Indian Supreme Court’s view on Unequal Representation of the Parties in Formation of the Arbitral Tribunal
THE AUTHOR:
Avineet Singh Chawla, Lecturer and Assistant Proctor at Jindal Global Law School
On 08/11/2024, the Constitution Bench (5-judge bench) of the Indian Supreme Court (“Court”) attempted to refine the balance between party autonomy and the principles of independence and impartiality in the Indian arbitration regime in the case of Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV), Judgment of the Supreme Court of India 2024 INSC 857, 8 November 2024 (“CORE Case”). While parties have the autonomy to get their disputes settled by arbitrators of their choice, the Indian Law Commission’s 246th report intended to draw a line by ensuring the principles of independence and impartiality of the arbitral process, especially at the stage of constitution of tribunal. With this intention in mind, the 2015 Amendment Act to the Arbitration & Conciliation Act, 1996 (“Act”) was passed with the introduction of Section 12(5) and the Seventh Schedule rendering the person falling under any of the categories mentioned as ineligible to be arbitrator in the case. While the Indian legislature is clear with its intentions, the judicial interpretations have struggled to find a right balance between party autonomy and principles of independence and impartiality.
Previously, the Court attempted to provide clarity on the right balance in various cases. Notably, in the case of Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation (“DMRC”) Ltd. (“Voestalpine Case”), the arbitration clauses stated that DMRC will prepare a panel of five engineers [comprising of serving or retired engineers of government departments or public sector undertakings{PSUs}], out of which both parties shall choose one arbitrator each, and the two so chosen shall choose the presiding arbitrator from the said list. The two-judge bench addressed the issue of whether the panel of arbitrators prepared by DMRC violates Section 12 of the Act. The Court, acknowledging the spirit of the amended provision, merely stated that, “bias or even real likelihood of bias cannot be attributed to such highly qualified and experienced persons, simply on the ground that they served the Central Government or PSUs.” It further stated that the panel should be broad-based (comprising of persons with legal background like Judges and lawyers of repute as it is not necessary that all disputes that arise, would be of technical nature). The Court concluded that such diversification was sufficient to safeguard the principles of independence and impartiality.
Similarly, in the case of TRF Ltd v. Energo Engineering Projects Ltd, Judgment of the Delhi High Court, 3 July 2017 (“TRF Case”), the arbitration clause stated that any dispute or difference between the parties in connection shall be referred “to sole arbitration of the Managing Director of Buyer or his nominee.” The Court in dealing with this issue, interestingly relied on the maxim qui facit per alium facit per se (what one does through another is done by oneself) to hold that a person who becomes ineligible to be appointed as an arbitrator cannot nominate another person as an arbitrator. The same was observed in Perkins Eastman Architects DPC v. HSCC (India) Ltd. (“Perkin’s Case”), where the arbitration clause stipulated that “disputes or differences between the parties to the contract “shall be referred for adjudication through arbitration by a sole arbitrator appointed by the CMD HSCC”. TRF Case and PerkinsCase, both dealt with a similar situation where a person who was rendered ineligible in terms of Section 12(5) was making an appointment of a sole arbitrator. Subsequently, the Court in the PerkinsCase heavily relied on the TRF Case, recognizing the maxim of qui facit per alium facit per se, to observe that a person who has an interest in the dispute or its outcome should not have the power to unilaterally appoint a sole arbitrator.
However, these cases, while providing certain clarity, left various critical questions unanswered. Is the Maxim of qui facit per alium facit per se applicable in the case where a party, who has an interest in the dispute, curates a panel of arbitrators and mandate that the other party select their arbitrator from the panel? Further, is simply ensuring a broad-based panel enough to ensure compliance with Section 12(5) and the Seventh Schedule of the Act? What shall be the minimum number of persons on the panel to eliminate the question of impartiality? Can just a broad-based panel truly prevent the appointing authority, a government entity in this case, from favouring individuals with pre-existing ties as per the Seventh Schedule?
