One Party Cannot Unanimously Appoint Presiding Arbitrator When Nominee Arbitrators Fail to Agree: Delhi HC

The Delhi High Court held that one party cannot unilaterally appoint the presiding arbitrator in a situation where the nominee arbitrators fail to reach a consensus.

The National Highways Authority Of India (NHAI) had appointed a presiding arbitrator, despite Petitioner’s objections, after the nominated arbitrators had failed to reach a consensus. The Court emphasized that a standard procedure balancing each party's right is upset when one party gains the additional right to appoint the presiding arbitrator, creating an imbalance in the arbitration process.

The Court appointed Justice R. Subhash Reddy, Former Judge Supreme Court of India as the Presiding Arbitrator.

The Bench of Justice Sachin Datta observed, “Normally, in an appointment procedure where both the parties have the right to nominate the respective arbitrators, any advantage a party may drive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. But, in a case where one of the contracting parties has a further right to appoint a presiding arbitrator, this equilibrium gets disturbed. A presiding arbitrator must not be appointed by a person who has an interest in the outcome or decision of the dispute, as the same would defeat the purpose of unbiased adjudication of the disputes between the parties”.

Advocate Shamik Sanjanwala appeared for Petitioner and Advocate CS Chauhan appeared for the Respondent.

The dispute between the parties arose from a contract for the construction of a four-lane road over a bridge in Maharashtra. The Petitioner invoked the arbitration clause, sending a notice to the respondent in April, 2022. Both parties appointed their nominee arbitrators, but they failed to agree on a presiding arbitrator. As per the contract, in such cases, the Appointing Authority, specified as the Director General (Road Development and Special Secretary), Ministry of Shipping, Road Transport & Highways (MoRTH), was responsible for appointing the presiding arbitrator. Despite the Petitioner's objection, the Director General, MoRTH, appointed a presiding arbitrator, and the Arbitral Tribunal was constituted as per the communication. The Petitioner approached the High Court by way of an arbitration petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (Act) seeking the appointment of a presiding arbitrator.

The Court framed the following issues:

“Whether the power given to the Director General, MoRTH in the arbitration clause to appoint the presiding arbitrator, when the two Arbitrators appointed by the parties fail to reach upon a consensus, is a valid procedure?

Whether a petition under Section 11 of the A&C is maintainable once an Arbitral Tribunal has been constituted?”

The Court noted that the power vested in the Director General, MoRTH to appoint the presiding arbitrator, when the arbitrators appointed by the parties fail to reach a consensus, is inconsistent with the Supreme Court's decision. The Supreme Court in the case of Perkins Eastman Architects DPC & Anr. v. HSCC (India) Limited, [(2020) 20 SCC 760] emphasized that a person ineligible to act as an arbitrator should not have the authority to appoint another arbitrator. In this case, the Director General of MoRTH, being a part-time member of NHAI, was deemed ineligible. This situation tilts the balance of power in favor of the Respondents, affecting the impartial adjudication of disputes.

The Bench observed that in a standard appointment procedure where both parties nominate arbitrators, any advantage gained by one party in choosing an arbitrator is typically counterbalanced by equal power from the other party. However, when one party has an additional right to appoint the presiding arbitrator, this balance is disrupted.

Furthermore, the Court noted that a presiding arbitrator should not be appointed by someone with a vested interest in the dispute's outcome, as it would undermine the goal of impartial dispute resolution. The Bench disapproved of the appointment procedures that favor one party, emphasizing the importance of achieving a balanced and unbiased arbitration environment.

The Court observed that the scheme of Section 11 allows for the appointment of an independent arbitrator if doubts arise about the nominated individuals' independence and impartiality. Therefore the Court appointed R. Subhash Reddy, Former Judge Supreme Court of India as the Presiding Arbitrator.

Accordingly, the Court disposed of the Petition.

Cause Title: JSR Constructions v National Highways Authority Of India And Anr (2023:DHC:8641)

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