Unilateral Appointment Of Arbitrators: Whether Sustainable In Law?

The appointment of arbitrators is dealt with under Section 11 of the A&C Act. It provides for three methods for the appointment of arbitrators, namely: -

1. The parties may agree for a procedure to appoint arbitrators;
2. If a sole arbitrator is not agreed to, then the parties may appoint a three-member Arbitral Tribunal without any request made to a judicial body; and
3. In case of a failure of the above two, the parties may make a request to the Chief Justice, or to a person or institution designated by him.

Clearly, Section 11 of the A&C nowhere provides for an instance where one party only can appoint an arbitrator. In other words, it provides for no situation where there can be a unilateral appointment of arbitrators. Therefore, any violation of the conditions laid down under Section 11 of the A&C Act would render the appointment of such an arbitrator invalid.

Let us now examine the issue with the help of some case laws.

Reference has to be made to an independent person

The Hon'ble High Court of Delhi speaking through Hon'ble Mr. Justice Sanjeev Sachdeva in Babu Lal and Another v. Cholamandalam Investment and Finance Company Ltd. and Another, 2023 has relied upon the Hon'ble Apex Court's decision in Perkins Eastman Architect DPC v. HSCC (India) Ltd., (2020) 20 SCC 760 and has observed that it is an admitted position in law that a party cannot nominate a Sole Arbitrator without the recourse to court. Any interested party cannot be given the liberty to either appoint or nominate a sole arbitrator.

Therefore, “reference has to be to an independent person”.

The relevant facts of the case are thus -

The respondents had nominated a Sole Arbitrator on their own without the concurrence from the appellant. The said nomination was without reference to court in terms of Section 11 of the A&C Act.

The Equilibrium needs to be maintained

The Hon'ble High Court of Delhi speaking through Hon'ble Mr. Justice Sachin Datta in J.S.R. Constructions v. National Highways Authority of India and Another, 2023 stressed on the equilibrium that needs to be maintained whilst appointing the Sole Arbitrator. In other words, wherein both parties have appointed one arbitrator each and the two arbitrators thereafter fail to appoint a presiding arbitrator, an opportunity cannot be given to either one of the parties in order to disturb this equilibrium created by sub-section (3) of Section 11 of the A&C Act. Such a course adopted would be hit by the Hon'ble Apex Court's Judgment of Perkins Eastman (supra).

Where only one party has a choice to appoint the sole arbitrator, “its choice will always have an element of exclusivity in determining or charting the course for dispute resolution.”

The relevant facts of the case thus, are -

The petitioner sent a notice invoking arbitration to respondent no. 1 and asking it to appoint a nominee arbitrator. In response, respondent no. 1 also appointed an arbitrator. What is under question was the clause in the arbitration agreement which stipulated that in case of a failure to appoint a presiding arbitrator, it was the respondent no. 2 who shall appoint a presiding arbitrator in the matter.

The two questions for consideration before the Hon'ble High Court of Delhi therefore, were - (i) Whether the power given to respondent no. 2, is a valid procedure? and, (ii) Whether a petition under Section 11 of the A&C is maintainable once an Arbitral Tribunal is constituted?

As regards issue no. 1, the Hon'ble High Court of Delhi found that such a power is hit by Perkins Eastman (supra). The appointment by respondent no. 2 gives a “greater say” to the respondents in the constitution of the arbitral tribunal. Generally, in an appointment procedure where both parties have a right to nominate the respective arbitrators, any advantage a party may derive by nominating an arbitrator of its choice would get counter-balanced by an equal power with the other party. “But, in cases where one of the contracting parties have a further right to appoint a presiding arbitrator, this equilibrium gets disturbed.”

As regards issue no.2, the Hon'ble Court relied upon the extract from Perkins Eastman (supra) stating that “unless the appointment of arbitrator is ex facie valid and such an appointment satisfies the court exercising jurisdiction under Section 11(6) of the A&C Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law…”

Is it a mere Irregularity?

Similar is the view of other High Courts as well, and the Hon'ble High Court of Calcutta speaking through Hon'ble Mr. Justice Shekhar B. Saraf in Cholamandalam Investment and Finance Company Limited v. Amrapali Enterprises and Another, 2023 observed that arbitral proceedings conducted by unilaterally appointed arbitrators carry a permanent blot of ineligibility and bias. This blot cannot be washed away at any stage, let alone the execution. Thus, such an Award is not legitimate and is non-est in the eyes of law. Additionally, the courts receiving such an Award are duty bound to exercise judicial discretion and they are to refrain from executing such an Award. To further analyse the kind of facts which led to the passing of an Award with lack of an inherent jurisdiction are -

It was alleged that the award holder vide letter dated dd/mm/yy had unilaterally appointed the arbitrator in this case, and it was apparent that at no point the award holders participated in the proceedings and the Award was passed ex parte.

Is it not against the operation of Law?

A particular arbitration clause provided for a discretion vested with one party to appoint the sole arbitrator, and the same was agreed to by the other party at the time of the agreement. The question for consideration was whether this party can later be allowed to deviate from what it gave consent to?

It is a settled position of law that there cannot be consent against the law and also, there cannot be any waiver of a fundamental right (Here: the clause was held to be violative of Article 14). Further, the concept of “party autonomy” cannot be stretched to an extent where it violates the fundamental rights under the Constitution of India. Any and all arbitration clauses will only be valid if they are in consonance with the “operation of law” which includes the Grundnorm i.e., the Constitution of India. It is a settled position of law that there can be no consent against the law and there can be no waiver of fundamental rights. And so, a three-Judge Bench of the Apex Court speaking through Hon'ble Mr. Justice J.B. Pardiwala in Lombardi Engineering Ltd. v. Uttarakhand Jal Vidyut Nigam Limited, 2023 held that when one party agrees to the appointment of an arbitrator, it gives doubts to the independence and impartiality of the arbitrator. Additionally, it violates the layers of the grundnorm being - the Constitution of India; the A&C Act and finally, the Arbitration Agreement.

It is thus clear that unilateral appointments hit at the very root of the arbitral proceedings and stand no chance of being accepted by the law because if given validity to, these kinds of proceedings would vitiate the autonomy of the parties thereby throwing out altogether the idea of dispute settlement through arbitration.

The author is an Advocate/Law Researcher, Delhi International Arbitration Centre (DIAC). Views are personal.