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2024 (11) TMI 542
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....v., Mr. Ashwin K, Adv., Mr. Vishesh Goel, Adv., Ms. Harsha Tripathi, Adv., Mr. Aditya Nath, Adv., Mr. Shreyas Ranjan, Adv., Mr. S. Ravi Shankar, AOR, Mrs. Yamunah Nachiar, Adv., Ms. Ruhini Dey, Adv., Ms. Meghna Mukherjee, Adv., Ms. Priyanka, Adv., Mr. Sanjeev Kumar Kapoor, Adv., Mrs. Vanita Bhargava, Adv., Mr. Madhav Khosla, Adv., Mr. Rohit Ghosh, Adv., M/S. Khaitan & Co., AOR, Mr. R. Anand Padmanabhan, Sr. Adv., Ms. Ruchi Arya, Adv., Mr. Arimardham Sharma, Adv., Ms. Divya Swami, Adv., Mr. Nikhil Swami, AOR, Mr. Arvind Kamath, A.S.G., Mr. Pai Amit, AOR, Ms. Pankhuri Bhardwaj, Adv., Mr. Nikit Bala, Adv., Mr. Abhiyudaya Vats, Adv., Mr. Nikhil Pahwa, Adv., Mr. Kushal Dube, Adv., Mr. Tathagata Dutta, Adv., Mr. S.K. Gangele, Sr. Adv., Ms. Priya Sharma, Adv., Mr. Prathvi Raj Chauhan, AOR and Mr. Arjun Sain, Adv. For the Respondent : Mr. Gourab Banerji, Sr. Adv., Mr. George Pothan Poothicote, Adv., Ms. Manisha Singh, Adv., Ms. Jyoti Singh, Adv., Mr. Prakarsh Kumar,, Adv., Mr. Prakarsh Kumar, Adv., Mr. Ashu Pathak, Adv., Mr. T S Sundaram, Adv., Mr. Venkata Supreeth, Adv., Mr. Mohit Pandey, Adv., Mr. Rakesh Talukdar, Adv., Mr. Sp Mukherjee, Adv., Ms. Raka Chatterjee, Adv., Ms. Adwaita, A....
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...................4 ii. The reference ................................................................................................... 11 B. Issues...............................................................................................................13 C. Submissions ....................................................................................................13 D. Principles underpinning the Arbitration Act ................................................... 18 i. Party autonomy ..............................................................................................20 ii. Mandatory provisions ....................................................................................22 iii. Appointment of arbitrators ............................................................................27 iv. Independence and impartiality of arbitrators ................................................ 32 v. Equality in the arbitral proceedings .............................................................39 vi. Public-private arbitration ..............................................................................41 E. The principle of equality ap....
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....r appointment of arbitrators. The sanctity inhering in the arbitration agreement underscores the autonomy of parties to settle their disputes by arbitrators of their choice. However, the Arbitration Act subjects party autonomy to certain mandatory principles such as the equality of parties, independence and impartiality of the tribunal, and fairness of the arbitral procedure. The reference to the Constitution Bench raises important issues of the interplay between party autonomy and independence and impartiality of the arbitral tribunal. i. Background to the reference 2. The Law Commission of India in its 246th Report opined that party autonomy cannot be stretched to disregard the principles of impartiality and independence of the arbitral process, specifically at the stage of constituting of an arbitral tribunal.^2 Hence, the Law Commission suggested automatic disqualification of persons whose relationship with the parties falls under any of the categories specified by law. Following upon the recommendations of the Law Commission, Parliament enacted the Arbitration and Conciliation (Amendment) Act 2015^3 to incorporate Section 12(5)^4 . Section 12(5) renders a person whose re....
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....rests with a government entity, there is an imperative to have a "broad based panel"^8 to instil confidence in the mind of the other party and secure the principle of independence and impartiality at the stage of the constitution of the arbitral tribunal.^9 6. In TRF Ltd v. Energo Engineering Projects Ltd,^10 the purchase order issued by the respondent to the appellant contained an arbitration clause that stated that any dispute or difference between the parties in connection with the agreement shall be referred "to sole arbitration of the Managing Director of Buyer or his nominee." After a dispute arose between the parties about the encashment of the bank guarantee, the Managing Director of the respondent appointed a former judge of this Court as the sole arbitrator in terms of the arbitration clause. The issue before the Bench of three Judges was whether the Managing Director was eligible to nominate a sole arbitrator because of Section 12(5) of the Arbitration Act. The Court distinguished the situation where both the parties appoint their arbitrators from a situation where a person ineligible to be appointed as an arbitrator nominates a sole arbitrator: "53. [...] wh....
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.... observe that a person who has an interest in the dispute or its outcome should not have the power to unilaterally appoint a sole arbitrator: "16. [...] The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter-balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd." (emphasis supplied) 10. In Central Organisation for Railway Electrification v. ECI-SPIC-SMO- MCML (JV) A Joint Venture Company,^14 the arbitration wa....
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....n of India v. Tantia Constructions Limited,^15 a three Judge Bench prima facie disagreed with CORE (supra), observing: "1. ... on the facts of this case, the judgment of the High Court cannot be faulted with (sic). Accordingly, the Special Leave Petition is dismissed. However, reliance has been placed upon a recent three- Judge Bench decision of this Court delivered on 17.12.2019 in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) A Joint Venture Company, 2019 SCC OnLine SC 1635. We have perused the aforesaid judgment and prima facie disagree with it for the basic reason that once the appointing authority itself is incapacitated from referring the matter to arbitration, it does not then follow that notwithstanding this yet appointments may be valid depending on the facts of the case. 2. We therefore request the Hon'ble Chief Justice to constitute a larger Bench to look into the correctness of this judgment." (emphasis supplied) 13. When the reference came up on 12 July 2023, Mr R Venkataramani, the Attorney General for India, submitted that the Union Government had constituted an Expert Committee on Arbitration Law^16 (chaired b....
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....s (supra) rightly held that an ineligible person could not appoint an arbitrator or curate a panel of arbitrators. The thread running through TRF (supra) and Perkins (supra) is that if a person has an interest in the outcome of the dispute, such person should not have any role in the process of appointing an arbitrator, including curation of a panel of potential arbitrators; d. TRF (supra) and Perkins (supra) only carved out an exception for situations where both parties are permitted to appoint an arbitrator of their choice; e. A unilaterally appointed panel is contrary to the principle of equal treatment of parties enshrined under Section 18, which is a mandatory provision. Although Section 18 is part of Chapter V dealing with the conduct of arbitral proceedings, it also applies at the stage of the constitution of arbitral tribunals. A lack of mutuality in the appointment process is a violation of Section 18 because it gives an unfair advantage to one party; f. In Lombardi Engineering Limited v. Uttarakhand Jal Vidyut Nigam Limited,^17 this Court held that arbitration agreements must conform with the Constitution. An arbitration clause authorizing one p....
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....itrators under Section 11(2); c. The action of "appointing" or "enlisting" a person as an arbitrator is distinct from "acting" as an arbitrator. Section 12(5) expressly prohibits a person who is ineligible in terms of the Seventh Schedule from being appointed as an arbitrator. However, the Arbitration Act does not expressly prohibit such an ineligible person from appointing an arbitrator or enlisting a panel of potential arbitrators; d. The Arbitration Act does not recognize any presumed ineligibility concerning arbitrators. The ineligibility must be real and actual according to Section 12; e. The equality of treatment under Section 18 does not refer to inter se equality between the parties at the stage of agreeing upon a procedure for appointing an arbitrator. Section 18 mandates the arbitral tribunal to treat the parties with equality and give them a full opportunity to present their case. Further, Section 18 only applies after the composition of the arbitral tribunal during the conduct of arbitral proceedings; f. The Arbitration Act provides adequate statutory safeguards for securing the independence and impartiality of arbitrators. These safe....
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....Arbitration 1985.^22 One of the main objectives of the Arbitration Act is to make provision for an arbitral procedure that is fair, efficient and capable of meeting the needs of the specific arbitration. 19. Article 2A of the Model Law enunciates the following principles to interpret the provisions of national arbitration laws: (i) regard for the arbitration law's international origin; (ii) the need to promote uniformity in its application; and (iii) observance of good faith. It further provides that issues not expressly settled under the arbitration law are to be settled in conformity with the "general principles" on which the law is based.^23 20. The principles of interpretation suggested by the Model Law require courts to assume a global perspective consistent with the prevailing practice in courts of other jurisdictions and arbitral tribunals.^24 The Model Law encourages resort to "general principles" to fill the gaps in the national arbitration laws.^25 The term "general principles" is intended to refer to principles widely accepted by legal systems.^26 The above principles of interpretation will also apply when interpreting the provisions of the Arbitration Act. i. P....
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....arbitrator or arbitrators; c. The Proviso to Section 12(5) allows parties to waive the applicability of the provision by an express agreement in writing after the dispute has arisen; and d. Section 14 allows parties to mutually terminate the mandate of an arbitrator. 25. Additionally, the parties are free to agree on the procedures to be followed by the arbitral tribunal,^37 the place of arbitration,^38 the date of commencement of arbitral proceedings,^39 the language to be used in the arbitral proceedings,^40 procedure for hearings and written proceedings,^41 consequence of a default by a party,^42 appointment of experts^43, and the manner of decision making by the arbitral tribunal.^44 Thus, the Arbitration Act recognises and enforces mutual commercial bargains and understanding between the parties at all stages of the arbitration proceedings. However, the autonomy of the parties under the Arbitration Act is not without limits. It is limited by certain mandatory provisions of the Arbitration Act. ii. Mandatory provisions 26. Part I of the Arbitration Act applies where the place of arbitration is in India.^45 Section 4 deals with a waiver of the right of....
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....nnecessary to include in the non-mandatory provisions such wording as "unless otherwise agreed by the parties."^55 The Secretariat considered it unnecessary to include a list of mandatory provisions given the overall scheme of the Model Law.^56 It was also of the opinion that mandatory provisions could be discerned from the content of such provisions. 30. Holtzmann and Neuhaus give the following examples of mandatory provisions under the Model Law: "Examples of provisions that appear to be mandatory and therefore cannot be waived under Article 4 are the following: the requirement that the arbitration agreement be in writing (Article 7(2)); the requirement that the parties be treated with equality and that each party be given a full opportunity of presenting his case (Article 18); the requirement that a party be given notice of any hearing and be sent any materials supplied to the arbitral tribunal by the other party (Article 24(2), (3)); the requirement that an award - including an award on agreement terms - be in writing, that it state its date and place, and that it be delivered to the parties (Article 30(2), 31(1), (3), (4))"57 31. The above extract suggests that ....
