Source: Delhi High Court 

Why in News?

A bench of Justice C Hari Prasad dismissed the petition seeking termination of mandate of arbitrator under Section 14 of the Arbitration and Conciliation Act, 1996 (A & C Act).                   

• The Delhi High Court held this in the case of Power Grid Corporation of India Ltd v. Mirador Commercial Pvt Ltd.  

What was the Background of Power Grid Corporation of India v. Mirador Commercial Pvt Ltd. Case? 

• There were three contracts executed between the petitioner and a Joint Venture of SPIC-SMO and Aster Teleservices Pvt Ltd. 
• The General Conditions of the Contract (GCC) governing the relationship between the respondent and the petitioner envisaged that in case of dispute between the parties initially there will be an attempt at settlement and on failing that there will be arbitration between the parties. 
• On 28th November 2016 the respondent issued a notice to petitioner with respect to GCC. 
• There was another notice dated 13th May 2024 issued to petitioner with respect to all three packages, i.e. relating to all three GCCs. 
• The petitioner responded to the above notice contending that there could be no composite arbitration for all three packages and the claims were barred by time among other grounds. 
• The Respondent wrote to the petitioner invoking arbitration in terms of Clause 39 of GCC. The notice appointed Justice Iqbal Ahmed Ansari, a former Chief Justice of High Court of Patna as the arbitrator of the respondent and called upon the petitioner to nominate the arbitrator in terms of the above clause.  
•  The Petitioner, however, called upon the Respondent to revoke the notice of arbitration as it was defective and premature requiring them to approach the Project Manager before invoking arbitration. 
• The Respondent responded to the above and contended that as the petitioner had failed to nominate an arbitrator the arbitrator named by the respondent in its Section 21 notice would function as sole arbitrator on the dispute. 
• The above communication was also responded to by the petitioner. 
• The Learned Arbitrator accepted the appointment and fixed the date for the hearing. 
• Since then, the arbitral proceedings have been continuing before the arbitrator. 
• These petitions have been filed under Section 14 (1) and 14 (2) of the A & C Act seeking termination of the mandate of the arbitral tribunal which is presently ongoing. 

What were the Court’s Observations?  

• The issues for consideration before the Court are as follows: 
  • (i) Whether the Arbitration clause between the parties was hit by the judgment of Perkins Eastman Architects DPC v. HSCC (India) Ltd (2020) and others in that line? 
  • (ii) Whether this is a fit case where the arbitral proceedings should be interfered with? 
• With Respect to Issue (i): 
  • The Court observed that in the present case the clause executed between the parties gave liberty to either party to write to the other suggesting the name of an arbitrator. 
  • The Court observed that no party was given the right to appoint an arbitrator unilaterally without the consent of the other. 
  • It is only after the second party defaults in appointing the arbitrator that the arbitrator appointed by the first party acts as the sole arbitrator resolving disputes between the parties. 
  • By defaulting in suggesting a name in response to the notice under Section 21 issued by the respondent it can be argued that the petitioner impliedly acquiesced to the arbitrator appointed by the respondent functioning as the sole arbitrator to arbitrate on the disputes. 
  • Thus, the Court without taking a final view on this issue held that Clause in this case differed from the clause in the Perkins line of decisions. 
  • Therefore, the Court issued notice in these petitions in order to decide this issue.   
• With Respect to Issue (ii): 
  • The interference of the Court in the arbitral proceedings should be limited has been a fairly settled proposition. 
  • Even while exercising the jurisdiction under Section 11 (6) of the A & C Act the Supreme Court has held that the Court could examine only two aspects: 
    • Whether there exists an arbitration agreement between the parties. 
    • Whether Section 11 (6) petition was filed within three years if issuance of notice under Section 21 of the Act. 
  • Also, for the above questions the examination only has to be prima facie and not more than that. 
  • The Court observed that the present petition has been filed under Section 14 of the Act which envisages the termination of the mandate of the arbitrator only in two circumstances: 
    • The arbitrator has become de jure or de facto incapable of functioning as an arbitrator; or 
    • The arbitrator must withdraw from office. 
  • The Court held that in the present case the only point raised is that the arbitration clause is based on Perkins line of decisions and these arguments can very well be decided by exercise of jurisdiction under Section 16 of the Act. 
• Thus, the Court in this case finally refused to interfere with the arbitral proceedings. The Court, however, held that all the further proceedings shall be subject to the outcome of the petition.

