A Narrow Panel Of Arbitrators; Constraints Faced By The Less Dominant Parties To Contracts

However, such a scenario changed completely after the Hon’ble Supreme Court’s decision in Perkins Eastman Architects DPC & Ors. v. HSCC (India) Limited^[1], whereby the Apex Court was pleased to hold that the party who has an interest in the outcome or decision of the dispute must not hold the power of appointment of sole arbitrator to settle the dispute that may have arisen.

The appointment of an Arbitrator is to be made keeping in mind the two basic, yet pertinent, principles, being ‘impartial’ and ‘independent’ that have been dealt with under the Arbitration Act. The Apex Court and various High Courts have time and again held that the integrity and impartiality of the Arbitration Tribunal is to be ensured, so that each party is treated equally before the Tribunal and their respective claim are also equated in a non-discriminatory manner.

The Apex Court clarified the controversy upon unilateral appointment of Arbitrator by one single party to the dispute in the Perkins Judgement, wherein the Court relied upon a landmark case of the French Court, namely Societies BKMI et Siemens v. Societe Dutco^[2], which laid down the following observation;

“An independent mind is indispensable in the exercise of judicial power, whatever the source of that power may be, and it is one of the essential qualities of an arbitrator”

Further, the Apex Court in Perkins Judgement has held that under the new provisions of Section 12 sub clause (5) it is clear that any party that has a direct interest in the outcome of the decree/ award in their favour shall not be allowed to unilaterally appoint an Arbitrator of their choice to facilitate and adjudicate upon the dispute.

There can be several reasons as to why one of the contracting parties may want to appoint an Arbitrator or a Panel of Arbitrator of their own choosing, it gives a greater sense of control over the proceedings of the dispute, however, those are not the principles that the Arbitration Act embodies. A plethora of judgements passed by the Supreme Court and various High Courts have time and again shunned the practice of unilateral appointment of Arbitrator(s) and or one party having direct or indirect influence in the appointment of the Arbitrator. As Professor Jan Paulsson of the University of Miami has stated;

“Parties tend to be interested in one thing only: winning. They exercise the right of unilateral appointment, like everything else, with that overriding objective in view. The result is speculation about ways and means to shape a favorable tribunal, or at least to avoid a tribunal favorable to the other side – which is logically assumed to be speculating with the same fervor, and towards the same end…We must confront an uncomfortable fact.Two recent studies at commercial arbitration revealed that the dissenting opinions were almost invariably (in more than 95% of cases) returned by the arbitrators nominated by the losing party. The fact that the dissenting arbitrators are always those who have been appointed by the party aggrieved by the majority decision does not in or itself point to a failure of ethics. It may simply be that the appointing party have made an accurate reading of how the nominee is likely to view certain propositions of law or circumstances of facts. The problem is that the inevitability of such calculations proves the unilateral appointments are inconsistent with the fundamental premise of arbitration, the mutual confidence in arbitrators. Of course, we must live with promises. The unilaterally appointed arbitrator is the product of realism, doubtless, indispensable in a complex world of intercommunal transactions, as a way of making arbitration acceptable –though in a manner which immediately dilutes its purity. Although the practice of giving the parties the right to nominate its arbitrator, is a practical way of making arbitration more acceptable and serves the need of the party to be comfortable with the process, eventually, he must keep in mind that the benchmark is to have a completely independently nominated arbitral tribunal. It is important to keep the benchmark in mind, so that through education and spread of knowledge, over a period, one can reach this benchmark, and not give into the doubtless insecurities of the parties appointing the arbitrator. The party’s attachment to the practice of unilateral appointment is ill-conceived”^[3]

In a noticeable trend, a number of Financial Institutions, Governments Departments and/or PSUs, amongst others, attempting to find loopholes and circumvent their liabilities and duties, include a list of Panellist, prospective Arbitrators within the agreements, handpicked by them to subserve their own interests. Such agreements state that as and when a dispute shall arise between the parties, Arbitrator(s) are to be selected from the Panellist that have already been stated within the agreement itself.

Such an obscure approach gives the subservient party a choice, however, in reality, the Party is ultimately choosing an Arbitrator that has already been picked and set up as pawn beforehand, who may fail to perform their mandate, as dictated by the Arbitration Act, and the First Party shall succeed in achieving a manufactured Award that ultimately serves their own interests.

A similar situation was dealt with by the Apex Court in the matter of Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation^[4], wherein disputes had arisen between the two parties, and as per the contract executed between the two, a list of 37 Panelist, as prospective Arbitrators were given. The Delhi Metro Rail Corporation (DMRC) selected 5 names out of the 37 panelists and sent the same to Voestalpine, in order to enable them to select an Arbitrator. This practice, however, was not acceptable to Voestalpine, as most of the panelists were either retired employees of DMRC or retired employees of other Government Departments and/or PSUs. This issue was escalated to the Supreme Court and it was made explicitly clear that a restrictive panel limiting the choice of the party tantamount to unilateral appointment of an Arbitrator. Furthermore, the Supreme Court was also conscious in pointing out that certain members of prominence in the concerned filed and/or private sector should be avoided and a broad-based panel should be assembled.

In order to ensure neutrality and impartiality of Arbitrators, the ambit of Section 12(1) of the Arbitration Act was widened, to be read in consonance with the Fifth Schedule, which talks about the grounds that cast a justifiable doubt on the independence of the Arbitrator to act and conduct his duties.

Another essential provision is Section 12(5) of the Act, to be read with the Seventh Schedule, which talks about nullification of appointment of an Arbitrator as and when the grounds mentioned in the schedule are satisfied and the appointment becomes ineligible.

The Delhi High Court in SMS Limited v. Rail Vikas Nigam Limited^[5], following the principles laid down in Voestalpine, stated that asking the contracting party to select a panel arbitrators out of certain names does not construe as a broad panel, especially when the majority of names are connected to the railways and or other PSUs. It is crucial that the parties are able to bestow faith in the Arbitrator or the Arbitration Tribunal, which is the true and whole essence of insertion of the fifth, sixth and seventh schedule through various amendments in the Arbitration Act.

Further, following, the dictum of Voestalpine and Perkins, the bench of Justice Neena Bansal Krishna, Delhi High Court has, in the matter of Overnite Express Limited v. Delhi Metro Rail Corporation^[6], stated that the power conferred on one party to unilaterally choose names from a panel of arbitrators and forwarding it to the other party to select its arbitrator from those names is violative of principle of impartiality in arbitration.

Subsequent to Overnite Express, the bench of Justice Mini Pushkarna, Delhi High Court, in the matter of Gangotri Enterprises Ltd. v. General Manager Northern Railways^[7], said that a panel of arbitrators with only four names to choose from does not satisfy the concept of neutrality of arbitrators and further it was seen that the panel of arbitrators as sent by the respondent contained only four names, which cannot be considered to be broad based by any extent of imagination.

An impartial resolution of disputes between parties, in any alternate dispute resolution mechanism, is the main motivation in appointment of an impartial and unbiased Arbitrator who shall facilitate the disputes between the parties in a fair manner following due process of law, uninterested in the charming or favouring any of the parties.

In light of the analysis above and in line with the judgements pronounced by the Supreme Court and Delhi High Court, an arbitration agreement and the proceedings are to be founded on the principle of mutuality and the procedure adopted by the arbitral forum has not only to be fair but there should be fairness to the extent that they could not be questioned, i.e., not only nemo est supra legs, meaning no one is above the law, but nemo debet esse judex in propria causa, meaning no one should be made a judge in their own cause.

[1]2019 6 ArbLR 132 (SC)