Can PSUs Appoint Arbitrators From Their Self-Curated Panels? Supreme Court CB Hears Arguments [Day 2]

The Supreme Court today (August 29) continued its arguments on the reference issue of whether a person, who is ineligible to be appointed as an arbitrator, can appoint an arbitrator.The Constitution Bench comprising Chief Justice of India DY Chandrachud, Justice Hrishikesh Roy, Justice PS Narasimha, Justice JB Pardiwala, and Justice Manoj Misra was considering the validity of an arbitration clause which prescribes that the appointment of the arbitrator will happen from a panel of arbitrators curated by one of the parties, which is mostly a public sector undertaking(PSU) in majority of the cases. Today, the second day of the hearing, Solicitor General Tushar Mehta appearing for the Union submitted that the government's ultimate endeavor in the present case is to ensure that arbitration as a dispute mechanism grows.Weighing in on this, the CJI pointed out that the Union, in considering the welfare of the nation at large, should not lose sight of the increasing demand for private sector investment for the growth of the country's economy. It was crucial that the Union ensured policies which maintain fairness of the arbitration process so as to build confidence in the private players contributing to the economy.'Are We Walking Into A Minefield?' Bench Ponders Over The Obstacles In Having A Uniform Policy For Curating Arbitrators' Panels Referring to the decision in Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd. the SG submitted that the following suggestions can be considered in addition to the decision's observation on the need for the panel of arbitrators to be 'broad-based' : (a) the preparation of the panel must be open to all and transparent;(b) issuance of an advertisement laying down parameters for the appointment.Notably, In Voestalpine, the Court held that the selection of 5 potential arbitrators one-sidedly by one party from a larger curated panel was invalid. It was noted that the panel of arbitrators needs to be 'broad-based' comprising professionals of diverse backgrounds.At this point, CJI asked : “ Would you be therefore contemplating a situation where the Government of India prepares a panel for all Government Undertakings of India which will include coalfield, railways etc or will it operate at a ministerial level? So the ministry of coal will have a panel, the ministry of finance will have a panel etc but that will again be unworkable.”SG replied that there seems to be no problem with having a common panel selection process, however he will take instructions from the Union on the possible policy being contemplated on the aspect.However, the CJI added that in the case of big PSUs like the Food Corporation of India having immense claims from 10 Crores to 10000 crores, it will be a 'gigantic' task for the Government of India to curate panels in such scenarios. The SG pointed out in such situations, the government will have to curate the panels on the factors of value-based and eligibility-based requirements for each PSU category and the nature of the claims raised. “ For some, we need only engineers, for some, where there are questions of law, we need judicial minds..”Realizing the complexities involved, the CJI remarked, “Are we walking into a minefield?” Justice Narasimha then ringed a word of caution that the government's suggestion for curating such panels may lead to interference in the autonomy of private parties. He added : “ We are slowly and steadily effacing the distinction between public law and private law! Today's discussions and yesterday's discussions seem to be how to bring transparency in public dealings that is what public/ administrative law does. But this (arbitration) is in the realm of the private remedy where the choices are with the contracting parties to decide how the remedy should work out. It's a different matter, in a contract where there is a conflict of interest, contractual principles will resolve it, but superimposing public law perspectives as it has public tenders…so there is the transparency, a level playing field, those principles England has kept it aside completely, knowing very well , when it comes to private remedies.” Justice Narasimha further analyzed that when dealing with contracts between the public sector and private parties, the principles of public law relating to transparency and equality may be applicable but not where both the parties are purely private, there the regime governing the conduct would fall solely under the Private Law sphere. He added that in the case of public-private contracts, the clauses mandating appointment from a unilateral panel of arbitrators can always be struck down by public law courts under the grounds of being unconscionable. “File a petition before the Public Law Court saying this clause is invalid, you cannot have a contract under S. 28 of the Contract Act so to that extent the clauses will be set aside.”The CJI also highlighted that in the event the Court is to lay down the structural parameters for...

Can PSUs Appoint Arbitrators From Their Self-Curated Panels? Supreme Court CB Hears Arguments [Day 2]

Anmol Kaur Bawa

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