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.... "are free to agree on a procedure for appointing the arbitrator or arbitrators." Section 11 provides recourse to the following contingencies if the parties fail to adhere to the agreed procedure for the appointment of an arbitrator or arbitrators: "(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator; (4) If the appointment procedure in sub-section (3) applies and - (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, The appointment shall be made, on an application of a party, by the Supreme Court or, as the case may be, by the High Court or any person or institution designated by such Court. (5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrato....
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....all be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place."^70 37. When appointing an arbitrator under Section 11, the appointing authority has to ensure the appointment of independent and impartial arbitrators in terms of Section 11(8): "(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to - (a) any qualifications required for the arbitrator by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator." 38. Section 11(8) requires an appointing authority to have due regard to the qualifications required for the arbitrator as agreed by the parties. For instance, if the agreement only allows a professional of a particular class such as a chartered accountant to serve as an arbitrator, the appointing court should normally abide by this requirement. However, while appointing an arbitr....
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....y and due process, impartiality and independence, and capacity requirements.^74 iv. Independence and impartiality of arbitrators 42. Section 12 provides the grounds to challenge the appointment of arbitrators.^75 Section 12(1) mandates that a person who has been approached to be appointed as an arbitrator must disclose in writing any circumstances that are likely to give rise to "justifiable doubts as to his independence or impartiality." The Fifth Schedule to the Arbitration Act specifies circumstances that give rise to justifiable doubts as to the independence or impartiality of arbitrators. Section 12(1) also mandates an arbitrator to disclose in writing any circumstances that are likely to affect the ability to devote sufficient time to the arbitration and in particular the ability to complete the entire arbitration within twelve months. The duty of disclosure is a continuing duty. Section 12(3) provides that an arbitrator may be challenged only if: (i) circumstances exist that give rise to justifiable doubts as to independence or impartiality; or (ii) the arbitrator does not possess the qualifications agreed to by the parties. 43. Before the 2015 amendment, this Court....
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....express agreement in writing." 46. The Seventh Schedule to the Arbitration Act divides the specified categories based on three factors: (i) arbitrator's relationship with the parties or counsel; (ii) the relationship of the arbitrator to the dispute; and (iii) arbitrator's direct or indirect interest in the dispute. The categories that are relevant for the present reference are as follows: "1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party. 5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration." 47. Section 12(5) overrides any prior procedure for appointing the arbitrators agreed upon between the parties under Section 11(2) due to the non obstante clause. However, the proviso to Section 12(5) allows parties to waive the applicability of that provision after the dispute has arisen. The proviso secures "real and genuine party autonomy" by allowing parties to waive the applicability of Section 12(5).^81 48. Section ....
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....ke an application for setting aside such an arbitral award under Section 34. v. Equality in the arbitral proceedings 52. Chapter V of the Arbitration Act deals with the 'conduct of arbitral proceedings.' Section 18 provides that the parties "shall be treated with equality and each party shall be given a full opportunity to present his case." Section 18 establishes two principles: equal treatment of the parties and a right to a fair hearing. This provision has been referred to as the "due process clause of arbitration."^91 53. Section 18 is based on Article 18 of the Model Law. Article 18 was initially paragraph 3 of Article 19 dealing with the freedom of parties to determine the rules of procedure. It was later formed into a separate article considering its overall importance. The Working Group stated that the freedom of parties is subject to mandatory provisions including the then paragraph 3 of Article 19: "3. The freedom of the parties is subject only to the provisions of the model law, that is, to its mandatory provisions. The most fundamental of such provisions, from which the parties may not derogate, is the one contained in paragraph (3). Other such provisi....
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....ation Act does not make a distinction between public-private arbitrations and private arbitrations. This lack of differentiation also extends to other aspects of arbitration including appointment of arbitrators, conduct of arbitration proceedings, and setting aside and enforcement of arbitral awards.^100 Since the grounds for setting aside an arbitral award have been narrowly framed, the thrust of this privately ordered legal system is on the decision made by the arbitral tribunal. Moreover, the Arbitration Act mandates the arbitration proceedings to be conducted following two main principles: (i) equality of parties; and (ii) independence and impartiality of arbitral proceedings. 58. In Pam Developments Private Limited v. State of West Bengal^101, the arbitrator made an award in favour of the contractor. When the contractor sought to enforce the award, the State government obtained a stay by relying on Order XXVII Rule 8-A of the Code of Civil Procedure 1908.^102 This Court held that since the Arbitration Act is a self-contained code, the provisions of the CPC "will apply only insofar as the same are not inconsistent with the spirit and provisions of the Arbitration Act." Notin....
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....n act is judicial: "(1) it is in substance a determination upon investigation of a question by the application objective standards to facts found in the light of pre-existing legal rules; (2) it declares rights or imposes upon parties obligations affecting their civil rights; and (3) that the investigation is subject to certain procedural attributes contemplating an opportunity of presenting its case to a party, ascertainment of facts by means of evidence if a dispute be on questions of fact, and if the dispute be on question of law on the presentation of legal argument, and a decision resulting in the disposal of the matter on findings based upon those questions of law and fact." 60. An arbitrator's relationship with parties is contractual. The rights and obligations of an arbitrator are principally the result of the contractual relations with the parties.^107 However, the position under common law is that the rights and duties of an arbitrator are derived from a conjunction of contract and quasi-judicial status granted by national laws. In Norjarl v. Hyundai Heavy Industries, Lord Browne-Wilkinson observed that it is impossible to distinguish contrac....
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....rness during the conduct of arbitral proceedings. Thus, the Arbitration Act requires the arbitral tribunals to act judicially in determining disputes between parties.^114 64. Since arbitral proceedings have "trappings of a court", the law requires arbitral tribunals to act objectively and "exercise their discretion in a judicial manner, without caprice, and according to the general principles of law and rules of natural justice."^115 An arbitral award can be set aside if the composition of the arbitral tribunal or the arbitral procedure violates the mandatory provisions of the Arbitration Act, including Sections 12 and 18. Thus, the Arbitration Act emphasizes that the substance of the law cannot be divorced from the procedure. 65. Section 31 mandates that an award made by an arbitrator shall be in writing and signed by all members of the arbitral tribunal.^116 The provision further provides that an arbitral award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given. This provision is consistent with the principle that a quasi-judicial authority must generally record its reasons in support of the order it makes.^117 Fur....
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.... underlying principle is that the courts should not recognise and enforce agreements that are unfair and biased. 69. In Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd.,^131 the arbitration clause provided that any disputes arising between the parties shall be referred to the "sole arbitration of the Director, Marketing of the Corporation or of some officer of the Corporation who may be nominated by the Director, Marketing." It was contended that an arbitration clause which allows one party to nominate its officer as the sole arbitrator is against the principle of independence and impartiality contained in Sections 11(8), 12, and 18. A two-Judge Bench of this Court rejected this contention by holding that Sections 11, 12, and 18 do not prohibit an employee of either of the parties from acting as an arbitrator: "32. Section 18 requires the arbitrator to treat the parties with equality (that is to say without bias) and give each party full opportunity to present his case. Nothing in Sections 11, 12, 18 or other provisions of the Act suggests that any provision in an arbitration agreement, naming the arbitrator will be invalid if such named arbitrator is an employee ....
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....arbitrators, a party may not have an equal say in facilitating the appointment of an unbiased arbitral tribunal. In a quasi-judicial process such as arbitration, the appointment of an independent and impartial arbitrator ensures procedural equality between parties during the arbitral proceedings. This is also recognised under Section 11(8) which requires the appointing authority to appoint independent and impartial arbitrators. 73. The 2015 amendment has introduced concrete standards of impartiality and independence of arbitrators. One of the facets of impartiality is procedural impartiality. Procedural impartiality implies that the rules constitutive of the decision-making process must favour neither party to the dispute or favour or inhibit both parties equally.^137 Further, a procedurally impartial adjudication entails equal participation of parties in all aspects of adjudication for the process to approach legitimacy.^138 Participation in the adjudicatory process is meaningless for a party against whom the arbitrator is already prejudiced.^139 Equal participation of parties in the process of appointment of arbitrators ensures that both sides have an equal say in the establis....
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....o be done.^145 The principle of nemo judex applies to judicial, quasi-judicial, and administrative proceedings.^146 An adjudicator should be disinterested and unbiased.^147 A bias is a predisposition to decide for or against one party, without proper regard to the true merits of the dispute.^148 i. Principles of natural justice 78. Article 14 of the Constitution provides that the State shall not deny to any person equality before the law or equal protection of the laws within the territory of India. Article 14 is founded on a sound public policy to secure to all persons, citizens or non-citizens, the equality of status and opportunity.^149 One of the dimensions of the equality jurisprudence evolved by this Court is that arbitrariness is antithetical to equality.^150 State action must be based on principles of fairness and equality of treatment.^151 Article 14 strikes at arbitrary actions and ensures fairness and equality of treatment.^152 Violation of the principles of natural justice results in arbitrariness.^153 The principle of reasonableness is an essential element of equality.^154 Resultantly, a procedure contemplated under Article 21 must be just, fair, and non- arbitra....
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....equality in the proceedings. The proceedings 'seem' to be and are seen to be fair." 81. We recognize that arbitration is a private dispute settlement mechanism. Yet, it is statutorily subject to the principles of equality and fairness contained under the Arbitration Act. Section 18 of the Arbitration Act mandates the equal treatment of parties and fairness in arbitral proceedings as a mandatory principle governing the conduct of arbitration. Thus, the resolution of disputes arising in a private contractual relationship is subject to certain inherent principles which a quasi-judicial body like an arbitral tribunal is required to adhere to. Resolution of private disputes following the minimum statutory standards of equality and fairness is essential not only in the interest of justice, but also to uphold the integrity of arbitration in India. ii. Doctrine of bias 82. In A K Kraipak v. Union of India,^162 the Central Government constituted a Special Selection Board for selecting officers to the Indian Forest Service in the senior scale and junior scale from the serving officers of the Forest department of the State of Jammu and Kashmir. One of the members of the selection boa....
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....reed with the finding of the High Court that the author- member had an insignificant role in the book selection process, by observing: "11. [...] to say that such author-member is only one of the members of the Assessment Sub-Committee is to overlook the fact that the author-member can subtly influence the minds of the other members against selecting books by other authors in preference to his own. It can also be that books by some of the other members may also have been submitted for selection and there can be between them a quid pro quo or, in other words, you see that my book is selected and in return I will do the same for you. In either case, when a book of an author- member comes up for consideration, the other members would feel themselves embarrassed in frankly discussing its merits. Such author-member may also be a person holding a high official position whom the other members may not want to displease. It can be that the other members may not be influenced by the fact that the book which they are considering for approval was written by one of their members. Whether they were so influenced or not is, however, a matter impossible to determine. It is not, therefore,....
