Delhi High Court refuses unilateral appointment of single Arbitrator (20.01.2020)
The issue that arose for consideration before the Hon’ble High Court of Delhi in matter titled “Proddatur Cable TV DIGI Services Vs. SITI Cable Network Limited’’ decided on 20.01.2020, MANU/DE/0178/2020, was the eligibility of the “Company” referred to in the Arbitration Clause between the parties, to unilaterally appoint a Sole Arbitrator to adjudicate the disputes between the parties.
The Hon’ble High Court of Delhi concluded that the Arbitration Clause empowering the ‘Company’ to appoint the Sole Arbitrator in the instant case for consideration would be vitiated in the light of the law laid down by the Supreme Court in the case of Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd. MANU/SC/1628/2019, wherein the Supreme Court has held that where only one party has a right to appoint a Sole Arbitrator, its choice will always have an element of exclusivity in determining the course of dispute resolution. Thus, the person who has an interest in the outcome or decision of the dispute must not have power to appoint a Sole Arbitrator.
The Hon’ble High Court of Delhi by relying upon the judgment of the Hon’ble Supreme Court in Perkins supra held that the Arbitrator presently conducting the arbitration proceedings was declared to be ineligible for being appointed as an Arbitrator in terms of Section 12(5) of the Act. It was further observed that following the ratio of the judgment in the case of Perkins (supra), it is clear that a unilateral appointment by an authority which is interested in the outcome or decision of the dispute is impermissible in law.
The rationale behind the judgment is that even though party autonomy is a cornerstone of arbitration, other virtues such as fairness, transparency and impartiality are equally important. The Court emphasised that the procedure laid down in an arbitration clause cannot override the considerations of impartiality and fairness in arbitral proceedings.
In view of the aforesaid judgment it can be inferred that any arbitral proceeding which has commenced after 2015 (Section 12(5) was inserted by Section 8 of the Arbitration and Conciliation (Amendment) Act (No. 3 of 2016) (w.r.e.f 23rd October, 2015), wherein the sole arbitrator has been appointed unilaterally, the appointment will become non-est by virtue of Section 12(5) and such an appointment is liable to be terminated under Section 14 of the Act.
Thus, in order to continue with the proceedings, a unilaterally appointed arbitrator must take written consent from both the parties (unless the parties have waived the applicability of Section 12(5) as per the proviso to Section 12(5)) in order to continue with the proceedings and in the absence of such an express written consent, the appointment of the Arbitrator is likely to be challenged and award is likely to be set aside under Section 34(2)(a)(v) and Clause (iii) of Explanation I to Section 34(2)(b) of the Act as being in conflict with the fundamental notions of morality and justice. It is also clarified that no amount of implied conduct shall amount to a waiver of the applicability of the provisions of Section 12(5) and the same can be waived off only by virtue of a written consent.
Section 12(5) is reproduced herein for ready reference:
“(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub- section by an express agreement in writing.”
Further on the question of applicability of the judgment in Perkins (supra) to on-going arbitrations, the Court clarified that the law has been laid down by Supreme Court in the cases of Bharat Broadband Network Limited. v United Telecoms Limited C.A. No. 3973 of 2019 and TRF Ltd. vs. Energo Engineering [(2017) 8 SCC 377], wherein it was held that ineligibility under 12(5) read with Schedule VII of the Act will have retrospective application and is not confined to only a prospective application. Thus, irrespective of the date of the judgment, they ratio of the judgment shall be applicable even to those cases wherein the appointments of the arbitrator has been made prior to the date of the judgment and not be confined to the appointments made post the passing of the judgment of the Hon’ble Supreme Court.