Supreme Court CB Starts Hearing On Validity Of PSUs Appointing Arbitrators From Their Own Panels

A Constitution Bench of the Supreme Court today (August 28) commenced the hearing on the issue 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 issue. The discussion pertained to the key issue of reference, that is 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. The CJI verbally opined that in order to ensure that both the parties are satisfied with the independence and impartiality of the arbitrators, there needs to be a perception by the parties that the appointment process of such arbitrators is fair and independent. “Independence at the stage of composition is a matter of perception. Because when you are entering into a judicial proceeding, the arbitration is a substitute to a judicial proceeding, so when parties are entering upon arbitration, it is their perception of an independent adjudicator or lack of independence which is crucial. Because there must be a condition which fosters a sense of confidence in the process.” The CJI then added that such a perception is different from any test of determining whether an arbitrator is biased or not, as the perception stems from the confidence of the parties involved. “ The independence at the stage of composition is not a subjective test that someone would or would not be biased, but the perception of the party must be of (having) an independent arbitrator.” Senior Advocate Gaurab Banerji appearing for the UNCITRAL National Coordination Committee India ,stressed that a panel unilaterally 'controlled' (formulated) by one party would fall foul of S. 11(8) read with S.12 of the Arbitration and Conciliation Act 1996. An appointment made amongst a panel curated by only the PSU (Public Sector Undertaking) would not be independent and impartial.S.11(8) of the 1996 Act requires the Supreme Court or High Court or any person or institution designated by the Court to obtain a disclosure in writing from a prospective arbitrator regarding (a) any qualifications required for the arbitrator by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. S.12 of the Act lays down the grounds for challenge of the Arbitrator so appointed. The Senior Counsel explained that in the event of an arbitration involving public sector undertakings and a private party, having a unilaterally appointed panel would leave a lingering doubt in the mind of the private party. He suggested that the only way to fix this concern is by having an independent and not a one-sided panel. "The solution is an independent panel by an independent institution, that is why we are crying hoarse that we should have institutional arbitration."Banerji further stressed that the heart of the issue is the one-sided curation of the panel by the party involved in the dispute. “The problem is not the individuals in the panel, the problem is, who makes the panel?” Justice Narasimha weighed in to point out that presently, the Court is faced with the issue of determining the factors which can be used to evaluate the independence of the arbitrator at the stage of composition “The problem is what are the criteria, what are those principles on the basis of which we will be determining there is lack of independence here.” The Counsel replied explaining that the very fact that an arbitrator is appointed through a pre-selected list of arbitrators is a determinant in itself to show a lack of independence. He stressed that the objective of arbitration was to have a mutually appointed third person to hear the issue. Allowing such unilateral appointments makes the panel an 'unloved and unappreciated panel'. The Counsel additionally argued that (1) the unilateral appointment would fall foul of the 'magna carta' of equality between parties (referring to S.18 - equal treatment of parties) ; (2) such a unilaterally appointment panel will be hit by S.14 (termination of the mandate of arbitrator on failure or impossibility to act) . Senior Advocate NK Kaul appearing for one of the respondents referred to the decision of Perkins Eastman Architects DPC vs. HSCC (India) Ltd. which held that a person ineligible by law to be an arbitrator cannot appoint an arbitrator himself as that would lead to an 'element of exclusivity in determining or charting the course for dispute resolution.' Notably, in Perkins Case, Clause 24 of the Agreement empowered the Chairman and Managing Director of the company to make the appointment of a sole arbitrator and said Clause also stipulates that no person other than a...

Supreme Court CB Starts Hearing On Validity Of PSUs Appointing Arbitrators From Their Own Panels

Anmol Kaur Bawa

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