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....of a tribunal which is called upon to try issues in judicial or quasi-judicial proceedings must act impartially, objectively, and without bias.^169 iii. Test of real likelihood of bias a. Automatic disqualification 89. Bias is generally classified under three heads: (i) legal interest, which means a judge is "in such a position that a bias must be assumed"; (ii) pecuniary interest; and (iii) personal bias.^170 A pecuniary or proprietary interest, however small, automatically disqualifies a person.^171 A person who has an interest in the outcome of an issue that is to be resolved would be acting as a judge in their own cause^172 The question is not whether a judge has some link with parties involved in a cause before the judge but whether the outcome of that cause could realistically affect the judge's interest.^173 This principle has been authoritatively stated by the House of Lords in Dimes v. Grand Junction Canal.^174 In that case, the Lord Chancellor decreed in favour of a canal company in which he held substantial shares. The House of Lords observed that the principle that no person should be judge in their own cause "is not to be confined to a cause in which he is a p....
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....he criminal proceedings. At the conclusion of the evidence before the Magistrate, the acting clerk retired with the judges to their chambers. The Magistrate convicted the applicant without consulting the clerk. In appeal, the Divisional Court quashed the conviction. Lord Hewart CJ held that the clerk's involvement in the civil proceedings made him unfit in the circumstances to serve as clerk to the Magistrate in the criminal matter. Lord Hewart CJ observed that the question depended not upon what actually was done but upon what might appear to be done and the judicial proceedings will be vitiated if there is "even a suspicion that there has been improper interference with the course of justice." 94. Over the course of time, the English courts have preferred the test of real likelihood to determine bias. In R v. Barnsley Licencing Justices,^ 181 Devlin LJ observed that "real likelihood" depends on the impression that the court gets from the circumstances in which the justices were sitting. However, in Metropolitan Properties Company v. Lannon,^182 Lord Denning expressed the test of the real likelihood of bias as being whether a reasonable person would think it "likely or probable....
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....lity to try the issue with an objective judicial mind; or if, for any other reason, there were real ground for doubting the ability of the judge to ignore extraneous considerations, prejudices and predilections and bring an objective judgment to bear on the issues before him." (emphasis supplied) 97. In re Medicaments and Related Classes of Goods (No. 2),^186 the Court of Appeal made a "modest adjustment" to the real danger of bias test laid down in Gough (supra) by holding that the court must determine whether the circumstances "would lead a fair-minded and informed observer to conclude that there was a real possibility, or a real danger, the two being the same, that the tribunal was biased." In Porter v. Magill,^187 the House of Lords approved the adjustment made to the real danger of bias test. Lord Craighead stated the bias test thus: "103. [...] The question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased." 98. The shift in the bias test in the UK has "at its core the need for the confidence which must be inspired by the courts in a democratic society.....
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....r jurisdictions also apply a real possibility of bias or reasonable apprehension of bias test to determine judicial and arbitral bias. Article 6 of the European Convention on Human Rights states that "everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law" in the determination of their civil rights and obligations. The European Court of Human Rights^197 determines the existence of impartiality for Article 6 by applying (i) a subjective test which considers whether the judge holds any personal prejudice or bias in a given case; and (ii) an objective test to ascertain whether the tribunal's composition offers significant guarantees to exclude any legitimate doubt in respect of its impartiality.^198 102. In the vast majority of cases, the ECtHR has focused on the objective test, which requires the court to determine "whether, quite apart from the judge's conduct, there are ascertainable facts which may raise doubts as to his or her impartiality." ^199 The objective test takes into consideration hierarchical and other links between a judge and the parties to the proceedings. The ECtHR's approach, therefo....
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....of the person against whom such apprehension is expressed in the sense that he might favour or disfavour a party. In each case, the court has to consider whether a fair-minded and informed person, having considered all the facts would reasonably apprehend that the Judge would not act impartially. To put it differently, the test would be whether a reasonably intelligent man fully apprised of all the facts would have a serious apprehension of bias." (emphasis supplied) 106. In Supreme Court Advocates-on-Record Association v. Union of India,^211 Justice J Chelameswar, writing for himself and Justice A K Goel, summarized the following principles of the bias test in India: "25.1. If a Judge has a financial interest in the outcome of a case, he is automatically disqualified from hearing the case. 25.2. In cases where the interest of the Judge in the case is other than financial, then the disqualification is not automatic but an enquiry is required whether the existence of such an interest disqualifies the Judge tested in the light of either on the principle of "real danger" or "reasonable apprehension" of bias. 25.3. The Pinochet case added a new category....
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....cting as an arbitrator, provided there are no justifiable doubts as to their independence and impartiality.^214 Thus, in India, the sanctity and integrity of the arbitral process are held to the same standard of bias as that applicable to judicial authorities. v. Bias and doctrine of necessity in the context of the Arbitration Act 110. In comparison to other jurisdictions, the Arbitration Act has adopted a different approach to deal with the issue of arbitrator bias. Through the 2015 amendment, the Arbitration Act provides an extensive list of circumstances which may give rise to justifiable doubts as to an arbitrator's independence or impartiality. The enumeration of categories under the Fifth and Seventh Schedules is inspired by the Orange and Red List of the IBA Guidelines on Conflicts of Interest in International Arbitration.^215 In HRD Corporation (supra) this Court observed that the categories listed under the Fifth and Seventh Schedules must be construed by taking a "broad commonsensical approach" without restricting or enlarging the words. 111. Section 12 of the Arbitration Act places a duty on a person who is approached for appointment as an arbitrator to disclose....
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....impartiality is inferred from facts and circumstances surrounding an arbitrator's exercise of quasi-judicial functions.^220 114. An arbitrator will not be automatically disqualified in situations where the relationship of an arbitrator with parties does not fall under the categories mentioned under the Seventh Schedule. Yet, either of the parties may have "justifiable doubts" about the independence or impartiality of the arbitrator. The party challenging the appointment of an arbitrator does not need to demonstrate that the arbitrator lacks independence or impartiality. It only needs to show that there are possible "doubts" as to an arbitrator's independence or impartiality.^221 The purpose behind incorporating the word "justifiable" under Section 12 was to establish an objective standard for impartiality and independence.^222 Resultantly, the possibility of "doubts" must be "real" in the sense that they should be derived from the objective circumstances disclosed by an arbitrator. 115. The consideration of possible "doubts" must be undertaken from the perspective of a "fair-minded and informed person" rather than the subjective views of the parties or the arbitrators. Accord....
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....ange list of IBA guidelines on conflict of interest in international arbitration with the observation that the same would be treated as the guide "to determine whether circumstances exist which give rise to such justifiable doubts". Such persons do not get covered by red or orange list of IBA guidelines either." The Court refers to the fact that the individual had no connection with DMRC, the party in dispute, at two places in the above extract. Hence, the fact that he had previously been employed with government or a corporation controlled by government (but not DMRC which was the disputant) was held not to render the individual ineligible. 118. In G F Toll Road (supra), the arbitration contract between the State government and the contractor allowed for the constitution of a three- member arbitral tribunal "of whom each party shall select one and the third arbitrator shall be appointed under the Rules of Arbitration of the Indian Council of Arbitration." After disputes arose between the parties, the State government appointed a retired Engineer-in-Chief as their arbitrator. The contractor and the Indian Council of Arbitration224 challenged the appointment of the State's arb....
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.... effect, Explanation 3 to the Seventh Schedule recognizes that certain kinds of arbitration such as maritime or commodities arbitration may require the parties to draw upon a small, specialized pool.^229 The second requirement of the proviso to Section 12(5) is that parties must consciously abandon their existing legal right through an express agreement. Thus, the Arbitration Act reinforces the autonomy of parties by allowing them to override the limitations of independence and impartiality by an express agreement in that regard. 122. The proviso to Section 12(5) is a reflection of the common law doctrine of necessity. The nemo judex rule is subject to the doctrine of necessity and yields to it.^230 The doctrine of necessity allows an adjudicator who may be disqualified because of their interest in the matter to continue to adjudicate because of the necessity of the circumstances.^231 The proviso to Section 12(5) allows parties to exercise their autonomy to determine if there is a necessity to waive the applicability of the ineligibility prescribed under Section 12(5). Thus, common law principles and doctrines are adjusted to subserve the fundamental principles of arbitration by....
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.... of party autonomy. However, the choice of arbitrators has a direct effect on the conduct of arbitral proceedings. In commercial cases, the choice of the number of arbitrators is usually between one and three. The parties select the number of arbitrators by considering factors such as the needs of a particular dispute, costs, and efficiency. ^235 In case parties cannot agree upon the number of arbitrators, national arbitration legislation specifies the number of arbitrators to be appointed. For instance, Article 10(2) of the Model Law provides that if the parties fail to determine the number of arbitrators, three arbitrators will be appointed.^236 Interestingly, the Arbitration Act departs from the Model Law by providing that the arbitral tribunal shall consist of a sole arbitrator if parties fail to determine the number of arbitrators.^237 127. Reference of disputes to a sole arbitrator has various advantages, including easy arrangements of meetings or hearings, reduced expenses since the parties will only have to bear the expense of one arbitrator, and speedy decision-making.^238 In the case of the appointment of a sole arbitrator, the decision-making vests in the hands of one....
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.... the selection of the tribunal to the maximum extent possible.^243 131. In a three-member tribunal, each of the parties seeks to appoint a co- arbitrator. However, the third arbitrator is usually appointed by a process which allows equal participation of both parties in the appointment process. The equal participation of parties enables the appointment of an independent and impartial third arbitrator. Hence, any perceived tilt of an arbitrator in favour of the party which nominated that arbitrator is offset by the appointment of the third arbitrator in the course of a deliberative process involving both the arbitrators or as envisaged in the agreement between parties. Perkins (supra) rightly observed that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter- balanced by equal power with the other party.^244 This counter-balancing will ideally apply only in situations where the arbitrators are appointed by the parties in the exercise of their genuine party autonomy. TRF (supra) and Perkins (supra) have been relied upon by this Court on numerous occasions, including in Glock Asia-Pacific Limited v. Union of India^245 and Lombardi Engg L....
