dr. Aniruddha Rajput, Member, UN International Law Commission.
 Perkins Eastman Architects DPC v. HSCC (India) Ltd., 2019 SCC OnLine SC 1517, at 6.
 R. Sudhinder, Nikhal Kumar Singh, & Pierre Uppal, Law Relating to Unilateral Appointment of Sole Arbitrator – A Critical Analysis of Perkins Eastman Judgment, Mondaq (Jun. 1, 2020), https://www.mondaq.com/india/trials-appeals-compensation/944298/law-relating-to-unilateral-appointment-of-a-sole-arbitrator–a-critical-analysis-of-perkins-eastman-judgment.
 Proddatur Cable TV DIGI Services v. SITI Cable Network Limited, 2020 SCC OnLine Del 350, at 10-11.
 Law Commission of India, Report No. 246 – Amendments to the Arbitration and Conciliation Act 1996 (2014), https://lawcommissionofindia.nic.in/reports/Report246.pdf.
 Sudhinder, et al., supra note 2.
 Supra note 4, at 29, 30.
 Supra note 4, at 31.
 Indian Oil Corporation v. Raja Transport (P) Ltd., (2009) 8 SCC 520.
 Id. at 4.
 Id. at 7-8.
 Id. at 8.
 DBM Geotechnics & Constructions Pvt Ltd v. Bharat Petroleum Corporation Ltd., (2017) 5 ABR 674.
 Id. at 1.
 Id. at 8.
 TRF Limited v. Energo Engineering Projects Limited, AIR 2017 SC 3889.
 Id. at 3-4.
 Id. at 20.
 D.K. Gupta & Anr. v. Renu Munjal, 2017 SCC OnLine Del 12385.
 Id. at 2.
 Id. at 3.
 Bhayana Builders Pvt. Ltd. v. Oriental Structural Engineers Pvt. Ltd. and Ors, 249 (2018) DLT 619.
 Id. at 1-2.
 Id. at 2.
 Id. at 14-15, 17.
 Divyendu Bose v. South Eastern Railway, A.P. No. 1075 of 2017.
 Id. at p. 7.
 See, e.g., Paritosh Debnath. versus Magma Fincorp Limited, AP No. 265 of 2019 and Rockwell Automation India Pvt. Ltd. versus Steel Authority of India Ltd., AP 782 of 2018.
 Bharat Broadband Network Limited v. United Telecoms Limited, (2019) 5 SCC 755. In this case, the major issue was whether a person (a Managing Director) who is barred to act as an arbitrator due to the operation of law can be the sole party nominating the arbitrator. The Supreme Court upheld the TRF judgement and held that the Managing Director cannot appoint an arbitrator as he is one of the parties to the Arbitration. It served as another nail in the coffin burying party autonomy.
 The Government of Haryana PWD Haryana (B and R) Branch v. M/s G.F. Toll Road Pvt. Ltd., (2019) 3 SCC 505.
 Bharat Aluminium Co versus Kaiser Aluminium Technical Services, (2012) 9 SCC 552.
 TRF Limited v. Energo Engineering Projects Limited, AIR 2017 SC 3889, at 9.
 Central Organisation for Railway Electrification versus ECI-SPIC-SMO-MCML (J.V.), 2020(1) ALT 70.
 Working To Make India An Arbitration Hub: PM Modi | India News – Times Of India, The Times of India (Oct. 23, 2016), https://timesofindia.indiatimes.com/india/working-to-make-india-an-arbitration-hub-pm-modi/articleshow/55012833.cms.
 See The Quest For Making India As The Hub Of International Arbitration, PM India (Jun. 12, 2019) https://www.pmindia.gov.in/en/news_updates/the-quest-for-making-india-as-the-hub-of-international-arbitration/.