NOTE ON SC APPEAL DEFINING THE BALANCE BETWEEN
PARTY AUTONOMY AND THE PRINCIPLE OF IMPARTIALITY
IN CHOOSING ARBITRATORS UNDER THE ARBITRATION AND
RECONCILIATION ACT,1996
This note explores Civil Appeal Nos. 9486-9487 of 2019, Central
Organisation For Railway Organisation (CORE) v ECI-SPIC-SMO-
MCML (JV) A Joint Venture Company, its primary issue regarding the
balance b/w party autonomy and the principle of impartiality, precedential
analysis, and the appeals’ various interpretations by legal experts.
FACTUAL BACKGROUND
The appellant awarded a work contract of Rs.165,67,98,570/- to the respondent com -
pany by an agreement dated 20.09.2010 containing the arbitration clause. Subse -
quently, after coming into force of the Arbitration and Conciliation (Amendment) Act,
2015 (w.e.f. 23.10.2015), the Government of India, Ministry of Railways, modified
Clause 64 of the General Conditions of Contract, which among other things, provided
that in cases where the total value of all claims exceeds Rs. 1 crore, the Arbitral Tri -
bunal shall consist of a panel of three gazetted Railway Officers not below JA (Junior
Administrative) Grade or two Railway Gazetted Officers not below JA Grade and a re -
tired Railway Officer, retired not below the rank of Senior Administrative (SA) Grade
officer as arbitrators.
Due to the respondent's non-completion of work, the appellant issued a “seven days”
notice under Clause 62 of the General Conditions of Contract to the respondent. After
that, the appellant issued a “48 hours’ notice” to the respondent, calling upon the re -
spondent to make good progress on the work, failing which the contract would be ter -
minated. This was followed by termination of the contract, forfeiture of deposit and en -
cashment of performance guarantee due to inadequate completion of work.
The respondent filed a petition in the High Court (No. 760 of 2017), which was dis -
missed. The respondent was directed to invoke the arbitration clause as an alternative
remedy. The respondent requested the appellant to appoint an Arbitral Tribunal to re -
solve the disputes between the parties and settle the claims value of Rs.73.35 crores.
The appellant sent a list of four serving Railway Electrification Officers of JA Grade to
act as arbitrators . The respondent was asked to select any two and communicate to the
appellant to form the arbitration tribunal panel. The respondent was sent a list of an -
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other panel comprising four retired Railway officers to select any two from this list and
communicate them to the appellant within thirty days for the constitution of the arbitra -
tion tribunal, as per clause 63(3)(b) of Railway’s GCC.
The respondent didn’t reply and filed an arbitration petition in the High Court un -
der Section 11(6) of the Arbitration and Conciliation Act seeking the appointment of a
sole arbitrator to resolve differences. According to the respondent, there exists a valid
and binding arbitration clause between the parties being clause 1.2.54 of Part I of
Chapter 2 and also 64 of the GCC; but since no neutral arbitrator is contemplated to be
appointed in the GCC , the respondent has no other recourse except by filing the peti -
tion under Section 11(6) of the Arbitration and Conciliation Act, 1996.
The High Court rejected the appellant's argument that the arbitrator should be ap -
pointed only from the panel of arbitrators in terms of the GCC while observing that the
court's powers to appoint arbitrators are independent of the contract between the parties
and that no fetters could be attached to those powers. With those findings, the High
Court appointed Shri Rajesh Dayal Khare, a retired judge of the Allahabad High Court,
as the sole arbitrator under Section 11(8) of the Arbitration and Conciliation Act.
Aggrieved by the Orders, CORE filed a special leave petition before the Supreme Court
and challenged the appointment of the Sole Arbitrator by the High Court.
ISSUE
a. Whether an appointment process which allows a party who has an interest in the
dispute to unilaterally appoint a sole arbitrator or curate a panel of arbitrators and
mandate that the other party select their arbitrator from the panel is valid in law;
b. Whether the principle of equal treatment of parties applies at the stage of the ap -
pointment of arbitrators;
c. Whether an appointment process in a public-private contract allows a government
entity to unilaterally appoint a sole arbitrator or a majority of the arbitral tribunal's
arbitrators violates Article 14 of the Constitution.