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....lways) would thereafter choose at least one person out of the two to be appointed as the contractor's arbitrator; and (iv) The General Manager would proceed to appoint the balance arbitrators from the panel or outside the panel and also indicate the presiding arbitrator. 135. Such an arbitrator-appointment clause is likely to give rise to justifiable doubts as to the independence and impartiality of arbitrators for two reasons: (i) the contractor is restricted to choosing its arbitrator from the panel of four arbitrators nominated by the party who is a disputant; and (ii) the contractor's choice is further constrained because it is made subject to the decision of the General Manager who will choose one among the two persons suggested by the party. Since the contractor has to select its arbitrator from a curated panel, the arbitration clause does not allow the contractor equal participation in the appointment of their arbitrator. Moreover, the clause allows the General Manager to appoint the balance arbitrators from either the panel or outside the panel. Thus, the process of appointing the arbitrators is unequal because the General Manager can go beyond the panel of four potentia....
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.... are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage.^249 A contract induced by undue influence is voidable at the option of the party whose consent was caused by undue influence.^250 Illustration (c) to Section 16 pertains to an unconscionable bargain: "(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was induced by undue influence." 140. Section 23 pertains to unlawful consideration or object of an agreement: "23. What considerations and objects are lawful, and what not - The consideration or object of an agreement is lawful, unless - it is forbidden by law; or is of such a nature that if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy." 141. Although the Contract Act does not define the expression "public policy", it has generally been defined as a principle ....
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....ay not be covered by authority courts have before them the beacon light of the trinity of the Constitution and the play of legal light and shade must lead on the path of justice, social, economic and political. Lacking precedent, the court can always be guided by that light and the guidance thus shed by the trinity of our Constitution." 143. In Central Inland Water Transport Corporation v. Brojo Nath Ganguly,^258 this Court had to decide on the validity of Rule 9 of Central Inland Water Transport Corporation Ltd Service Discipline and Appeal Rules 1979 which empowered the corporation to terminate the employment of its permanent employees with three months' notice. These rules constituted part of the contract of employment between the Corporation and its employees. The issue before this Court was whether Rule 9 was void under Section 23 of the Contract Act for being opposed to public policy. It was held that the court could refuse to enforce an unfair and unreasonable clause in a contract entered into between parties who are not equal in bargaining power: "89. [...] The Constitution was enacted to secure to all the citizens of this country social and economic justice. Ar....
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....ied) 144. The Court held that Rule 9(i) was void under Section 23 of the Contract Act for being opposed to public policy. The principle of unconscionability cannot be applied to contracts where: (i) the bargaining power of the contracting parties is equal or almost equal;^259 and (ii) both parties are businessmen and the contract is a commercial transaction. This Court has held that the doctrine of unequal bargaining of parties does not generally apply to arbitration agreements, which are in the nature of commercial contracts.^260 However, the principles of non-arbitrariness continue to apply in situations where a government instrumentality enters into a contract with a private party. 145. The government has the freedom to enter into contracts with private parties. However, the award of governmental contracts is subject to the exercise of judicial review to prevent arbitrariness or favouritism.^261 The government has to abide by the principles laid down under Article 14 while awarding contracts.^262 In Food Corporation of India v. Kamdhenu Cattle Feed Industries, ^263 this Court held that in the "contractual sphere as in all other State actions, the State and all its instrume....
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....t party autonomy "cannot be stretched to an extent where it violates the fundamental rights under the Constitution."^272 It was concluded that the pre- deposit clause violated Article 14 of the Constitution. ii. US jurisprudence on unconscionability of arbitration agreements 149. Section 2 of the Federal Arbitration Act provides that an agreement in writing to submit to arbitration an existing controversy arising out of a contract shall be "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."^273 The US Supreme Court has held that issues concerning validity, irrevocability, and enforceability of arbitration agreements will be decided with reference to the state law grounds such as fraud, duress, and unconscionability. ^274 The doctrine of unconscionability has been codified by the Uniform Commercial Code and is now a part of American contract law. Section 2-302 of the Uniform Commercial Code allows courts to refuse enforcement of unconscionable contracts or limit the application of an unconscionable clause to avoid any unconscionable result.275 150. The doctrine of unconscionability has roots in equit....
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....re selected from a list of arbitrators created exclusively by the employer. The Court observed that the arbitration agreement gave Hooters "control over the entire panel and places no limits whatsoever on whom Hooters can put on the list." It was further observed: "Under the rules, Hooters is free to devise lists of partial arbitrators who have existing relationships, financial or familial, with Hooters and its management. In fact, the rules do not even prohibit Hooters from placing its managers themselves on the list. Further, nothing in the rules restricts Hooters from punishing arbitrators who rule against the company by removing them from the list. Given the unrestricted control that one party (Hooters) has over the panel, the selection of an impartial decisionmaker would be a surprising result." The Court noted that arbitration is a system where disputes between parties are resolved by an impartial third party and allowing one party to control the arbitral tribunal was against the principles of arbitration.^286 154. In McMullen v. Meijer,^287 the issue before the US Court of Appeals for the Sixth Circuit was whether the arbitration agreement provided the employe....
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.... 81; (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. 158. This Court has construed the expression "public policy of India" appearing under Section 34 to mean the "fundamental policy of Indian law".^293 The concept of "fundamental policy of Indian law" has been held to cover compliance with statutes and judicial precedents, adopting a judicial approach, and compliance with the principles of natural justice.^294 In OPG Power Generation Private Limited v. Enexio Power Cooling Solutions India Private Limited,^ 295 this Court explained the concept of "fundamental policy of Indian law" thus: "The expression "in contravention with the fundamental policy of Indian law" by use of the word 'fundamental' before the phrase 'policy of Indian law' makes the expression narrower in its application than the phrase "in contravention with the policy of Indian law", which means mere contravention of law is not enough to make an award vulnerable. To bring the contravention within the fold of fundamental policy of Indian law, the award must contravene all or any of such fundamental principle....
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....te contract, the government and its instrumentalities must ensure that the arbitral process contemplated by the contract is also fair to the other party to avoid arbitrariness. 162. The possibility of bias is real in situations where an arbitration clause allows a government company to unilaterally appoint a sole arbitrator or control the majority of the arbitrators. Since the government has control over the arbitral tribunal, it can chart the course of the arbitration proceedings to the prejudice of the other party. Resultantly, unilateral appointment clauses fail to provide an effective substitute for judicial proceedings in India. Further, a unilateral appointment clause is inherently exclusionary and violates the principle of equal treatment of parties and procedural equality. 163. Unilateral appointment clauses in a public-private contract fail to provide the minimum level of integrity required in authorities performing quasi-judicial functions such as arbitral tribunals. Therefore, a unilateral appointment clause is against the principle of arbitration, that is, impartial resolution of disputes between parties. It also violates the nemo judex rule which constitutes the ....
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....e-competence, only prima facie proof of the existence of an arbitration agreement must be adduced before the Referral Court. The Referral Court is not the appropriate forum to conduct a mini- trial by allowing the parties to adduce the evidence in regard to the existence or validity of an arbitration agreement. The determination of the existence and validity of an arbitration agreement on the basis of evidence ought to be left to the Arbitral Tribunal. This position of law can also be gauged from the plain language of the statute. 167. Section 11(6-A) uses the expression "examination of the existence of an arbitration agreement". The purport of using the word "examination" connotes that the legislature intends that the Referral Court has to inspect or scrutinise the dealings between the parties for the existence of an arbitration agreement. Moreover, the expression "examination" does not connote or imply a laborious or contested inquiry. On the other hand, Section 16 provides that the Arbitral Tribunal can "rule" on its jurisdiction, including the existence and validity of an arbitration agreement. A "ruling" connotes adjudication of disputes after admitting evidence from ....
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....ia International v. Bulk Trading S A^309 observing: "197. The judgment in Bhatia International [(2002) 4 SCC 105] was rendered by this Court on 13-3-2002. Since then, the aforesaid judgment has been followed by all the High Courts as well as by this Court on numerous occasions. In fact, the judgment in Venture Global Engg. [(2008) 4 SCC 190] has been rendered on 10-1-2008 in terms of the ratio of the decision in Bhatia International [(2002) 4 SCC 105]. Thus, in order to do complete justice, we hereby order, that the law now declared by this Court shall apply prospectively, to all the arbitration agreements executed hereafter." 168. In the present reference, we have upheld the decisions of this Court in TRF (supra) and Perkins (supra) which dealt with situations dealing with sole arbitrators. Thus, TRF (supra) and Perkins (supra) have held the field for years now. However, we have disagreed with Voestalpine (supra) and CORE (supra) which dealt with the appointment of a three-member arbitral tribunal. We are aware of the fact that giving retrospective effect to the law laid down in the present case may possibly lead to the nullification of innumerable completed and ongoin....
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.... HON'BLE HRISHIKESH ROY JUDGMENT Hrishikesh Roy, J. 1. I have read the scholarly judgment of the learned Chief Justice DY Chandrachud and also the erudite one authored by brother Justice PS Narasimha. 2. I am in agreement with the view of the learned Chief Justice that the principle of equality under Section 18 of the Arbitration and Conciliation Act, 1996 (for short 'Arbitration Act') applies at all stages of the proceedings including the stage of appointment of arbitrators. His judgment offers a thorough examination (in Part D) of the mandatory provisions within the Model Law and the Arbitration Act, which underscores the applicability of the equality principle and the same is not reiterated here for the sake of brevity. It is also correct to say that the Arbitration Act does not provide special or different treatment to government or government undertakings involved in arbitration. 3. Nonetheless, it is not possible for me to agree with the view canvassed that the principles of constitutional law can be invoked to reinforce the equality doctrine in the realm of arbitration. On this aspect, Justice Narasimha has rightly opined that public law principles evolved i....
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....bunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes; (vii) to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court; (viii) to provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal; and (ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two International Conventions relating to foreign arbitral awards to which India is a party applies, will be treated as a foreign award." [emphasis supplied] 7. Article 5 of the UNCITRAL Model Law(for short 'Model law') and Section 5 of the Arbitration Act is extracted below: " Article 5. Extent of Court intervention- In matters governed by this Law, no court shall intervene except where so provided in this Law." "Section 5. Extent of judicial intervention.- Notwithstanding anything contained in any other law for the ti....
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....he Act that the court's intervention is expected. However, the term "fail(ure) to act" should not be interpreted to allow Courts to intervene particularly at the Section 11 stage. It is also essential to bear in mind that under Section 11(8) the Court, 'shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12', thereby underscoring the importance of impartiality and independence in the appointment of arbitrators. Therefore, essential safeguards are also provided under Section 11 for the appointment of arbitrator. 12. In the context of Article 11, UNCITRAL Digest of Case Law on the Model Law on International Commercial Arbitration^2 provides as under: "20. Securing an independent and impartial tribunal was said in one case to be the major objective that ought to be pursued by the court or competent authority intervening on the basis of article 11, while in another case it was said to be the paramount consideration. It has also been explicitly identified as an important consideration in several other cases." 13. The Commentary on Article 11 by Howard M. Holtzmann and Joseph E. Neuhaus^3 provides: "..... the w....
