Appointment of arbitrators by ineligible persons | Day 3: Five-judge bench reserves judgement
Appointment of Arbitrators by Ineligible PersonsJudges: D.Y. Chandrachud CJI, Hrishikesh Roy J, P.S. Narasimha J, J.B. Pardiwala J, Manoj Misra J
On 30 August 2024, a five-judge Constitution Bench led by Chief Justice D.Y. Chandrachud reserved judgement on whether a person who is ineligible to be an arbitrator can appoint one. Over three days, the bench also heard arguments on the validity of the unilateral appointment of an arbitration panel by a single party from which arbitrators can be selected by another party.
On the first day of arguments, Senior Advocates Gorab Banerji and Neeraj Kishan Kaul had argued that unilateral appointments breached the principles of equality and independence enshrined in the Arbitration Act.
On the second day of arguments, Solicitor General Tushar Mehta for the Union government had argued that unilateral appointment of a panel was permissible if there was a prior agreement on it between the parties. He reasoned that party autonomy was paramount under the Arbitration Act, (1996).
On Day 3, non-banking financial companies (NBFCs) and other intervenors represented by Senior Advocates Anand Padmanabhan, Mahesh Jethmalani, Nakul Dewan, P.V. Dinesh made brief submissions before the bench. Towards the end, Banerji and Kaul representing private contractors made rejoinder arguments.
Before the intervenors commenced arguments, Mehta addressed the bench for a few minutes. He stated that online dispute resolution (ODR) has proven very effective to solve disputes involving small monies in the banking sector. The same could prove useful for NFBCs as well. Advocate Shashank Garg added that most ODR platforms had empanelled a list of independent arbitrators who were lawyers, retired judges and other experts to ensure impartiality.
Intervenors: The Arbitration Act does not prevent unilateral appointments
Padmanabhan stated that Section 11 of the Arbitration Act, which deals with appointment of arbitrators, does not bar panel appointments from a single party. Drawing upon Mehta’s arguments, he reiterated that party autonomy was inherent in the Arbitration Act. Jethmmalani added that if the legislature wanted to prohibit unilateral appointments they would have added express provisions to that effect in the Act.
Jethmalani also submitted that the Act did not bar a person ineligible to be an arbitrator from appointing others. Section 12(5) states that people listed under the Seventh Schedule of the Act cannot be appointed as arbitrators. The Seventh Schedule enlists 19 relationships that make a person ineligible to be an arbitrator. Jethmalani argued that if the legislature intended to, they could have added a clause stating that “persons appointed by persons listed from clauses 1 to 19” are ineligible to be arbitrators. Therefore, a Managing Director of a company, for instance, could not be an arbitrator himself but could appoint another person.
Dewan appeared after Jethmalani and contended that party autonomy enshrined under Section 2(6) of the Act was the “guiding light” that had to be followed. In essence, Section 2(6) states that the freedom of parties to determine a particular issue includes the right to appoint any person or institution to make that determination on their behalf. Section 11 which empowers parties to appoint arbitrators, Dewan said, had to be read with Section 2(6) and could not be overturned by the equality of treatment enshrined under Section 18 of the Act.
Dinesh went a step further, suggesting that even if the appointment process and the arbitrators selected were biased, if the subject-matter of the dispute could be resolved objectively, then the appointment of arbitrators could not be challenged.
Rejoinder arguments
During the rejoinder Banerji submitted that disputes in arbitration usually involved people who were not on equal footing—employer and employee, lender and borrower etc. in both the public and private sectors. Therefore, if one side made unilateral appointments to the panel, there would inevitably be an appearance of bias and impartiality.
Kaul reiterated that the 246th Law Commission Report, which was the basis for the 2015 Amendments to the Arbitration Act, made it clear that impartiality and independence was deemed vital in arbitration.
After this, the bench reserved judgement in the case.