Unilateral Appointment of Sole Arbitrator

This article focuses on the concept of Unilateral Appointment of Single Arbitrator in India. This article also discusses the position of the concept with regard to the Arbitration Act prevalent in the year 1940 as well as the Arbitration and Conciliation Act of 1996. The article also deals with the change in position of the law that took place after the Amendment of 2015.

Introduction

Arbitration is a method or process by which disputes can be settled between parties. In order to resolve or settle a dispute by means of arbitration, the parties to such a dispute need to have an agreement to the same effect. In other words, arbitration is a contract-based method for settlement of disputes between parties and there should be an existence of an arbitration agreement between the parties. This article deals primarily about the concept of unilateral appointment of single arbitrator.

Who Is an Arbitrator and What Is an Arbitration Clause?

An arbitrator is the person who presides over such a process. The Arbitrator hears both sides of a dispute and decides after considering various factors. There are different ways to appoint an arbitrator for example an arbitrator can be appointed either under the appointment procedure agreed between the parties or in case of disputes, the Supreme Court or High Court may appoint an arbitrator. In cases where a sole arbitrator is being appointed, the other side should be informed for it to be in effect. In situations of disputes that arises out of a contract, and there is an arbitration clause. An arbitration clause is that clause in the agreement by which the parties agree not to sue each other and instead settle the dispute through arbitration. Such an arbitration clause may be binding or nonbinding.

When the sole arbitrator is picked unilaterally by a one of the parties to the dispute, an issue arises. This is because when one party unilaterally appoints an arbitrator, they do not consider the preferences of the other party with reference to the same.

Unilateral Right of Appointment of Arbitrator with Regard to the Arbitration Act of 1940

The validity of the arbitration clauses and arbitration agreement with regard to the Arbitration and Conciliation Act of 1940 was brought into question by the Supreme Court. This question had come for scrutiny in the case of Dharma Prathishthanam v. Madhok Construction Pvt. Ltd.[1] In this case the court had observed that, “A unilateral appointment as well as a unilateral reference, both will be illegal. It would make a difference if in respect of a unilateral appointment and reference if the other party had submitted to the jurisdiction of an arbitrator so appointed and if the rights which it has under such an agreement has been waived, then an arbitrator so appointed may proceed with the reference and the party submitting to his jurisdiction and participating in the proceedings before him may later on not be allowed to raise any objection in with regard to such appointment of arbitrator.”[2]

What is to be understood from the above observation is that an arbitrator who has been appointed unilaterally can continue only if the other party agrees to the same and has waived their objection with regard to such appointment.

Unilateral Right of Appointment of Arbitrator with Regard to the Arbitration and Conciliation Act of 1996.

The position regarding the unilateral appointment of arbitrator under the Arbitration and Conciliation Act of 1996 can be observed to be rather similar to that of the Arbitration Act of 1940. Such unilateral appointment of single arbitrator was also not given any validation. This can be better understood by the observation of the court in the case of Prajakta Mahesh Joshi v. Rekha Uday Prabhu[3] In this case the Court explains that the first requirement should be that the appointment of an arbitrator must be with the consent of the parties to the dispute. In the case the petitioner’s consent had not been obtained. The court had pointed out that such an appointment is contrary to law as well as to the terms of the contract. It was enunciated that the consent of both the parties is required for the purpose of appointing or nominating a single arbitrator.

2015 Amendment Act.

The Arbitration and Conciliation (Amendment) Act 2015 had brought about various changes to the process of Arbitration that existed in India. The Amendment included the 5th Schedule drafted as per UNICTRAL Model Law on International Commercial Arbitration[4] which renders certain people ineligible to act as arbitrators. The Amendment Act also brought changes to Section 12 of the Arbitration and Conciliation Act. Prior to the Amendment even employees or consultants to one of the parties were allowed to act as an arbitrator. But after 2015 Amendment such people were disqualified to act as arbitrators and thus this amendment ensured the principle of neutrality.[5]

Even with the changes brought about in the Arbitration and Conciliation Act of 1996 with the 2015 Amendment, a proper solution had not been achieved regarding the unilateral appointment of a single arbitrator. This was till 2017, when the court held that the unilateral appointment of arbitrators is invalid with regard to the 2015 Amendment.