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.... Amendment: "11(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement." [emphasis supplied] 17. The language in Section 11(6A) read with Section 5 of the Arbitration Act, and an interpretation focusing on the legislative intent informs us about the narrow scope for court's scrutiny under Section 11(6A), at the stage of appointment of arbitrators,. 18. In Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman4, a three-Judge Bench of this Court affirmed the reasoning in Duro Felguera, S.A. v. Gangavaram Port Ltd^5. by observing that the examination under Section 11(6A) is "confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense." It was also held that the position of law prior to the 2015 Amendment Act, as set forth by the decisions of this Court in SBP & Co. v Patel Engineering^6 and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd^7, which widened the scope of judic....
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....greement. 22. In view of the above authoritative pronouncement by the 7-Judge bench, critical scrutiny at the Section 11 stage would be antithetical to the objective of the Arbitration Act and this will also impinge on the principle of party autonomy. As we have noted earlier, Section 11(8) itself provides for the requirement of disclosure under Section 12 and therefore importing principles of constitutional law to justify intervention at the Section 11 stage, would surely defeat the very objective of the Arbitration Act. This will also be a departure from the expected norm of minimal judicial intervention. Unilateral Appointments- Whether Permissible? 23. One of the core issues to be considered here is whether unilateral appointment of arbitrators is permissible. While such appointments were a norm and approved by Courts prior to the 2015 Amendment^10, the legal terrain has been altered with the changed provisions. 24. Significantly, the 246th Report of the Law Commission addressed the issue of party autonomy and the independence and impartiality of arbitrators in the following words: "the principles of impartiality and independence cannot be discarded a....
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.... to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this subsection by an express agreement in writing.]" 28. The Fifth Schedule adopts the Orange List from the IBA Guidelines on Conflicts of Interest in International Arbitration(for short 'IBA Guidelines') requiring arbitrators to disclose any circumstances that might reasonably affect their impartiality, including relationships with the parties, counsel, or subject matter of the dispute. The Sixth Schedule specifies the requirement of disclosure to be made by an arbitrator. The Seventh Schedule incorporates the 'Red List' of the IBA Guidelines, outlining scenarios of relationship conflict that would result in de jure ineligibility of the arbitrator. Therefore, the interpretation that all unilateral appointments are automatically nullified under Section 12(5) of the Act, would go way beyond the legislative intent of the Arbitration Ac....
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.... barred under Sections 12 and 14, read with the Fifth and the Seventh Schedules of the Arbitration Act. Post-appointment also, a challenge can be made under Section 13(2) of the Arbitration Act against appointment. It is also possible to finally set aside an award for procedural violations, under Section 34(2)(iii) or 34(2)(v) of the Arbitration Act. 33. Importantly, the Arbitration Act does not per se prohibit unilateral appointment of arbitrators. If those nominated in the panel fit into the limiting factors, underscored in Section 12(5) read with the Fifth and Seventh Schedule of the Act, the same will not upset the level playing field to be provided to the arbitrating parties. The 2015 Amendment, addressed specific concerns regarding fairness, potential advantage to one party as well as independence and impartiality of an unilaterally appointed arbitrator under the IBA Guidelines. An eligible arbitrator, not otherwise disqualified under Schedule VII of the Act, can be appointed unilaterally, and courts should refrain from imposing their own opinion countermanding the clear intent of the parties. The statutory safeguards, under the Arbitration Act provide a checklist and a co....
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.... Narasimha, the Court relied on Union of India Vs. Parmar Construction Company^16 and Union of India vs. Pradeep Vinod Construction Company^17 but did not consider that these cases interpreted clause 34 of the General Conditions of Contract (GCC), prior to the 2015 amendment. The prescription for a broad- based panel as set out in Voestalpine(supra) was also not noted. The issue with the arbitration clause in CORE(supra) is that it exemplifies a situation where there may be an imbalance of bargaining power, particularly in contracts involving public sector undertakings or large private corporations. In such cases, one party may wield disproportionate influence over the selection of the arbitrator, undermining the fairness of the arbitration process. This imbalance of power makes it imperative that the appointment process be scrutinized carefully to uphold the principle of equality, as laid down in Section 18 of the Arbitration Act. Therefore, the Court erred in refusing to exercise its power under Section 11(6) to appoint an arbitrator, in such a case of complete lack of consensus between the parties. 39. Concerns about the presumed bias of an arbitrator nominated by the claiman....
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....ct provides clear remedies under Sections 12, 13, 14, and 15 of the Arbitration Act. It is only when there is a complete lack of consensus between the parties that the Court's interference under Section 11 could be justified. 43. Flowing from the above discussion, the following are the conclusions :- a) Section 18 applies to all stages of arbitration including the stage of appointment of an arbitrator. The Arbitration Act does not provide for any special treatment to the government irrespective of whether the arbitration is by or against the government. b) Unilateral appointment of Arbitrators is permissible as per the legislative scheme of the Arbitration Act. There is a distinction between 'ineligibility' and 'unilateral' appointment of arbitrators. As long as an arbitrator nominated by a party is eligible under the Seventh Schedule of the Act, the appointment (unilateral or otherwise), should be permissible. It is only in cases of a complete lack of consensus that the court should exercise its power under Section 11(6) of the Arbitration Act to appoint an independent and impartial arbitrator as per Section 11(8) read with Section 12 and 18 of the Arbitration....
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.... power is exercised. ......................................................................................... 18 i. Section 11(8) .................................................................................................... 19 H. Precedents of this Court on Section 12(5) after its amendment ......................... 24 I. International Perspective .................................................................................. 30 i. Legislative framework of certain foreign jurisdictions ........................................ 30 ii. Judicial pronouncements of certain foreign jurisdictions. ................................ 32 J. On the opinion of the Hon'ble CJI ................................................................... 36 K. Conclusion.......................................................................................................39 A. Introduction 1. The issue before us is whether the appointment process under an arbitration agreement, which allows a party who has an interest in the dispute to unilaterally appoint a sole arbitrator or curate a panel of arbitrators and mandate that the other party select their arbitrator from the....
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....to intervene at a stage prior to that, to declare agreements to be void as an advanced ruling. This is to ensure party autonomy, particularly when the Arbitration Act itself enables parties to waive certain mandatory provisions such as Section 12(5) of the Arbitration Act. B. Access to Justice 3. Access to justice constitutes the very foundation of democratic governance, serving as the linchpin of a fair and equitable society. Our Constitution, in its wisdom, establishes a comprehensive judicial architecture, encompassing the Supreme Court, the High Courts, and subordinate courts as public law and ordinary civil/criminal remedies to safeguard this inalienable right. Furthermore, specialised tribunals and commissions are constituted to adjudicate specific disputes, leveraging expertise and facilitating expeditious resolution, thereby guaranteeing swift and effective justice to all. It is imperative that these judicial remedies are effective. In fact, effectiveness of judicial remedies is a constitutional mission, and it is always a work in progress for the Supreme Court to ensure that the remedies are impartial, readily accessible, financially viable, swiftly administered, and....
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....e obligation of the parties is founded on contract and public policy considerations, without which agreements are void and unenforceable in law; (iv) Apart from the obligations on the parties, the Contract Act and Arbitration Act empower the courts to ensure constitution of an independent and impartial arbitral tribunal; (v) The determination as to whether an arbitral tribunal is independent and objective is examined by the court only when it takes up an application under Section 11(6) or Section 14 of the Arbitration Act. D. Party autonomy 8. Arbitration is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them, as provided under Section 7(1) of the Act. Party autonomy is a product of freedom to contract and recognises the freedom of parties to determine the terms of contract. It is said to be the "brooding and guiding spirit in arbitration" and the "grund norm" of arbitration.^6 Party autonomy is ingrained as a fundamental principle in the Act. The freedom to enter into such an agreement belongs to the parties^7 and this will also include the freedom to determine the law governing the ....
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....Before that, a necessary distinction needs to be drawn for clarity and certainty. 9.1 Distinct duties of Arbitrators and Arbitrating Parties. There are two distinct obligations. The first is the obligation of the parties to the agreement, and the second is the neutrality and objectivity that an arbitrator must maintain. The obligations on the parties to the arbitration agreement to constitute an independent and impartial arbitral tribunal is distinct from the objectivity and impartiality that an arbitrator(s) must himself maintain. The foundation of the former is within the statutory framework, coupled with certain public policy considerations. The latter is simply the duty to act judicially, it is not superimposed by any statute or public policy, but arises because of the very nature of the calling, i.e., to judge what is right and what is wrong. Though the constitution of the arbitral tribunal is inextricably connected to the agreement between the parties, core duties of the arbitrator(s) in deciding the case is independent of the contract. The Arbitration Act provisions grounds to challenge appointment of an arbitrator at various stages, including after making of the award. T....
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.... consideration or object of an agreement is lawful, unless- it is forbidden by law; or is of such a nature that if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void." 12. Public Policy Consideration to Constitute an Independent Tribunal. Under the Contract Act, public policy considerations limit contractual freedom to the extent of declaring an agreement void when the court regards it as opposed to public policy.^42 The power of determining the meaning and scope of public policy is of the court.^43 13. The public policy principle has been interpreted to mean that parties to a contract cannot agree to terms or to an object which have the tendency to harm the public good and public interest.^44 The freedom of contract is restricted by taking into account the protection and promotion of public welfare, ....
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....ts and tribunals comprise credibility, efficiency, objectivity, expeditious disposal, comprehensiveness as well as financial viability. Prohibiting restraint from accessing these remedies is a public policy. 17. Section 28 of the Contract Act secures access to justice by declaring that agreements in restraint of public law remedies are void. Section 28 is extracted hereinbelow for ready reference; "28. Agreements in restraint of legal proceedings, void.- Every agreement,- (a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or (b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to the extent. Exception 1.-Saving of contract to refer to arbitration dispute that may arise.-This section shall not render illegal a contract, by which two or more persons agree that any d....
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....person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,- (a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject- matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and (b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Explanation 1.-The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Explanation 2.-The disclosure shall be made by such person in the form specified in the Sixth Schedule. (2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (....
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....rbitral tribunal under Section 13. The parties can apply to the court under Section 14(2) for a decision on the termination of the arbitrator's mandate and appointment of a substituted arbitrator.^53 The only way for parties to by-pass such ineligibility, as provided in the proviso, is to enter into an express agreement in writing, subsequent to the disputes having arisen, to waive the applicability of Section 12(5).^54 23. The difference between these categories is important to bear in mind. In the former situation, there is no bar to the appointment itself, but the appointment may later be challenged before the arbitral tribunal. On the other hand, in the latter situation, the Act places an express bar on the appointment of certain 'ineligible' persons as arbitrators, notwithstanding any prior agreement to the contrary. Their appointment is invalid from the very beginning, and in the application before the court under Section 14, the only question is whether the arbitrator falls under one of the categories of the Seventh Schedule and whether there is an agreement waiving the applicability of Section 12(5) in accordance with the proviso.^55 24. At this stage, it may be relev....