RESPONDENT’S ARGUMENTS
A. Party autonomy is subject to Sections 18 and 12(5) of the Arbitration Act. A panel
of potential arbitrators unilaterally controlled by one party suffers from a lack of
independence and impartiality;
B. Reasonable apprehension of bias arises when an arbitration clause gives one party
the power to appoint sole arbitrator;
C. Section 12(5) overrides an arbitration agreement because of the non obstante
clause. Through TRF and Perkins, it is understood that if a person has an interest in
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the outcome of the dispute, such person should not have any role in the process of
appointing an arbitrator, including curation of a panel of potential arbitrators;
D. A unilaterally appointed panel is contrary to the principle of equal treatment of par -
ties enshrined Under Section 18, which is a mandatory provision. Also Section 18
of Chapter V of the Act regarding the conduct of arbitral proceedings applies to the
constitution of the arbitral tribunal, and any lack of mutuality in the appointment
process is a violation of the section as it gives an unfair advantage to one party;
E. In Lombardi Engineering Limited v. Uttarakhand Jal Vidyut Nigam Limited , the
Court held that arbitration agreements must conform to the Constitution. An arbi -
tration Clause authorising one party to appoint an arbitrator or curate a panel of ar -
bitrators unilaterally is unconscionable and violative of Article 14. Section 23 of
the Indian Contract Act 1872 12 also prohibits unconscionable contracts;
F. The constitution of an arbitrator panel must ensure impartiality and independence,
as per Section 12 of the Arbitration and Conciliation Act. A panel curated by one
party or restricted by pre-selection undermines this principle. It creates "justifiable
doubts" about the arbitrator's impartiality, which violates both the constitutional
guarantee of equality and the statutory requirement of independence.
APPELLANT’S ARGUMENTS
A. Party Autonomy is respected and ingrained throughout the Arbitration Act. Section
11(2) allows the parties to agree on a procedure for appointing arbitrators. The pro -
cedure contemplated under Section 11(2) can include one party preparing a panel of
arbitrators and giving a choice to the other party to select its nominee from the
panel;
B. The Supreme Court or High Court's duty to appoint an independent and impartial
arbitrator under Section 11(8) arises only in the circumstances outlined in Sections
11(4), 11(5), and 11(6), where the parties fail to adhere to the agreed-upon proce -
dure. This provision does not restrict the parties' right to mutually decide on a
method for appointing arbitrators under Section 11(2).
C. Section 12(5) expressly prohibits a person ineligible in terms of the Seventh Sched -
ule from being appointed as an arbitrator. However, the Arbitration Act does not
explicitly prohibit such an ineligible person from appointing an arbitrator or enlist -
ing a panel of potential arbitrators;
D. Equality of treatment under Section 18 does not pertain to equality between the
parties when agreeing on a procedure for appointing an arbitrator. Instead, Section
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18 requires the arbitral tribunal to treat the parties equally and give them a full op -
portunity to present their case. Moreover, Section 18 applies only after the arbitral
tribunal has been constituted and during the conduct of the arbitral proceedings.
E. The Arbitration Act already provides adequate statutory safeguards for securing the
independence and impartiality of arbitrators. These safeguards include: (i) Section
12(5) read with the Seventh Schedule; (ii) mandatory disclosure under Sections
12(1) read with the Fifth Schedule; (iii) challenge procedures under Sections 13
and 14; and (iv) judicial review of the decision of an arbitrator under Section 34;
F. Voestalpine upheld the maintenance of a panel of potential arbitrators by public
sector undertakings and laid down the broad-based principle for operating a panel
of arbitrators. Further, it did not bar former employees of the parties to the arbitra -
tion agreement from serving as arbitrators;
G. The decision in TRF incorrectly applied the maxim ‘Qui facit per alium facit per
se’, which is typically relevant to the delegation of authority. Appointing or nomi -
nating an arbitrator under an arbitration clause does not constitute delegating the
appointing authority ’s power. Instead, the arbitrator exercises an independent adju-
dicatory function governed by the terms of the arbitration agreement and the provi -
sions of the Arbitration Act.
PRECEDENTIAL ANALYSIS
I. M/S Voestalpine Schienen Gmbh v Delhi Metro Rail Corporation Limited
A. Decided that ex-government employees could be appointed as arbitrators, under
the amended Arbitration and Conciliation Act, 1996 (‘Arbitration Act’), in dis -
putes arising out of a Government contract and that such appointment does not
run foul of the conflict of interest guidelines listed in the Seventh Schedule of
the Arbitration Act.