 In the case of TRF Limited v. Energo Engineering Projects Limited[6] , the Court had clarified the position regarding the matter. In this case the Managing Director was sanctioned to nominate the arbitrator by means of the arbitration clause in the agreement. It should be noted that by means of the 2015 Amendment Act, certain people such as employees of the organisations were disqualified to act as arbitrators. The Supreme Court stated that a person who is disqualified to act as an arbitrator shall also not have the power to nominate or appoint an arbitrator. Section 12(5) of the Arbitration and Conciliation Act makes the managing director ineligible to act as an arbitrator. The Court observed that since the managing director is ineligible to be appointed as the arbitrator, he cannot be empowered to nominate or appoint an arbitrator. Hence in this case such appointment was held invalid regardless of the fact that the arbitration clause had empowered the managing director.

There have been various cases were similar decisions has been held. For instance, the decision made in the case of TRF Limited v. Energo Engineering Projects Limited was upheld in the case of Bharat Broadband Network Limited v. United Telecoms Limited[7]. In this case the Appellant’s chairman and managing director were empowered by the arbitration clause to appoint an arbitrator. Later an arbitrator was appointed. By the decision of TRF Limited v. Energo Engineering Projects Limited, a person ineligible to act as arbitrator cannot appoint an arbitrator, the appointment of the arbitrator in the instant case was held void ab initio. The court also held that the said decision would have a retrospective effect.[8]

This decision was also upheld in the case of Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd[9]. It was held that a person or party who has an interest in the outcome of such arbitrary proceedings cannot be appointed or unilaterally appoint an arbitrator. A similar decision was upheld by the Delhi High Court in the case of Prodattur Cable TV DIGI Services v. SITI Cable Network Ltd [10]

Earlier in this article it was mentioned that for a unilateral appointment of arbitrator to be valid the other party should submit to the jurisdiction of such arbitrator. If the other submits to such jurisdiction, then it is assumed that the rights that the party had under the agreement is waived. In the case of Arvind Kumar Jain v. Union of India[11] (delivered on 4 February 2020) , the Delhi High Court held that the party appointing the arbitrator unilaterally cannot pressurise the other party to waive their right provided by Section 12(5) of the Act .

Different Types of Unilateral Appointments of Arbitrators.

  1 Appointment of barred persons.

Persons who are barred by law or is disqualified by the 2015 Amendment Act cannot be appointed as the arbitrator to the dispute regardless of what is given in the arbitration clause. This can be understood after referring the observations made by the court in cases such as TRF Limited v Energo Engineering Projects Limited, Bharat Broadband Network Limited v. United Telecoms Limited. Even though there exists an agreement between the parties to the dispute, a person barred by law to be appointed as an arbitrator

  2 Appointment of nominee of barred persons.

A person who is barred by law or is ineligible to be appointed as an arbitrator has no right to appoint or nominate a person to be arbitrator. The appointment of an arbitrator should not go against section 12 (5) of the Arbitration and Conciliation Act. This again can be observed in the cases TRF Limited v Energo Engineering Projects Limited, Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd[12]

  3 Appointment of panel of arbitrators.

This can be better understood from the case Voestalpine Schienen Gmbh v Delhi Metro Rail Corporation Ltd[13]  In this case the court held that if one party provides a broad panel of arbitrators from which the opposite party can choose, the appointment shall be considered to be valid. Thus, the only clauses that allow the unilateral appointment of a single arbitrator or of the presiding arbitrator in a three-member arbitral tribunal would be invalid.[14] A similar decision can be observed in the case of SMS Ltd. v. Rail Vikas Nigam Ltd. (“SMS”) (delivered on 14 January 2020) . The case highlights the need for clearness on the concept of legality regarding the exclusive right of one party over panel selection. In the instant case, the respondent allowed the petitioner a panel of thirty-seven nominees to choose its nominee from. About eight of the thirty-seven candidates were not employed before by the respondent in some capacity. The Delhi High Court relied on the decisions made in cases of Voestalpine and Perkins to hold that such panel did not satisfy the test of impartiality of arbitrators, and consequently allowed the petitioner’s appointment of its nominee outside of the panel. Likewise, it appointed an arbitrator for the respondent.[15]

 India’s position On Arbitration with Regard to Other Jurisdictions.

