Home > Recent Judgements > Unravelling The Arbitration Maze: A Landmark Ruling On Appointment Processes
DEC 13, 2024
BACKGROUND
The case Central Organisation for Railway Electrification v. The Constitution of M/s ECI SPIC SMO MCML is a significant legal case that emerged from a complex dispute involving railway infrastructure, contractual obligations, and judicial interpretation of administrative and contractual laws in India. The Allahabad High Court passed an order on 29.03.2019 for appointing sole arbitrator which is outside the legal provision of appointing an arbitrator as per Section 11 of Arbitration and Conciliation Act, 1996 aggrieved by the said order, the Central Organisation for Railway Electrification (“COFRE”) filed a special leave petition before the apex court. The question that came before the court was that whether it can appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 in case which is outside the procedure laid down in the arbitration clause or whether the court has to follow the procedure for appointment of an arbitrator as laid down in the Arbitration and Conciliation Act 1996 in regards to the appointment of an arbitrator.
KEY ISSUES
- Whether a person ineligible to be an arbitrator under the seventh schedule of the “Arbitration and Conciliation Act”, 1996 can mandate the other party choose an arbitrator from the panel of arbitrators curated by them?
- Whether the principle of equal treatment of parties applies when appointing arbitrators?
- Whether the unilateral appointment of arbitrators by the government entity in a public-private contract violates “Article 14 of the Constitution”?
JUDGEMENT
The Constitution bench (five judges) of the Supreme Court by a 3:2 majority held that clauses in arbitration agreements allowing one party to appoint sole arbitrators unilaterally are impermissible. While public sector undertakings (“PSU”) are not prohibited from empanelling potential arbitrators, requiring the other party to select from the curated panel violated the principle of equality of parties. The Court held that the equal treatment of parties applies at all stages of arbitration, including the appointment of arbitrators.
A judicial perspective emerged suggesting that unilateral appointments of arbitrators are not inherently invalid, with the caveat that such appointments must not contravene restrictions specified in the Seventh Schedule. Complementing this view, another judicial interpretation proposed that courts should conduct a nuanced, contextual examination of specific unilateral appointments to determine their legitimacy and potential need for prohibition.
The Supreme Court invalidated the unilateral appointment of arbitrators by CORE, holding that it violated Section 12(5) of the Act and the principles of natural justice.
The Court directed that an independent and impartial arbitrator be appointed through a mutually agreed mechanism.
This judgment reaffirmed the principles of impartiality and equality in arbitration, particularly in public-private contracts.
OBSERVATION
In this case certainly paves way in advancing the goals of the state in the attributes of transparency, neutrality and fairness in arbitration especially in the matters of public and private ventures. By so doing it puts paid the practice of having the unilateral appointment of arbitrators in line with the provisions of the Arbitration and Conciliation Act, 1996.
It was beneficial in the sense that it is not only guarding the rights of individuals doing business with governmental organizations but also in providing a standard that any clauses contained in contracts with provisos for submission to arbitration do not nullify the principles of natural justice. The Court can, therefore, be said to have upheld the independence and equality of arbitration in India, which has regaled the country’s world-class arbitration framework even more promising for codification.
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