B. Held that the selection of retired engineers of Government departments or PSUs
did not violate Section 12(5) of the Arbitration Act simply because the person
(sought to be appointed as an arbitrator) is a retired officer of a government or
other statutory corporation or PSUs. If such a person had no connection with the
DMRC, then that person would not be treated as ineligible under Section 12(5)
of the Arbitration Act.
C. The judgment effectively rejects the proposition that all Government entities
and PSUs are to be seen as one composite entity for purposes of conflict of in -
terest in the choice of arbitrators. Therefore, in disputes arising out of Govern -
ment contracts, private parties will not be entitled to object to the process of
nomination of arbitrators by the Government entity, so long as such nominees
are not/were not directly employed with the particular Government entity that is
party to the relevant dispute.
II. TRF Limited v Energo Engineering Projects Limited
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A. The Supreme Court noted that the parties did not dispute that the Managing Di-
rector had become ineligible to arbitrate due to the operation of law. The pri -
mary issue was whether the ineligible Managing Director could still exercise
the power to nominate an eligible arbitrator.
B. The Court referred to Firm of Pratapchand Nopaji v. Firm of Kotrike Venkata
Setty & Sons and other legal precedents, emphasising the principle of "Qui facit
per alium facit per se" (one who acts through another acts himself) and held that
allowing an ineligible arbitrator (Managing Director) to nominate another arbi -
trator would be akin to allowing him to continue the arbitration proceedings,
which is impermissible.
C. The Court distinguished between the power of a party to nominate an arbitrator
under a contract (where eligibility is procedural) and the issue at hand, which
concerned the Managing Director’s ability to appoint an arbitrator after his dis -
qualification by law. By applying the golden rule of interpretation , the court
concluded that if the Managing Director lost the ability to act as the sole arbi -
trator, he also lost the power to nominate a substitute arbitrator.
III. Bharat Broadband Network Limited v United Telecoms Limited
A. Arbitrators must disclose any circumstances that could affect their impartiality.
If a party has concerns, they must challenge the arbitrator within 15 days after
becoming aware of the arbitration panel or any new circumstances.
B. An arbitrator is automatically disqualified if they fall within the categories
listed in the Seventh Schedule unless both parties expressly waive this re-
quirement in writing.
C. If an arbitrator becomes ineligible, their mandate ends automatically, and a new
arbitrator is appointed. Any disputes over this must be resolved by the Court.
IV. HRD Corporation (Marcus Oil & Chemical Division v. GAIL (India) Limited
(formerly Gas Authority of India Ltd.)
A. Ineligibility under the Seventh Schedule is absolute; arbitrators falling within
its categories are de jure disqualified, requiring termination of their mandate.
Item 1, however, applies only to regular business relationships and does not
extend to isolated professional opinions , as in Justice Lahoti ’s case.
B. Based on justifiable doubts, challenges under the Fifth Schedule are fact-spe -
cific and can only be reviewed post-award if initially dismissed by the tribunal.
The Court emphasised a pragmatic approach to interpreting the categories,
guided by the IBA Red and Orange Lists.
C. Prior awards rendered by an arbitrator in disputes involving the same parties do
not establish bias or ineligibility by themselves. The Court reiterated the pre -
sumption of trustworthiness for arbitrators and rejected challenges based on
speculative or unfounded allegations of partiality.
D. The Court underscored the need for a common-sense approach to maintaining
the balance between arbitrator independence and the integrity of arbitration pro -
ceedings, limiting expansive readings of the schedules.
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V. Perkins Eastman Architects Dpc and Another v HSCC (India) Limited
A. Relying on the TRF Limited v. Energo Engineering Projects Ltd. case, the
Court emphasised that when one party has the exclusive right to appoint a sole
arbitrator, it risks compromising impartiality and fairness in the arbitration
process.
B. The Court stated that a person with a vested interest in the dispute's outcome
should not be allowed to appoint the sole arbitrator. This aligns with the amend-
ments introduced in 2015, which stress impartiality and independence in arbi -
tration.
C. Referring to Indian Oil Corporation v. Raja Transport, the Court ruled that if
there are justifiable doubts about an arbitrator's independence and impartiality
or if the prescribed process is flawed , the court can intervene to appoint an in -
dependent arbitrator to ensure fairness .