India’s take on Arbitration now resembles the legal position to that of in several others like Switzerland, the Netherlands, Germany, France, the United Kingdom, and the USA.

In some of these dominions, the native legislation specifically invalidates the reservation of uneven powers to appoint an arbitrator, whereas in certain other jurisdictions the invalidity that arises is due to recognized judicial precedents. For example, In the Netherlands and German there are provisions in the law that allows the disadvantaged party to disregard a clause that grants the other party power to appoint arbitrators.

Conversely, similar to India, in dominions like the United States of America, France, as well as Switzerland, the courts have held clause that allow for unilateral appointment of an arbitrator as inacceptable and invalid. The arbitrators should be appointed by a neutral party. It is important that both parties have an equal right to participate in the appointment of the arbitrator. Only then can the principle of neutrality be observed. The arbitrator should be independent and not bias.

It can be noted that by the English Arbitration Act 1996, the take is a little different. If the opposite party fails to appoint its arbitrator, an arbitrator appointed by one of the parties may be appointed to act as a sole arbitrator. Hence, indirectly, a party is initially not legally allowed to unilaterally appoint a single arbitrator but is allowed to do so if one party does not appoint its arbitrator. On the other hand, in such situations, the Indian Arbitration Act requires the parties to apply to the court under section 11 of the Arbitration Act for the appointment of an arbitrator unless there is some other agreement.

In dominions like the United States of America, the unilateral appointment of an arbitrator is usually not allowed in cases of consumer disputes or in disputes between employer and employee disputes. In Indian courts have so far, the only exception is when there is a distinct agreement between the parties that is not coming in conflict with section 12(5) of the Indian Arbitration Act.[16]

Appointment of Arbitrators by Special Statute

Besides the existence of arbitration clauses, another thing that provides for unilateral appointment of arbitrators are statutes such as the National Highways Act of 1956 (NHAI Act), the Micro, Small and Medium Enterprises Development Act of 2006 (MSMED Act) as well as the Electricity Act of 2003. All these statutes prescribe independent procedures by which arbitrators may be appointed.

The National Highway Act has a provision to refer arbitration for disputes relating to land acquisition compensations. This arbitration process shall be resolved by a single arbitrator who shall be appointed by the central government. The question as to whether such a provision is inconsistent with section 12(5) was raised in the case General Manager (Project) National Highways and Infrastructure Development Corporation Ltd. v. Prakash Chand Pradhan[17], the Supreme Court held that under Section 3-G only the Central government has the right to appoint an arbitrator and that it does not override the section 11 of Arbitration and Conciliation Act. In case after the request to appoint an arbitrator and the Central government fails to appoint one within a reasonable period of time it can be remedied by a suit or writ petition but not under section 11 of the Act

The Micro, Small and Medium Enterprises Development Act has a provision that deals with arbitration in cases of disputes due to failure of the buyer to make payments. Similar to the National Highways Act, section 11 of the Act does not override the Micro, Small and Medium Enterprises Development Act. Similarly, the Election Act also provides for a provision namely, section 86 for regarding reference to an arbitrator. In the case of Urja Vikas Nigam Ltd. v. Essar Power Ltd[18] the Supreme Court held that if the statute provides for something to be done in a specific manner, it has to be done in that manner itself. It is inferred that no other manner is allowed. The Election Act just like the Micro, Small and Medium Enterprises Development Act and the National Highway Act will override the general law, i.e. section 11 of the Arbitration and Conciliation Act.[19]

