- Apprentice Lawyer
- Legal Jobs
The article depicts how a power imbalance in the methodology of appointment of an arbitrator is an express indicator of latent bias and the corresponding obligation of the Court to interfere in such a scenario.
The judgment of the Supreme Court in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Limited (‘Perkins’) marks the highest crest yet in the rising judicial wave seeking to target latent bias in arbitration proceedings, based upon the normative underpinnings of the independence and impartiality provisions introduced by the Arbitration and Conciliation (Amendment) Act, 2015 (‘Amendment Act’).
The Court in Perkins took the view that in an arbitration agreement providing for adjudication by a sole arbitrator, the appointment of the sole arbitrator cannot be made unilaterally by one of the parties, even if the clause so vested such a power in the said party, and that to maintain absolute fairness and impartiality, the competent Court alone could effect the said appointment in exercise of powers under Section 11 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’).
In this sense, the judgment in Perkins was a logical extension of the approach taken by the Supreme Court in Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd. (‘Voestalpine’), wherein it stipulated the requirement for the existence of a broad-based panel of prospective arbitrators to obviate the possibility of bias, and of the approach in TRF Ltd. v. Energo Engineering Projects Ltd. (‘TRF’) wherein the Supreme Court held that a person who himself is ineligible under the provisions of the Amendment Act to be appointed as an arbitrator, cannot himself/herself nominate a sole arbitrator. The judgment in Perkins is, however, significant and breaks new ground because it is the most explicit recognition yet of a power imbalance in the methodology of appointment of an arbitrator being by itself an express indicator of a possibility of latent bias and the corresponding obligation of the Court to interfere in such a scenario, even if it means giving a go-by to the general principle of party autonomy.
On account of the far-reaching nature of its observations, there is a widely held belief that the judgment in Perkins is a panacea for any and all possibilities of a party attempting to secure a unilateral, possibly self-serving, appointment of a sole arbitrator. As a conceptual clarification, the unilateral appointment that is being adverted to for the purpose of the present analysis is one where a party is ultimately able to, by whatever means, secure the appointment of a sole arbitrator purely of its choosing, even if the process of appointment itself might seem neutral in this regard. The appointment being considered is also in the limited context of a sole arbitrator, and the dynamics of the power to appoint a nominee arbitrator or a presiding arbitrator are not being dealt with herein.
It is relevant to note at this juncture that the judgment in Perkins arrived at the conclusion that it did on the basic underlying premise that the significant, and unfair, advantage to be gained by a party to a dispute by being able to appoint a sole arbitrator of its choosing at the stage of the disputes having arisen was quite evident. However, it can well be argued that this underlying context of the judgment would limit its applicability to cases where this identification of the control exercised by one party would not be so evident.
Three examples can be thought of in this regard.
First, the case of a named-arbitrator. Indian arbitration law expressly permits parties to agree upon a named arbitrator in the arbitration agreement even before the disputes actually arise. Various judgments have construed such an identification as being binding in nature, and have held that the parties must necessarily be relegated to an arbitration conducted by the identified individual or arbitral tribunal. There are exceptions to his rule though. For instance, it goes without saying that if the named arbitrator himself or herself would fall afoul of the independence and impartiality requirements under the Amendment Act, then a clear case of ineligibility could be made out. Further, if there is a formal empanelment process that is being followed, then as exemplified in the recent judgment of the High Court of Delhi in Larsen & Toubro Construction Ltd. v. Public Works Department even the overall mechanism followed for the empanelment of arbitrators by a public-sector undertaking, and the mandatory attributes prescribed by the concerned public sector undertaking for empanelment of arbitrators, may be subjected to the tests of independence and impartiality.
However, what about a situation where the concerned individual is not hit by any of the parameters enshrined under Schedule V and/or Schedule VII of the Arbitration Act? One could always argue that as recognized in the judgment in Perkins, bias may not necessarily be attributable to the identity of the person alone but also to the process of appointment.
However, a party which is in a dominant position at the stage of entering into of a contract may very well insist upon the identification of a particular individual, who is of its own choosing, to act as a named arbitrator in the arbitration agreement. In the absence of any formal identification or empanelment process, the process-based scrutiny would also not be an immediately available option for a Court. The judgment in Perkins would not on its own take care of such a situation because in the case of a named arbitrator, the source of the ‘name’ cannot ex-facie be directly linked to one of the parties.
A Court in future may possibly take a step further and actually undertake at least a preliminary analysis of the background and circumstances in which the said name was agreed to, for instance, in the case of contracts with public sector undertakings or large private corporations which might exemplify disproportionate bargaining power. However, such an endeavor would represent virgin territory, on the assumption that the same is even permissible, and would not be directly covered by the ratio in Perkins. Therefore, for the moment, an attempt by a party to effect a unilateral appointment under the camouflage of a named arbitrator, who is otherwise not personally ineligible under the provisions of the Amendment Act, cannot be said to have been addressed either by Perkins or by Voestalpine or TRF, which preceded it.
Second, the identification of an arbitral institution or person to make the appointment. Just like in the case of a named arbitrator, Indian arbitration law empowers the parties to delegate the power of appointment of an arbitrator to an arbitral institution or an individual designated for the said purpose. As discussed above, just like in the case of a named arbitrator, the choice of an arbitral institution or an individual may very well be thrust upon a weaker party at the stage of entering into of the arbitration agreement. This would evidently not be a problem in the case of a recognized and reputed arbitral institution being identified, wherein the process of appointment cannot be influenced by either of the parties.
The problem, however, arises where instead of an arbitral institution, there is the identification of an individual or of a dubious institution/entity for undertaking the eventual appointment. Much like in the case of a named arbitrator, the concerned individual or entity might not be hit by any of the parameters under Schedule V and/or Schedule VII of the Arbitration Act. Once again, like in the case of a named arbitrator, the obfuscation of identity of the party actually driving the nomination of the appointing entity masks the evident inroad it has made, and the influence it wields, over the eventual appointment of the sole arbitrator. This is also not an eventuality that can be said to be directly covered by the judgment in Perkins or the judgments that preceded it.
Third, providing for a closed/limited panel. As demonstrated by the recent judgment of the Supreme Court in Central Organization for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) (‘Central Organization’), a party may resort to the system of providing a limited or closed panel to the opposite side to choose a sole arbitrator from, and by doing so would provide a veneer of choice and consequently avoid the allegation of being seen to be effecting a unilateral appointment. Even though the judgment in Central Organization is seemingly in thematic conflict with the earlier judgment of the Supreme Court in Voestalpine, for the moment, the judgment in Central Organization opens up yet another exception to the general rule articulated in Perkins.
The aforesaid illustrations would demonstrate that there still exist various mechanisms and modalities of appointment which might be utilized to overcome the ratio in Perkins, and it will be interesting to witness as to how the Courts will deal with such situations in the future while balancing the need to secure independence and impartiality of arbitrators with the overarching principle of party autonomy and limited interference by the Courts in the stated bargain between the parties as contained in the arbitration agreement.
The authors are Advocates practicing before the High Court of Delhi.