D. The Court also highlighted that under Section 12 of the A&C Act, the appoint -
ment of an arbitrator must be accompanied by a declaration of independence,
impartiality, and the ability to devote sufficient time to conclude the arbitration
within the timeframe specified in Section 29A.
E. The Court ruled that unless the appointment of an arbitrator is ex-facie valid
and satisfies the independence and impartiality requirements, it cannot be ac -
cepted as a fait accompli to prevent the court's jurisdiction under Section 11(6).
VI. The Government of Haryana PWD Haryana (B and R) Branch v.
M/s. G.F. Toll Road Pvt. Ltd.
A. The Supreme Court ruled that ICA's intervention was premature and unjustified.
According to Section 15(2) of the Arbitration and Conciliation Act, 1996, a
party has the right to appoint an arbitrator within a reasonable time, and in this
case, GoH was entitled to the full 30 days it requested.
B. M/s. G.F. Toll Road Pvt. Ltd. raised concerns about reasonable apprehension of
bias, arguing that the arbitrator had been a former employee of GoH, which
could influence the fairness of the arbitration [Link] Supreme Court re -
jected this challenge, noting that a past employment relationship , especially
one that occurred ten years earlier, does not disqualify an arbitrator from
serving.
C. The Court analyzed the Fifth Schedule of the Arbitration and Conciliation Act,
which outlines the grounds for challenging an arbitrator. According to Entry 1
of the Fifth Schedule, an arbitrator is disqualified only if they are currently an
employee, consultant, or advisor of a party, or have a present business rela -
tionship with the party.
D. The Court interpreted the phrase "is an" in the Fifth Schedule of the Arbitration
Act to mean that disqualification applies only to current relationships, not past
ones. It emphasized that the term “any other” relationship refers to ongoing
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connections like being an employee, consultant, or advisor, and does not in -
clude former employment. Therefore, a former employee with no current ties
to a party is not automatically disqualified, and does not create a reasonable
apprehension of bias in the arbitration process.
VII. Union Of India (UoI) vs Parmar Construction Company
A. The Supreme Court emphasized that the appointment of arbitrators should be
made strictly in accordance with the terms of the contract. Since the agreement
between the parties specifically provided for the appointment of a panel of arbi -
trators, the unilateral appointment of a sole arbitrator was held to be in con -
travention of the General Conditions of Contract (GCC).
B. The Supreme Court held that the appointment of a sole arbitrator, when the
contract specified a panel of arbitrators, was a breach of the agreement.
This deviation could compromise the fairness and impartiality of the arbitration,
as it could lead to concerns of bias or lack of neutrality, undermining the
credibility of the process.
C. The Court emphasized that parties are bound by the terms of their contract, in -
cluding the agreed-upon procedure for appointing arbitrators. If a contract spec -
ifies a panel of arbitrators, that procedure must be followed to ensure a fair
and neutral arbitration process, and the Court will only intervene if there is
a violation of the agreed terms.
VIII. Union of India (UoI) v Pradeep Vinod Construction Co.
A. The Court observed that the arbitration process itself must be fair and impartial.
The Court upheld the Tribunal's findings based on its assessment of the facts
and fairness of the process. This is consistent with the broader principle that ar -
bitration should be a neutral and balanced forum for resolving [Link]
Court emphasized that the arbitrators must act independently and impartially in
resolving disputes, and their award should not be overturned unless there is
a violation of fairness.
B. The Court held that there were no grounds for setting aside the award under
Section 34 of the Arbitration and Conciliation Act, 1996, which allows judicial
intervention only in cases of serious irregularities such as manifest errors of
law, corruption, or if the award is against public policy. The Supreme Court
reiterated that arbitral awards should only be interfered with in exceptional cir -
cumstances, and such was not the case here.
OBSERVATION’S OF CJI CHANDRACHUD, J. PARDIWALA AND J.
MISHRA
A. The principle of equal treatment applies throughout arbitration proceedings, includ -
ing the appointment of arbitrators. A clause mandating one party to select an arbi -
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trator from a panel curated by PSUs or allowing unilateral appointment of a sole ar -
bitrator violates this principle and raises doubts about impartiality.