Conclusion

Arbitration is an efficient way to resolve dispute between parties, but it is pertinent that the arbitrator is unbiased and independent only then will the whole process be fair. The appointment of a single arbitrator for settlement of disputes is a fast and efficient manner of resolving disputes. In view of the same, unilateral appointment of single arbitrator is not unbiased and fair, it is more likely favourable to the party that appointed the arbitrator. The Amendment Act of 2015 has brought forth various changes that allows arbitration to be a just and fair process. The amendment leads to certain restrictions as to who can be appointed as an arbitrator and who cannot. The question is whether unilateral appointment of sole arbitrator is valid. After the 2015 Amendment Act, many judgements of courts followed which answers to the question whether unilateral appointment of arbitrator is valid or no. It can be understood from the cases and judgments that followed that it is invalid. The arbitrator should not be persons barred by law and should not have any interest in the outcome of the dispute. There must be an equal treatment of parties to dispute and that requires a neutral and unbiased arbitrator. Currently in India the unilateral appointment of arbitrator is strictly invalid. Perhaps with time this strict invalidity may be relaxed as laws never stops evolving to suit the human nature.

FAQs

Who is an Arbitrator?

An arbitrator is the person who presides over the arbitration process. The Arbitrator hears both sides of a dispute and decides the settlement after considering various factors.

What is an Arbitration Clause?

An Arbitration clause is a clause in a contract that requires the parties involved to settle the dispute by means of arbitration. Such clause is an agreement between the parties not to sue each other and instead settle the dispute through arbitration. Such an arbitration clause may be binding or nonbinding.

What is Unilateral Appointment of Arbitrators?

It is the appointment of an arbitrator to settle disputes between the parties involved, where the arbitrator is appointed by one of the parties to the suit. The arbitrator appointed should not have an interest in the outcome of the dispute and should ne unbiased. Since the Amendment Act of 2015 such appointments are invalid.

What is the change brought about by the 2015 Amendment Act?

The Amendment included the 5th Schedule drafted as per UNICTRAL Model Law on International Commercial Arbitration which renders certain people ineligible to act as arbitrators. The Amendment Act of 2015 also amended various sections including Sections 7 to 12, 14, 17 to mention a few

Is Unilateral Appointment of Arbitrators valid?

Since the Amendment made to the Arbitration and Conciliation Act in 2015, with respect to said amendment there has been various cases where the Courts held that such appointments are not valid.

 

References

Ujjawal. Satsangi. (2019, May 5). VALIDITY OF UNILATERAL APPOINTMENT OF ARBITRATORS – HISTORY AND RECENT DEVELOPMENT. Https://Www.Thearbitrationworkshop.Com. https://www.thearbitrationworkshop.com/post/validity-of-unilateral-appointment-of-arbitrators-history-and-recent-development

Advait. Ghosh. (n.d.). The Saga of Unilaterally appointed Arbitrators. Http://Www.Legalserviceindia.Com. Retrieved October 6, 2020, from http://www.legalserviceindia.com/legal/article-2671-the-saga-of-unilaterally-appointed-arbitrators.html.

Harsh. Asnani. (2020, June 29). India: Unilateral Appointment of Arbitrators.  Https://Www.Mondaq.Com. https://www.mondaq.com/india/trials-appeals-compensation/959100/unilateral-appointment-of-arbitrators#:~:text=This%20apprehension%20increases%20manifold%20where,Managing%20Director%20of%20the%20Company%22

Vaish. Associates. Advocates. (2019b, May 29). India: Between the Lines. Https://Www.Mondaq.Com/. https://www.mondaq.com/india/trials-appeals-compensation/809884/between-the-lines-may-2019.

Pareekshit Bishnol. (2020b, July 7). Invalidity of a Solo Run for the ‘Sole Arbitrator’ under the Indian Arbitration Act. HTTPs://Www.Law.Ox.Ac.Uk. https://www.law.ox.ac.uk/business-law-blog/blog/2020/07/invalidity-solo-run-sole-arbitrator-under-indian-arbitration-act#:~:text=Until%20recently%2C%20the%20Arbitration%20and,its%20employee%20or%20his%20nominee.

