Arbitration clause and arbitrator neutrality: prior determination of notified claims required first, and a restricted panel was vulnerable.

A contractual arbitration clause made reference to arbitration contingent on a prior determination by the General Manager whether claims were "notified claims" included in the final bill, so that threshold issue could not be decided by the arbitral tribunal and had to be determined first under the contract. The respondent's failure to place the claims before the General Manager did not expand arbitral jurisdiction or waive the contractual precondition. The Court also applied neutrality principles to the appointment mechanism and found that a sole arbitrator selected from a restricted three-name panel supplied at the respondent's discretion raised concern over real choice and bias, requiring compliance with broader panel standards.

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Issues: (i) whether claims had to be first placed before the General Manager for a decision on whether they were notified claims and whether the absence of such a decision affected arbitrability; (ii) whether the contractual procedure requiring selection of a sole arbitrator from a panel of three persons supplied by the respondent was valid.

Issue (i): whether claims had to be first placed before the General Manager for a decision on whether they were notified claims and whether the absence of such a decision affected arbitrability.

Analysis: The arbitration clause confined arbitral reference to notified claims included in the final bill, while disputes on whether a claim was a notified claim were excluded matters to be decided by the General Manager before arbitration. On that construction, only claims affirmed as notified claims could go to arbitration, and the arbitral forum had no jurisdiction to decide that threshold question. The Court held that the respondent's omission to refer the claims to the General Manager did not enlarge the scope of arbitration or amount to a waiver of the contractual condition. The later plea that the arbitrator could itself decide notified-claim status was rejected.

Conclusion: The claims had to be examined by the General Manager first, and the matter could not proceed directly to arbitration on the present facts.

Issue (ii): whether the contractual procedure requiring selection of a sole arbitrator from a panel of three persons supplied by the respondent was valid.

Analysis: The Court applied the principles governing neutrality of arbitrators and the law on unilateral control over constitution of the tribunal. It distinguished cases where a broad and diversified panel was upheld and held that a restrictive panel of three names, forwarded at the respondent's discretion, created an impermissibly limited choice and an apprehension of bias. The procedure was therefore required to conform to the standards indicated by the Supreme Court on fair and broad-based panels.

Conclusion: The restricted three-name panel procedure was not accepted as such, and any appointment had to follow the standards laid down for a valid panel-based process.

Final Conclusion: The petition was disposed of by directing the respondent's General Manager to decide whether the claims were notified claims within eight weeks, after which the parties were to proceed according to law; the arbitral appointment issue was answered only to the extent of requiring conformity with the governing neutrality principles.

Ratio Decidendi: Where a contract makes arbitrability contingent on a prior decision by a designated authority on an excluded threshold issue, that issue cannot be bypassed and the arbitral tribunal acquires jurisdiction only after the contractual precondition is satisfied; moreover, a restrictive, party-controlled panel for appointment of a sole arbitrator must preserve real choice and neutrality, failing which it is vulnerable to challenge.

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