B. A clause permitting unilateral appointment of a sole arbitrator, or mandating selec -
tion from a curated panel in a three-member tribunal, violates the principle of equal
participation and is prejudiced in favor of one party, especially in public-private
contracts, breaching Article 14 of the Constitution.
C. The principle of express waiver under Section 12(5) applies where parties seek to
waive bias allegations against a unilaterally appointed arbitrator. The judgment's
directions regarding arbitrator appointments will apply prospectively to appoint -
ments made after the judgment, specifically for three-member tribunals.
OBSERVATION’S OF J. ROY
A. Section 18 applies to all stages of arbitration including the stage of appointment of
an arbitrator. The Arbitration Act does not provide for any special treatment to the
government irrespective of whether the arbitration is by or against the government.
B. Unilateral appointment of Arbitrators is permissible as per the legislative scheme of
the Arbitration Act. There is a distinction between ‘ineligibility’ and ‘unilateral’
appointment of arbitrators. As long as an arbitrator nominated by a party is eligible
under the Seventh Schedule of the Act, the appointment (unilateral or otherwise),
should be permissible. It is only in cases of a complete lack of consensus that the
court should exercise its power under Section 11(6) of the Arbitration Act to ap -
point an independent and impartial arbitrator as per Section 11(8) read with Section
12 and 18 of the Arbitration Act. At the appointment stage, the scope of judicial in -
tervention is otherwise extremely narrow.
C. The independence and impartiality of the arbitrator must be examined within the
statutory framework of the Arbitration Act, particularly Section 18 read with 12(5).
Public Law constitutional principles should not be imported to arbitration
proceedings particularly at the threshold stage of Section 11.
OBSERVATION’S OF J. NARASIMHA
A. Arbitration encompasses two independent yet interdependent principles:
1. contractual freedom as party autonomy;
2. statutory obligation as duty to constitute an independent arbitral tribunal
B. The concept of party autonomy extends to the right to choose the tribunal, set pro -
cedures, and determine how awards can be challenged, while limiting judicial inter -
vention.
C. The substitution of arbitration in place of civil courts as an exception under Section
28 of the Contract Act is only for a forum and not for contracting out indepen-
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dence and impartiality, which is an inviolable public policy consideration under
Section 23 of the Contract Act.
D. Arbitration agreements that do not ensure an impartial tribunal are void, as they vi -
olate public policy.
E. Duties should be statutorily incorporated from the Contract Act and Arbitration Act
instead of applying public law principles evolved in constitutional and administra -
tive laws. The court ensures the arbitration agreement complies with public policy
by ensuring the tribunal is independent and impartial.
F. Arbitration agreements that allow one party to unilaterally appoint the arbitral tri -
bunal may undermine independence and impartiality, potentially violating public
policy. The court will review such agreements and may declare them invalid if nec -
essary.
G. The court will examine the constitution of the independent and impartial tribunal
under the arbitration clause only when one of the parties makes an application un -
der Sections 11, 14 or 34, and cannot declare unilateral appointment clauses void
per se.
CONCLUSION
In the Railway Electrification case, this quasi-unilateral method of appointing arbitra-
tors supposedly allows both of the parties some degree of independence, while main -
taining the aformentioned principles of party autonomy and equal treatment. However,
this also allows for unilateral appointment of a list of potential arbitrators nominated
by one party, which the court hopes is compensated by other party’s appointing right to
choose 2 arbitrators from the list of 4, which subsequently choose the other 2 arbitra -
tors. This wierd formula which prima facie propagates party autonomy and equal treat -
ment has, but, one problem.
The party that provides the list of potential arbitrators for the other party to choose
from essentially has the upper hand in the process, as it controls super set of arbitrators
to choose from. There is a possibility of bias toward its own interests, which would be
more prominent in case of a smaller ‘broad-based’ list which only presents limited op -
tions, such as in this case.
The Court in its inclusion of Constitutional Law principles in a case which primarily
deals with Arbitration and Contract Law opens itself up to a variety of appeals and liti -
gation, which would be detrimental to an already burdened judicial system.
The Court exercise its power under Section 11(6) of the Arbitration Act to appoint an
independent and impartial arbitrator as per Section 11(8) read with Section 12 and 18
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of the Arbitration Act, but the possibility of judicial intervention in the stage of ap -
pointment of arbitrators has been slim.
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