. Ashutosh Ray. & Ketul.Hansraj. (2020a, March 3). The Legality of Unequal Arbitrator Appointment Powers in India: The Clarity, the Mist. Http://Arbitrationblog.Kluwerarbitration.Com/. http://arbitrationblog.kluwerarbitration.com/2020/03/03/the-legality-of-unequal-arbitrator-appointment-powers-in-india-the-clarity-the-mist/

 


[1] 2005 (9) SCC 686.

[2] Ujjawal. Satsangi. (2019, May 5). VALIDITY OF UNILATERAL APPOINTMENT OF ARBITRATORS – HISTORY AND RECENT DEVELOPMENT. Https://Www.Thearbitrationworkshop.Com. https://www.thearbitrationworkshop.com/post/validity-of-unilateral-appointment-of-arbitrators-history-and-recent-development .

[3] 2013 (7) BomCR 791

[4] Advait .Ghosh. (n.d.). The Saga of Unilaterally appointed Arbitrators. Http://Www.Legalserviceindia.Com . Retrieved October 6, 2020, from http://www.legalserviceindia.com/legal/article-2671-the-saga-of-unilaterally-appointed-arbitrators.html .

[5] Harsh. Asnani. (2020, June 29). India: Unilateral Appointment of Arbitrators.  Https://Www.Mondaq.Com. https://www.mondaq.com/india/trials-appeals-compensation/959100/unilateral-appointment-of-arbitrators#:~:text=This%20apprehension%20increases%20manifold%20where,Managing%20Director%20of%20the%20Company%22 .

[6] ( 2017 ) 8 SCC 377

[7] ( 2019 ) 5 SCC 755

[8] V.A.A. (2019b, May 29). India: Between the Lines. Https://Www.Mondaq.Com/ . https://www.mondaq.com/india/trials-appeals-compensation/809884/between-the-lines-may-2019 .

[9] ( 2019 ) SCC OnLine SC 1517

[10] O.M.P (T) (COMM) 109/2019.

[11]  Judgment dated 04.02.2020 in A R B. P. 779/2019.

[12] ( 2019 ) SCC OnLine SC 1517

[13] ( 2017 ) 4 SCC 665

[14] P.B. (2020b, July 7). Invalidity of a Solo Run for the ‘Sole Arbitrator’ under the Indian Arbitration Act.Https://Www.Law.Ox.Ac.Uk. https://www.law.ox.ac.uk/business-law-blog/blog/2020/07/invalidity-solo-run-sole-arbitrator-under-indian-arbitration-act#:~:text=Until%20recently%2C%20the%20Arbitration%20and,its%20employee%20or%20his%20nominee.

[15] A.R., & K.H. (2020a, March 3). The Legality of Unequal Arbitrator Appointment Powers in India: The Clarity, the Mist. Http://Arbitrationblog.Kluwerarbitration.Com/ .

http://arbitrationblog.kluwerarbitration.com/2020/03/03/the-legality-of-unequal-arbitrator-appointment-powers-in-india-the-clarity-the-mist/

[16] P.B. (2020b, July 7). Invalidity of a Solo Run for the ‘Sole Arbitrator’ under the Indian Arbitration Act. HTTPs://Www.Law.Ox.Ac.Uk. https://www.law.ox.ac.uk/business-law-blog/blog/2020/07/invalidity-solo-run-sole-arbitrator-under-indian-arbitrationact#:~:text=Until%20recently%2C%20the%20Arbitration%20and,its%20employee%20or%20his%20nominee.

[17] 2018 SCC OnLine SC 3245

[18] (2008) 4 SCC 755

[19] Harsh. Asnani. (2020, June 29). India: Unilateral Appointment of Arbitrators.  Https://Www.Mondaq.Com.

https://www.mondaq.com/india/trials-appeals-compensation/959100/unilateral-appointment-of-arbitrators#:~:text=This%20apprehension%20increases%20manifold%20where,Managing%20Director%20of%20the%20Company%22

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