Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV)
"Equal treatment of parties under the Arbitration Act extends to the appointment of arbitrators, so a clause allowing one party to appoint a sole arbitrator unilaterally, or compelling the other to choose from its curated panel, offends that principle, and such clauses in public-private contracts violate Article 14; the ruling applies to appointments made after 8 November 2024."
Issues Before the Court
- (i)
Whether an arbitration clause that allows one party to appoint a sole arbitrator unilaterally, or requires the other party to choose its arbitrator from a panel curated by the first, is valid?
- (ii)
Whether the principle of equal treatment of parties under the Arbitration and Conciliation Act, 1996 applies at the stage of constituting the arbitral tribunal?
- (iii)
Whether unilateral appointment clauses in public-private contracts violate Article 14 of the Constitution?
Law & Rules Applicable
- (i)
Arbitration and Conciliation Act, 1996, Section 11 (appointment of arbitrators), Section 12(5) read with the Seventh Schedule (ineligibility of arbitrators, subject to express written waiver) and Section 18 (equal treatment of parties).
- (ii)
Constitution of India, Article 14 (equality before law and freedom from arbitrary State action).
- (iii)
Perkins Eastman Architects DPC v. HSCC (India) Ltd. (a party with an interest in the outcome cannot unilaterally appoint a sole arbitrator).
Application to Facts & Circumstances
In 2019 a three-judge Bench had upheld a clause in a railway contract under which the railway forwarded a panel of names, the contractor suggested names from that panel, and the railway's General Manager made the appointments. Later Benches doubted that view in the light of Perkins Eastman, and the questions were referred to a Constitution Bench.
Writing for the majority (with Pardiwala and Misra JJ.), Chandrachud C.J. held that the principle of equal treatment of parties applies at every stage of arbitral proceedings, including the appointment of arbitrators. Independence and impartiality of the tribunal are core features of arbitration, and the appointment process must allow the parties an equal say.
A public sector undertaking may maintain a panel of potential arbitrators, but an arbitration clause cannot compel the other party to choose its arbitrator from that panel, since that gives one party effective control over the tribunal's composition. A clause allowing one party to appoint a sole arbitrator unilaterally gives rise to justifiable doubts about the arbitrator's independence and impartiality. In public-private contracts such clauses are arbitrary and violate Article 14.
Hrishikesh Roy J. and P.S. Narasimha J. wrote separate opinions, dissenting in part; Roy J. placed greater weight on party autonomy.
Conclusion & Ruling
- (i)
The principle of equal treatment applies to the appointment of arbitrators; a clause compelling a party to choose its arbitrator from the other side's curated panel, or allowing one party to appoint a sole arbitrator unilaterally, offends that principle.
- (ii)
Unilateral appointment clauses in public-private contracts violate Article 14 of the Constitution.
- (iii)
The law laid down applies prospectively, to appointments of arbitrators made after the date of the judgment (8 November 2024); the direction concerning curated panels applies to three-member tribunals.
Authorities Cited
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- Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760Full text of Perkins Eastman Architects DPC v. HSCC (India) Ltd. on Indian Kanoon