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....and impartial but also seems independent and impartial. 27.1 When a party to the arbitration agreement alleges that the core principle of the remedy is compromised in the procedure prescribed under the agreement by filing an application under Section 11(6), it is at this stage that the court will examine it. The provisions of Section 12, coupled with the Fifth and Seventh Schedules, will come to the aid of the court in coming to the conclusion on whether the arbitral tribunal maintains the sanctity of a credible remedy. 28. Section 11(8): Section 11(8) of the Arbitration Act recognises the power of the court to appoint an arbitrator de hors the arbitration agreement to secure the independence and impartiality of the arbitral tribunal, and consequently to ensure that public policy is protected. Sections 11(6) and 11(8) reads: "11. Appointment of arbitrators - ... (6) Where, under an appointment procedure agreed upon by the parties,- (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person....
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...., after recording reasons for not following the agreed procedure for referring the dispute to the named arbitrator, appoint an independent arbitrator in accordance with Section 11(8) of the Act."^59 31. In such an exceptional situation, the court can deviate from the appointment procedure provided in the agreement on the basis of material that indicates that the named arbitrator is not likely to act independently or impartially. It must also record the reasons for the same.^60 The following principles laid down in Indian Oil Corporation (supra) summarise the position: "48. In the light of the above discussion, the scope of Section 11 of the Act containing the scheme of appointment of arbitrators may be summarised thus: ... (vi) The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause. (vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure p....
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....nal moorings. Sections 23 to 30 of the Contract Act reflect constitutional colours, when they declare that agreements in restraint of trade, agreements in restraint of legal proceedings, agreements restraining marriage etc are void. Similarly, this Court has employed constitutional tools from Part III and Part IV of the Constitution to breathe fresh life into the term "public policy" in the context of Section 23 of the Contract Act.61 35. This constitutional re-conceptualisation of contract law is not without relevance in the case. The freedom to contract out of traditional court based remedies and to opt for arbitral remedies is informed and regulated by constitutional considerations. To this end, what subject matters are arbitrable and how remedies are to be designed within the universe of arbitration, are informed not only by considerations of freedom to contract, but also a larger constitutional responsibility to provide access to justice. 'Party autonomy' encapsulated within a larger freedom to contract must tempered with a person's right to access justice and corresponding duty on the State to provide access to justice. 36. Access to justice in this context is not a mer....
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....pine^64, a division bench of this Court upheld the validity of an arbitration agreement that mandates appointment of arbitrators from a panel maintained by the Delhi Metro Rail Corporation (DMRC). The Court held that a panel comprising serving or retired engineers of government departments or PSUs does not fall foul of the Fifth or Seventh Schedule as they do not have any connection with DMRC and bias or real likelihood of bias cannot be attributed to such highly qualified and experienced persons.^65 Rather, the purpose of empanelling them is due to their technical expertise.^66 Nevertheless, the Court held that to inspire confidence in the panel, DMRC must not further limit Voestalpine's choice from the panel to a list of 5 persons prepared by it. Voestalpine and the two appointed arbitrators must have full freedom to make their choice from the entire panel.^67 Further, the Court also observed that the panel must be broad-based and comprise members of other professions and expertise such as engineers from the private sector, judges, lawyers, accountants, etc.^68 III. In TRF Limited,^69 a three-judge bench of this Court considered the validity of an arbitration clause whic....
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....ed even in Perkins (supra). V. A three-judge bench in CORE^76 interpreted the arbitration clause 64(3)(b) of the GCC in railway contracts, which provides for appointment of a three-member arbitral tribunal from a panel of retired officers maintained by the Railways. The General Manager, Railways would send a list of at least four names, from which the other party must suggest at least two names as its nominee. The General Manager would then appoint one of these two persons as the contractor's nominee, and appoint the balance arbitrators, including the presiding arbitrator, from within or outside the panel. The Court held that appointment of arbitrators must be as per the arbitration agreement,^77 and that appointment from a panel of retired officers is not prohibited under Section 12(5) of the Act.^78 It held that the rulings in TRF (supra) and Perkins (supra) will not apply to the present case as the advantage accruing to the Railways through appointing their arbitrator is counter-balanced by the contractor's right to choose two names from the list, out of which the General Manager will appoint at least one of them as the contractor's nominee.^79 There are three noteworth....
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....onclude that there is a likelihood of the arbitrator being influenced by factors other than the merits of the dispute.^84 II. In Jaipur Zila Dugdh Utpadak Sahkari Sangh v. Ajay Sales & Suppliers^85 and in Ellora Paper Mills v. State of M.P.^86, this Court has held that the purpose of Section 12(5) and the Seventh Schedule is to ensure the neutrality, independence, and impartiality of the arbitral tribunal.^87 Further, in Jaipur Zila (supra), the Court held that the Seventh Schedule must be read as a whole, considering its object and purpose.88 III. This Court in Chennai Metro Rail Ltd. (supra) rejected a challenge to the arbitrator's eligibility under Section 12(5) on a ground that is not enumerated in the Seventh Schedule. Once the Parliament has devised a statutory scheme prescribing the de jure ineligibility of certain persons to act as an arbitrator, the Court must not deviate and add to these grounds, as it would create uncertainty in the arbitration process.^89 40. After reviewing prior precedents and in view of what I have held about party autonomy, it can be said that the 2015 Amendment to Section 12, specifically the insertion of Section 12(5) and the ....
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....col on Arbitration Clauses93 provides that "the constitution of arbitral tribunal, shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place." Article 1028 of Code of Civil Procedure, Netherlands provides that in case the arbitration agreement gives one of the parties to the dispute a privileged position in appointing arbitrators, then, the other party may, despite the agreement, request the relevant court to appoint an arbitrator. Similarly, Section 1034 of German Code of Civil Procedure stipulates that if in the arbitration agreement, one of the parties has a preponderant right in so far as composition of the arbitral tribunal is concerned, thereby putting the other party at a disadvantage, then such latter party can request the court to appoint an arbitrator in derogation of the appointment procedure agreed upon. Article 15(2) of Spanish Arbitration Act, 2003, though enables the parties to freely agree on the procedure for the appointment of arbitrator, makes the same subject to an obligation to ensure that there is no violation of principle of equal treatment. 44. The Estonian Code of Civil Procedure, vide Secti....
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....here being no express statutory proscription against unilaterality in matters of appointment, in one of its decisions, the Massachusetts District Court remarked that "both the parties to a dispute must have an equal right to participate in the appointment process."99 Similarly, in another case,^100 the Supreme Court of Alabama invalidated an arbitration agreement as being unconscionable for the reason that it excluded one party from the appointment process. Further, in Hooters of America, Inc. v. Phillips101, the arbitration clause was held to be against rules of neutrality and the award refused enforcement because one party was given exclusive control over the panel of potential arbitrators from which the other party could select its nominee arbitrator. It was observed that: "In this case, the challenge goes to the validity of the arbitration agreement itself. Hooters materially breached the arbitration agreement by promulgating rules so egregiously unfair as to constitute a complete default of its contractual obligation to draft arbitration rules and to do so in good faith. Hooters and Phillips agreed to settle any disputes between them not in a judicial forum, but in an....
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....cial forum, and there is no need to present separate evidence of bias or corruption." 51. The importance of composition of a just and proper arbitral tribunal was also highlighted by the Supreme Court of West Virginia in Board of Education of Berkley County v. W. Harley Miller, Inc.^104 There, the disputes were to be settled pursuant to a standard arbitration provision contained in the construction contract with the Board which provided that disputes shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. While the clause did not give one party unilateral control over the pool of arbitrators, the Court nonetheless discussed the issue of unilaterality in matters of appointment and reasoned that: "A functional analysis of the West Virginia cases which do not favor arbitration demonstrates that this Court would not countenance an arbitration provision by which the parties agree that all disputes will be arbitrated by a panel chosen exclusively by one of the parties. This is the classic rabbits and foxes situation, with the foxes stacking the arbitration panel in their favor. Such a contract pro....
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....e judgment as core values. I tried to locate the obligations of contracting parties to the arbitration agreement within the province of contract law and public policy considerations therein. This approach, I believe, is better suited for the determination of disputes in arbitration law, as it balances and protects the twin values of party autonomy through judicial restraint, and the duty the parties to constitute an independent arbitral tribunal without compromising any one in favour of the other. 54.3 There is a certain difficulty in invoking Section 18 of the Act and applying it as an equality principle mandating equal opportunity to both the contracting parties at the time of constituting the arbitral tribunal. Section 18 is the obligation of the arbitrator in conduct of arbitral proceedings. I have already highlighted the important distinction between the duty of the arbitrator to act judicially and the obligations of the parties to constitute an independent arbitral tribunal. That apart, the text and the context of Section 18 as is evident from the scheme of the Act eschews application of Section 18 at the time of appointment. This is clear through two factors: first, throu....
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....s available under the Act. This way, the choice of the parties is not completely ignored, and impartiality and independence of the arbitral tribunal is also ensured through close scrutiny by courts on a case-to-case basis. In any event, as indicated earlier, the enquiry about the arbitration clause will be at the stage of Section 11. 55. I consider it necessary to note that mere existence of some relationship with the appointing authority does not inherently undermine autonomy. For instance, senior officers always serve as appellate authorities, and their objectivity is not compromised due to their employment. The solution is in the remedies and certainty in law. System of governances must evolve and recognize the capability in handling distinct professional duties. It is said that the key difference between humans and other beings lies in their ability to think independently and even against our own interests. While it is important to acknowledge potential conflicts of interest, it does not mean that the system must bend backward to cater to unending suspicion and doubt. A balance must be struck between ensuring confidence in the system and fostering a healthy culture of indepe....
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....n Act is important to maintain the integrity of the party autonomy and restraint of judicial institutions. VI. The power to ensure that the arbitration agreement is compliant of the public policy requirement of establishing an independent and impartial tribunal is always of the Court. This principle is recognised and statutorily incorporated in the Contract Act and the Arbitration Act. It is the duty of the court to ensure that the arbitration agreement inspires confidence and it will enable establishment of an independent and impartial arbitral tribunal. VII. Neither public policy considerations under the Contract Act or the Arbitration Act restrain the parties to the arbitration from maintaining a panel of arbitrators in any manner. However, arbitration agreements enabling one of the parties to unilaterally constitute arbitral tribunal do not inspire confidence of independence and may violate the public policy requirement of constituting an independent and impartial tribunal. The court will, therefore, scrutinise the agreement and hold them to be invalid if it considers it appropriate. VIII. The occasion for the court to examine the constitution of the ....