By not providing clearer guidelines and minimum standards, the Voestalpine, TRF and Perkin’s cases left a grey area in addressing this issue. As we examine the judgement in the CORE case, we must ask: Did this case provide conclusive solutions to the questions raised above? Did this case finally strike the right balance between the two important principles of party autonomy and independence and impartiality?
Commentary
In the CORE Case, the Central Organisation for Railway Electrification (“CORE”) and a Joint Venture (“JV”) had an arbitration clause in place which stated that the tribunal shall consist of three arbitrators, all of whom shall be retired railway officers. CORE will provide a panel of at least four retired railway officers eligible to serve as arbitrators, which will be shared with JV. JV must select and propose at least two names from the provided panel. The General Manager (“GM”) shall appoint one of these two nominees as the contractor’s arbitrator. The GM will appoint the remaining arbitrators (either from the panel or outside) to complete the three-member tribunal. The GM will also designate one arbitrator as the “Presiding Arbitrator.”
The Court first tried to address the contentious issue of whether a party with an interest in the dispute, curating a panel of arbitrators for the opposing party to select from, complies with the maxim qui facit per alium facit per se. The Court, while highlighting the importance of having a neutral panel, failed to conclusively address the more important question of whether the creation of such panels inherently breaches this principle when such a panel is curated by an interested party. Though the judgment hints at the need for structural safeguards, it falls short of offering definitive criteria to ensure the component of impartiality in such panels.
Moreover, the Court emphasized that such curated panels shall be broad-based; However, merely increasing a certain number of arbitrators on the panel from diverse fields and expertise does not, inherently, ensure complete compliance with Section 12(5) and the Seventh Schedule of the Act. Without clearer guidelines on various aspects such as qualifications and potential conflicts of interest of the individuals on such panels, there still remains a risk that the appointing authority, could still influence outcome of the dispute by curating a list of arbitrators having pre-existing ties (since Schedule Seven does not contain any scenario regarding ties between appointing authority and the arbitrators, it only consists list of situation where ties can be established between arbitrators and the parties or counsels).
Another pertinent observation is that the Court relied on invoking constitutional principles, such as principles of natural justice [1. nemo judex in causa sua (no one shall be a judge in their own case; 2. no decision shall be given against a party without affording a reasonable opportunity of being heard], Article 14 of the Constitution of India, doctrine of bias and the test of real likelihood of bias. The dissenting opinion of Justice Hrishikesh Roy and Justice Narsimha rightly disapproves of the invocation of such constitutional principles, especially Article 14. Arbitration is a mechanism which ensures contractual freedom (party autonomy) and it must only adhere with the statutory framework (the Act). Such freedom must not be misused to undermine core tenets such as fairness and equality. Further, adopting the usage of such principles may increase court interference and delay the proceedings of arbitration, which is not the legislative intent of the Act (as can be seen in the 2015 Amendment and Draft Arbitration and Conciliation (Amendment) Bill, 2024)
To ensure a balanced approach that fulfils both the purposes of protecting party autonomy while safeguarding impartiality, it would be prudent for the legislature to mention respective guidelines in the Draft Arbitration and Conciliation (Amendment) Bill, 2024. The New amendment should specifically address the potential conflicts of interest between appointing authorities of the panels and potential arbitrators, along with criteria for the composition and neutrality of arbitral panels. Codifying such guidelines will ensure minimal judicial intervention and will help address the situations where still various public-private contracts have arbitration clauses where one authority is required to curate a panel of arbitrations and the other party is required to choose their arbitrator from such a panel.
ABOUT THE AUTHOR
Avineet Singh Chawla is working as a Lecturer and Assistant Proctor at Jindal Global Law School. Avineet was called to the bar in 2017 post which he pursued his LL.M. from Queen Mary University of London specialising in International Dispute Resolution (2018-2019). Avineet is an arbitration enthusiast and works actively in promoting arbitration as one of the smoothest and most accurate forms of dispute resolution across India.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
