Unilateral Appointment Of Arbitrator Not Permissible: NTPC Loses To Its Contracting Party In Delhi High Court

Background

Respondent, National Thermal Power Corporation Limited, a Central PSU for implementing power projects in India, signed the Petitioner, Envirad Projects Pvt. Ltd., a company engaged in civil construction, for its "NTPC-Tanda Project." The Parties entered into a Contract Agreement dated 15.01.2015, based on the terms of Purchase Order dated 7.1.2015 by the Respondent.

Disputes arose between the parties over delays in deliveries and dues in payments by the Respondent. Accordingly, Petitioner served a notice dated 27.12.2021 upon the Respondent seeking appointment of Arbitrator as per Clause No. 56 of the General Conditions of Contract (GCC) of the Contract Agreement.

Respondent averred that as per Clauses 56 and 57 of the GCC, "the disputes shall be referred to the sole arbitration of the General Manager of NTPC limited, and if General Manager is unable or unwilling to act, to the sole arbitration of some other person appointed by the Chairman and Managing Director, NTPC Limited, willing to act as such Arbitrator."

Findings

The High Court Court relied on the Supreme Court's decision in Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd. 2019 SCC Online SC 1517, observing that "no single party can be permitted to unilaterally appoint the Arbitrator, as it would defeat the purpose of unbiased adjudication of dispute between the parties."

Accordingly, Justice Kait stated that the Arbitrator either has to be appointed with the consensus of the parties or by the Court. He noted that a clause granting exclusive right to appoint the arbitrator to a single party is unenforceable and violative of Section 12(5) of the Arbitration and Conciliation Act.

"In such a circumstance, applying the law laid down in Perkins Eastman and such other cases, the task of appointing the arbitrator devolves on the Court," the Court said and allowed the petition. It appointed Justice (Retd.) SK Katriar as Arbitrator in the case.

The ratio that comes from this ruling is:

A party cannot unilaterally decide on the Arbitrator in the Contract's arbitration clause. If such a contract has been entered into by the parties, the task of appointing the Arbitrator devolves upon the Court.

Case No.: ARB.P. 27/2022, 

Case Title: ENVIRAD PROJECTS PVT. LTD. v. NTPC LTD.

Citation: 2022 LiveLaw (Del) 30