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....udicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator is that much more onerous - and the right to natural justice cannot be said to have been waived only on the basis of a "prior" agreement between the parties at the time of the contract and before arising of the disputes."] 3 "2015 amendment" 4 Section 12(5), Arbitration Act. [It reads: "(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing."] 5 [2017] 1 SCR 798 6 "DMRC" 7 Voestalpine (supra) [25]. [It reads: "26. It cannot be said that simply because the person is a retired officer who retired from the government or other statutory corporation or public sector undertaking and had no connection with DMRC (the party in dispute),....
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....o the opposite party but it is limited to choose an arbitrator from the panel prepared by DMRC. It, therefore, becomes imperative to have a much broadbased panel, so that there is no misapprehension that principle of impartiality and independence would be discarded at any stage of the proceedings, specially at the stage of constitution of the Arbitral Tribunal. We, therefore, direct that DMRC shall prepare a broadbased panel on the aforesaid lines, within a period of two months from today."] 10 [2017] 7 SCR 409 11 As applied by this Court in Pratapchand Nopaji v. Kotrike Venkata Setty, (1975) 2 SCC 208 [9] 12 [2019] 17 SCR 275 13 Perkins (supra) [16] 14 [2019] 16 SCR 1234 ["CORE"] 15 2021 SCC OnLine SC 271. 16 "Expert Committee" 17 [2023] 13 SCR 943 18 "Contract Act" 19 "NBFCs" 20 Section 9, Code of Civil Procedure 1908. [It reads: "9. Courts to try all civil suits unless barred - The Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred."] 21 Section 28, Indian Contract Act 1872. [It reads: "28. Agreeme....
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....t. [It reads: "5. Extent of judicial intervention - Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."] 31 Sections 3, 11(1), 14(2), 15(3), 15(4), 20(3), 21, 23(3), 24(1), 26, 29(1), 31(7a), 33(4), Arbitration Act 32 Sections 11(3), 11(5), 13(2), 19(3), 20(2), 22(2), Arbitration Act 33 Sections, 11(2), 13(1), 19(2), 20(1), 22(1), Arbitration Act 34 Section 34(2)(a)(v), Arbitration Act 35 Section 11(6), Arbitration Act 36 N S Nayak and Sons v. State of Goa, (2003) 6 SCC 56 [14]; Sree Kamatchi Amman Constructions v. Railways, (2010) 8 SCC 767 [19] 37 Section 19, Arbitration Act 38 Section 20, Arbitration Act 39 Section 21, Arbitration Act 40 Section 22, Arbitration Act 41 Section 24, Arbitration Act 42 Section 25, Arbitration Act 43 Section 26, Arbitration Act 44 Section 29, Arbitration Act 45 Section 2(2), Arbitration Act 46 Shree Subhlaxmi Fabrics (P) Ltd. v. Chand Mal Baradia, (2005) 10 SCC 704 [9] 47 BSNL v. Motorola India (P) Ltd., (2002) SCC 337. ["39. Pursuance to Section 4 of the Arb....
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....cordingly, [...] there are only few further provisions which may be regarded as non- mandatory and, if so, could be easily marked as such by adding the words "unless otherwise agreed by the parties;"] 57 Holtzmann and Neuhaus (supra) 198 58 Section 34(2)(a)(v), Arbitration Act. [It reads: "(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or failing, such agreement, was not in accordance with this Part."] 59 Report of the United Nations Commission on International Trade Law on the work of its eighteenth session (3-21 June 1985) Supplement No. 17 (A/40/17) [290]. [The report states: "290. As regards the standards set forth in the subparagraph, it was understood that priority was accorded to the agreement of the parties. However, where the agreement was in conflict with a mandatory provision of "this Law" or where the parties had not made an agreement on the procedural point at issue, the provisions of "this Law", whether mandatory or not, provided the standards against which the compositio....
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....ned on 24 September 1923 71 A/CN.9/233 [17] 72 ibid 73 Shahla Ali and Odysseas G Repousis, 'Appointment of Arbitrators' in UNCITRAL Model Law on International Commercial Arbitration (Ilian Bantekas, et al eds, 2020) 74 Gary Born, International Commercial Arbitration (3 rd edn.,) 1783; Also see Michael Pryles, 'Limits to Party Autonomy in Arbitral Procedure' (2007) 24(3) Journal of International Arbitration 327-339. 75 Section 12, Arbitration Act. [It reads: (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,- (a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and (b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Explanation 1.-The grounds stated in the Fifth Sched....
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....fficers of one party being appointed as arbitrator(s) brings out considerable resistance from the other party, when disputes arise. Having regard to the emphasis on independence and impartiality in the new Act, Government, statutory authorities and government companies should think of phasing out arbitration clauses providing for serving officers and encourage professionalism in arbitration."]; See North Eastern Railway v. Tripple Engg. Works, (2014) 9 SCC 288 [8]; Union of India v. UP State Bridge Corporation Ltd., (2015) 2 SCC 52 [20] ["20. Therefore, where the Government assumes the authority and power to itself, in one-sided arbitration clause, to appoint the arbitrators in the case of disputes, it should be more vigilant and more responsible in choosing the arbitrators who are in a position to conduct the arbitral proceedings in an efficient manner, without compromising with their other duties. Time has come when the appointing authorities have to take call on such aspects failing which (as in the instant case), Courts are not powerless to remedy such situations by springing into action and exercising their powers as contained in Section 11 of the Act to constitute an Arbitral....
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....uch arbitrator. In such a case i.e. a case which falls under Section 12(5), Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e. de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator. This being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator under Section 14(1) itself."] 84 A/CN.9/264, page 30 85 Ibid. 86 Report of the Secretary-General: possible features of a model law on international commercial arbitration, A/CN.9/207, [65]. 87 Holtzmann and Neuhaus (supra) 388 88 A/CN.9/264, page 31. [It reads: "4. Paragraph (2), like article 10(1) of the UNCITRAL Arbitration Rules, adopts a general formula for the grounds on which an arbitrator may be challenged. This seems preferable to listing all possible connections and other relevant situations. As indicated by the word "only", the grounds for challenge referred to here are exhaustive. Although reliance on any specific reason listed in a national law (often applicable to judges and arbitrators alike) is precluded, it is submitted that it would be difficult to find....
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....a) 551 97 K K Saksena v. International Commission on Irrigation & Drainage, (2015) 4 SCC 670 [43] 98 Jody Freeman, 'The Contracting State' (2000) 28(1) Florida State University Law Review 155 99 Subodh Kumar Singh Rathour v. Chief Executive Officer, 2024 SCC OnLine SC 1682 100 Stavros Brekoulakis and Margaret Devaney, 'Public-private arbitration and the public interest under English law' (2017) 80(1) Modern Law Review 22, 30. 101 (2019) 8 SCC 112 102 "CPC" 103 Pam Developments Pvt Ltd (supra) [27-28] ["28. Section 36 of the Arbitration Act also does not provide for any special treatment to the Government while dealing with grant of stay in an application under proceedings of Section 34 of the Arbitration Act. Keeping the aforesaid in consideration and also the provisions of Section 18 providing for equal treatment of parties, it would, in our view, make it clear that there is no exceptional treatment to be given to the Government while considering the application for stay under Section 36 filed by the Government in proceedings under Section 34 of the Arbitration Act."] 104 Province of Bombay v. Khushaldas Advani, 1950 SCC 551. [Justice S R Das (as the learne....
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....istrative Law, they may have to be so replaced, it is essential that administrative authorities and tribunals should accord fair and proper hearing to the persons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them. Then alone administrative authorities and tribunals exercising quasi-judicial function will be able to justify their existence and carry credibility with the people by inspiring confidence in the adjudicatory process. The rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law.] 121 Associate Builders v. DDA, (2015) 3 SCC 49 [30]; Srei Infrastructure Finance Ltd. v. Tuff Drilling (P) Ltd., (2018) 11 SCC 470 [16]; 122 (2020) 10 SCC 1 [121] 123 Mustill and Boyd (supra) 58 124 Ilias Bantekas, 'Equal treatment of parties in International Commercial Arbitration' (2020) 69(4) International & Comparative Law Quarterly 991, 992. 1....
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....reed upon earlier."] 131 (2009) 3 SCC (Civ) 460 132 M Nagaraj v. Union of India, (2006) 8 SCC 212 [106] 133 Shree Meenakshi Mills Ltd. v. A V Visvanatha Sastri, (1954) 2 SCC 497 [6] 134 (2010) 11 SCC 1 [102] 135 Jerry L Mashaw, 'The Supreme Court's Due Process Calculus for Administrative Adjudication in Mathews v Eldridge: Three Factors in Search of a Theory of Value' (1976) 44(28) University of Chicago Law Review 29, 52. [Professor Mashaw states that "insofar as adjudicatory procedure is perceived to be adversarial and dispute resolving, the degree to which procedures facilitate equal opportunities for the adversaries to influence the decision may be the most important criterion by which fairness is evaluated."] 136 William B Rubenstein, 'The Concept of Equality in Civil Procedure' (2001-2002) 23 Cardozo Law Review 1865, 1890. 137 William Lucy, The Possibility of Impartiality (2005) 25(1) Oxford Journal of Legal Studies 3, 11 138 Ibid, at 22. 139 Lon Fueller, 'The Forms and Limits of Adjudication' (1978) 92(2) Harvard Law Review 353, 364. [Professor Fueller states: "...whole analysis will derive from one simple proposition, namely, that the distinguishin....
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....of India, (1958) 4 SCC 252 [26] 154 Maneka Gandhi (supra) [7] 155 Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC 722 [16] 156 (1985) 3 SCC 398 157 K L Tripathi v. State Bank of India, (1984) 1 SCC 43 [32] 158 Bank of Patiala v. S K Sharma, (1996) 3 SCC 364 [29] 159 S L Kapoor v. Jagmohan, (1980) 4 SCC 379 [24] 160 Dharampal Satyapal Ltd. v. CCE, (2015) 8 SCC 519 [26] 161 2023 SCC OnLine SC 366 [53] 162 (1969) 2 SCC 262 163 A K Kraipak (supra) [15]. [15. [...] But then the very fact that he was a member of the selection board must have had its own impact on the decision of the selection board. Further admittedly he participated in the deliberations of the selection board when the claims of his rivals particularly that of Basu was considered. He was also party to the preparation of the list of selected candidates in order of preference. At every stage of his participation in the deliberations of the selection board there was a conflict between his interest and duty. Under those circumstances it is difficult to believe that he could have been impartial. The real question is not whether he was biased. It is difficult to prove the state of mind of a pe....