What is the Procedure Governing Appointment of Arbitrators?

About:

• Section 11 of the A & C Act lays down the procedure for appointment of arbitrators. 
• The provision has undergone several amendments particularly in 2015 and 2019.

Nationality of Arbitrators under Section 11 (1):

• A person of any nationality may be an arbitrator. 
• This rule is subject to agreement between the parties.

Party Autonomy under Section 11 (2):

• As per sub-section (2) the parties are free to agree on a procedure for appointing arbitrators. 
• This is subject to sub section (6).

A case of Three arbitrators under Section 11 (3): 

• In case the parties fail to come to an agreement under sub-section (2) the following procedure shall be followed in the case of three arbitrators. 
• Each party shall appoint one arbitrator. 
• Two appointed arbitrators shall appoint a third arbitrator who shall act as the Presiding Arbitrator.

Appointment of Arbitrator by the Supreme Court or the High Court or any person or Institution Designated under Section 11 (4), (5) and (6): 

• Section 11 (4) provides that in case Section 11 (3) applies and the following circumstances arise, the appointment shall on request of a party be done by the Supreme Court or High Court or any person or institution designated by such Court: 
  • A party fails to appoint an arbitrator within 30 days from the receipt of a request from the other party. 
  • The two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment. 
• Section 11 (5) provides that where the parties fail to come to agreement under sub-section (2) in an arbitration with sole arbitrator. 
  • The parties fail to agree on the arbitrator within 30 days from the receipt of request by one party. 
  • The appointment shall be made on the request of a party as the case may be by the Supreme Court or High Court or any person or institution designated by such Court. 
• Section 11 (6) provides for three situations where on the request of the party the Supreme Court, High Court or any person or institution designated by such Court may appoint an arbitrator unless the arbitration provides for contrary. The circumstances are: 
  • Where a party fails to act as required under the procedure. 
  • The parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure. 
  • A person, including an institution, fails to perform any function entrusted to him or it under that procedure.

Examination Confined to Existence of Arbitration Agreement under Section 11 (6A) (6B): 

• These were inserted by the 2015 Amendment.  
• The Supreme Court or High Court while considering the application under Sub section (4), (5), (6) shall confine its examination to the existence of an arbitration agreement. 
• This shall be notwithstanding any judgment, order or decree 
• Section 11 (6B) provides that designation in this Section shall not mean delegation of judicial power by the Supreme Court or High Court.

No Appeal under Section 11 (7):

• No appeal including the Letters Patent Appeal shall lie against the decision of on a matter under Sub section (4), (5) or (6).

Seeking Disclosure from Prospective Arbitrator under Section 11 (8): 

• The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to: 
  • Any qualifications required for the arbitrator by the agreement of the parties. 
  • The contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

Arbitrators can be of different Nationalities under Section 11 (9): 

• In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Supreme Court or the person or institution designated by that Court may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. 

Interpretation of the term “Supreme Court or, as the case may be, the High Court” under Section 11 (12): 

• In case of International Commercial Arbitration, it would mean the Supreme Court 
• In case of other arbitration, it would mean “High Court” within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate, and where the High Court itself is the Court referred to in that clause, to that High Court.

What is Unilateral Appointment of Arbitrator? 

• About: 
  • Unilateral appointment of Arbitrator means only one party is appointing the arbitrator. 
  • This is against the principle of party autonomy.
• Landmark Judgments in this Regard: 
  • TRF Ltd v. Energo Engg Projects Ltd (2017): 
    • This case laid down the foundation for barring unilateral appointments 
    • The Court held in this case that a party that is interested in dispute cannot be appointed be eligible to be appointed as an arbitrator without giving due regard to the wishes of the other party. 
  • Perkins Eastman Architects DPC v. HSCC (India) Ltd (2020): 
    • The Court decisively held in this case that appointment of an arbitrator without the consent of the other party i.e. unilateral appointment shall be non est in law. 
    • The Court held that to maintain absolute fairness and impartiality the appointment of an arbitrator cannot be done unilaterally even though arbitration clause vested such power on the party.