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.... 173 Locabail (supra) [8] 174 (1852) 3 HL Cas 759 175 Dimes (supra) 793. [Lord Campbell observed: "No one can suppose that Lord Cottenham [Lord Chancellor] could be, in the remotest degree, influenced by the interest that he had in this concern; but, my Lords, it is of the last importance that the maxim that no man is to be a judge in his own cause should be held sacred. And that is not confined to a cause in which he is a party, but applies to a cause in which he has an interest."] 176 [1999] UKHL 1 177 "AI" 178 "AICL" 179 In re Pinochet (supra) [Lord Browne-Wilkinson held: "My Lords, in my judgment, although the cases have all dealt with automatic disqualification on the grounds of pecuniary interest, there is no good reason in principle for so limiting automatic disqualification. The rationale of the whole rule is that a man cannot be a judge in his own cause. In civil litigation the matters in issue will normally have an economic impact; therefore a judge is automatically disqualified if he stands to make a financial gain as a consequence of his own decision of the case. But if, as in the present case, the matter at issue does not relate to money or economi....
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....lity" test ensures that there is this measure of detachment. The assumptions that the complainer makes are not to be attributed to the observer unless they can be justified objectively. But she is not complacent either. She knows that fairness requires that a judge must be, and must be seen to be, unbiased. She knows that judges, like anybody else, have their weaknesses. She will not shrink from the conclusion, if it can be justified objectively, that things that they have said or done or associations that they have formed may make it difficult for them to judge the case before them impartially. 3. Then there is the attribute that the observer is "informed". It makes the point that, before she takes a balanced approach to any information she is given, she will take the trouble to inform herself on all matters that are relevant. She is the sort of person who takes the trouble to read the text of an article as well as the headlines. She is able to put whatever she has read or seen into its overall social, political or geographical context. She is fair-minded, so she will appreciate that the context forms an important part of the material which she must consider before passing judg....
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....No. 17056/06; Morice (supra) [77]; 201 See William Wade and Christopher Forsyth, Administrative Law (12 th edn, Oxford University Press) 371 202 BEG S.P.A. v. Italy, Application No. 5312/11 (20 May 2021) 203 Rattan Lal Sharma v. Managing Committee, Dr. Hari Ram (Co-Education) Higher Secondary School, (1993) 4 SCC 10 [11] 204 1957 SCC OnLine SC 10 [4] 205 (1974) 3 SCC 459 [14] 206 S Parthasarathi (supra) [16]. [It was observed: "16. The tests of "real likelihood" and "reasonable suspicion" are really inconsistent with each other. We think that the reviewing authority must make a determination on the basis of the whole evidence before it, whether a reasonable man would in the circumstances infer that there is real likelihood of bias. The Court must look at the impression which other people have. This follows from the principle that justice must not only be done but seen to be done. If right minded persons would think that there is real likelihood of bias on the part of an inquiring officer, he must not conduct the enquiry; nevertheless, there must be a real likelihood of bias. Surmise or conjecture would not be enough. There must exist circumstances from which reaso....
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....8781/12. ["63. Given the importance of appearances, however, when such a situation (which can give rise to a suggestion or appearance of bias) arises, that situation should be disclosed at the outset of the proceedings and an assessment should be made, taking into account the various factors involved in order to determine whether disqualification is actually necessitated in the case. This is an important procedural safeguard which is necessary in order to provide adequate guarantees in respect of both objective and subjective impartiality."] 217 Jivraj v. Hashwani, [2011] UKSC 40 [45] 218 Redfern and Hunter (supra) 226 219 Article 3, IBA Rules of Ethics for International Arbitrator 1987 220 Peter Binder (supra) 117 221 Gary Born (supra) 1911, 1912. [Gary Born suggests that: "Statutory (and judicial) references to the "risks" or "possibility" of partiality are preferable to formulations including "doubt" or "suspicion." The latter phrases connote a subjective inquiry, as well as a flavor of speculation, which are misleading. The better approach is instead to consider what objective risk (or possibility) of unacceptable partiality exists."] 222 David Caron and Lee C....
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....nd Kings [63]. 248 Section 2(d) defines consideration as follows: ["(d) When, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;"] 249 Section 16, Contract Act. [It reads: "16. "Undue Influence" defined - (1) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. (2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another - (a) where he hold a real or apparent authority over the other or where he stands in a fiduciary relation to the other; or (b) where he makes a contract with a person whose mental capacity is temporarily or permanently affect by reason of age, illness, or mental or bodily distress. (3) Where a person who is in a position to dominate the will ....
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....a Ltd. v. Cochin International Airport Ltd.,(2000) 2 SCC 617 [7] 263 (1993) 1 SCC 71 [7] 264 Kamdhenu Cattle Feed Industries (supra) [7] 265 (1994) 6 SCC 651 [94] 266 ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd., (2004) 3 SCC 553 [23] 267 ABL International (supra) [53]. ["53. From the above, it is clear that when an instrumentality of the State acts contrary to public good and public interest, unfairly, unjustly and unreasonably, in its contractual, constitutional or statutory obligations, it really acts contrary to the constitutional guarantee found in Article 14 of the Constitution."] 268 (2019) 4 SCC 401 269 ICOMM Tele (supra) [23] 270 ICOMM Tele (supra) [27] ["27. Deterring a party to an arbitration from invoking this alternative dispute resolution process by a pre-deposit of 10 per cent would discourage arbitration, contrary to the object of de-clogging the court system, and would render the arbitral process ineffective and expensive."] 271 Lombardi (supra) [80] 272 Lombardi (supra) [83] ["83. The concept of "party autonomy" as pressed into service by the respondent cannot be stretched to an extent where it violates ....
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....e-Emperor's New Clause' (1967) 115(4) University of Pennsylvania Law Review 485, 487. 281 Board of Education of Berkely County v. W Harley Miller Inc, 236 S.E.2d 439 (1977) 282 Ditto v. Remax Preferred Props, 861 P.2d 1000, 1004; Harold Allen's Mobile Home Factory Outlet Inc v. Butler, 825 So.2d 779, 783 (Ala 2002) 283 Graham v. Scissor Tail Inc, 28 Cal 3d 807 284 Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith Inc, 995 F.Supp 190, 208 (D. Mass 1998) 285 173 F.3d 933 286 Hooters of Am Inc (supra) 939 287 355 F.3d 485, 493 288 Cox and Kings (supra) [95] 289 Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 [35]; A Ayyasamy v. A Paramasivam, (2016) 10 SCC 386 [38]; Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 [76] 290 Booz Allen & Hamilton Inc. (supra) [36]. [36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testament....
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....e matter of grant of largesse including award of jobs, contracts, quotas, licences, etc. must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory.] 301 LIC v. Consumer Education & Research Centre, (1995) 5 SCC 482 [23] 302 2023 INSC 1066 303 In re Interplay between Arbitration Agreements under Arbitration and Conciliation Act 1996 and Stamp Act 1899 (supra) [196] 304 Somaiya Organics (India) Ltd. v. State of UP, (2001) 5 SCC 519 [46] 305 Belsund Sugar Co. Ltd. v. State of Bihar, (1999) 9 SCC 620 [112] 306 Sarwan Kumar v. Madan Lal Aggarwal, (2003) 4 SCC 147 [15] 307 2024 SCC OnLine SC 1974 308 (2012) 9 SCC 552 309 (2002) 4 SCC 105 JUSTICE HRISHIKESH ROY FOOTNOTES 1 Gary Born, International Commercial Arbitration (2nd edn, Kluwer 2014) 2 UNCITRAL 2012 Digest of Case Law on the....
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....A(2). 28 Section 29B. 29 Section 31(7)(a). 30 Section 33(4). 31 Section 34. 32 Sections 35 and 36. 33 Section 37. 34 Sections 38 to 43. 35 Section 10 of the Contract Act 36 Section 14 of the Contract Act. 37 Section 15 of the Contract Act 38 Section 16 of the Contract Act 39 Section 17 of the Contract Act 40 Section 18 of the Contract Act 41 Section 23 of the Contract Act. 42 Section 23 of the Contract Act. 43 Indian Financial Association of Seventh Day Adventists v. M.A. Unneerikutty, (2006) 6 SCC 351, para 17. 44 Gherulal Parekh v. Mahadeodas Maiya, (1959) Supp 2 SCR 406, para 23; Central Inland Water Transport Corpn Ltd v. Brojo Nath Ganguly, (1986) 3 SCC 156, para 92; Rattan Chand Hira Chand v. Askar Nawaz Jung, (1991) 3 SCC 67, para 17; Indian Financial Association of Seventh Day Adventists (supra), para 19; Assistant General Manager v. Radhey Shyam Pandey, (2020) 6 SCCC 438, para 72. 45 Pollock and Mulla, The Indian Contract and Specific Relief Acts, vol 1 (14th edn, Lexis Nexis 2013), 524. 46 ibid, 524-566; P. Rathinam v. Union of India, (1994) 3 SCC 394, para 93. 47 (1986) 3 SCC 156 48 Brojo Nath Ganguly (supra)....
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....ering Projects Limited, (2017) 8 SCC 377. 70 ibid, paras 50, 53. 71 ibid, paras 50-54. 72 Perkins Eastman Architects DPC v. HSCC (India) Limited, (2020) 20 SCC 760. 73 ibid, para 20. 74 ibid, para 21. 75 ibid. 76 Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), (2020) 14 SCC 712. Hereinafter referred to as "CORE". 77 ibid, para 22. The Court relied on Union of India v. Parmar Construction Company, (2019) 15 SCC 682 and Union of India v. Pradeep Vinod Construction Co, (2020) 2 SCC 464. 78 ibid, para 26. The Court relied on Voestalpine (supra) and Govt. of Haryana PWD Haryana (B and R) Branch v. G.F. Toll Road (P) Ltd, (2019) 3 SCC 505. 79 ibid, paras 37-38. 80 (2023) 8 SCC 226. 81 (2024) 4 SCC 341, see paras 85-91. 82 HRD v. GAIL (supra), para 20. 83 ibid. 84 ibid. 85 (2021) 17 SCC 248. 86 (2022) 3 SCC 1. 87 Jaipur Zila Dugdh (supra), para 14. 88 ibid, paras 16-17. 89 Chennai Metro Rail (supra), para 41. 90 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958. 91 Section 5, Federal Arbitration Act. It reads as: Section 5. Appointment of arbitrators or umpire If i....