Tag: Arbitration

BY SUNIL SINGH, FOURTH-YEAR STUDENT AND SOURAV VERMA THIRD-YEAR STUDENT AT HNLU, RAIPUR

Huawei is a Chinese phone-maker company. It is the world’s second largest smartphone supplier with 18% market share. It started its operation in the UK in 2001 and since then it had strong ties with the country. In 2012, The company surpassed Euro 2 billion five-year investment and procurement target for UK, thereby becoming one of Britain’s largest sources of investment from China. The Company invests in R&D partnerships with British universities and works with UK’s top academic institutions.

However, On 15^th July, the UK government banned Huawei from its 5G infrastructure, by reversing its January order where Huawei was excluded from participating in sensitive ‘core’ parts of 5G and gigabit-capable networks. According to the order passed in July, the telecom operators by the end of this year had to stop buying any 5G equipment from Huawei and also were directed to remove all the 5G gears installed in their telecom network by the end of 2027. This decision came forth as a result of a report submitted by the National Cyber Security Centre (‘NCSC’) which highlighted some “significant technical issues”. The core issue highlighted in the report was Huawei’s relation with the Chinese govt. This caused reasonable amount of apprehension that Huawei’s equipment could be used by the Chinese govt. for the purpose of conducting espionage.

However, the decision has some repercussions and can backfire against the UK in the form of investment claims resulting from the 1986 UK-China Bilateral Investment Treaty (‘BIT’). The authors through this article attempt to evaluate – whether the level of security contemplated by the BIT between the UK and China is impaired by the govt.’s decision to ban Huawei from participating from its 5g infrastructure. Further, the article analyses the safeguards that the UK could use under the BIT and customary international law in the context of investment arbitrations resulting from such infringements.

Protection against Expropriation

Expropriation is the act of a govt. claiming private property forcibly from the owners, ostensibly to be used for the benefit of the general public. In the context of international investment, an act/measure of state is said to be expropriatory  in nature if such an act deprives the foreign Investor from the economical or other benefits arising from his investment. Foreign investors are often protected by an expropriation clause provided in the BIT.

The expropriation clause, as provided in Article 5 of the UK-China BIT, stipulates the host state’s pledge not to forcefully deny the investor of the contracting party of its investment or to implement any action which might adversely affect the valuation of the invested property of the contracting party.

Regardless of the consequences of the individual expropriation cases, in expropriation disputes, tribunals usually look at the overall severity of the conduct of the host state to decide whether or not, the substantial protection under the expropriation clause can be conferred upon the investors. If the tribunal is of the view that an expropriation has taken place, such an action will be in the breach of relevant agreement or treaty unless the owner is not compensated. However, the liability of compensation stands precluded for acts concomitant with public interest, provided that the acts performed are not discriminatory in nature and the investors are duly reimbursed by the host state.

Usually, the state takes the defence of ‘The police powers doctrine’, which basically acts as a frontier safeguard in situations of expropriation. Police powers doctrine signifies powers that reside in the governments., allowing them to take bona fide, non-discriminatory action in general to preserve public welfare. Such rights grant the state the right to control the interests of the public in its jurisdiction, even though the investment is significantly impacted. The UK hence, can defend its act by contending that the measure was introduced as a part of the police forces of the state.

Even though the BIT does not include any specific clause in this respect, as a principle of customary international law, its acceptability is not subject to a specific provision to that effect. Additionally, several ISDS tribunals have also ruled that when operating in execution of their police powers, states do not breach any BIT obligations.

Another defence originating from customary international law is that of ‘necessity’ resulting from Article 25 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts (‘ARSIWA’). Although the presence of urgency as a basis for the avoidance of wrongdoing under international law is no longer questioned, grounds of invocation of Article 25 of ARSIWA have a high threshold to avoid abuse[i]. Various sources of international law (present state policy, rulings of the international forum, and academic writings[ii]) amply support the need to take stringent approach in interpretation of ‘necessity’ as a defence. For instance, in the Rainbow Warrior arbitration[iii], the arbitral tribunal expressed doubt as to the existence of the defence of necessity. It observed that the Commission’s draft article “allegedly authorises a state to take unlawful action invoking the defence of necessity” and identified the commission’s proposal to be “controversial”. The plausibility of this defence may therefore rely on a case-by-case basis, paying attention to the responsibilities from the measures, as well as the circumstances surrounding them such as the scope of the obligation, the degree of the effect, the expediency of the contested measure and the factual conditions surrounding it.

National Treatment and Most Favoured Nation Clause

National Treatment and the Most Favoured Nation Clauses are the two types of status given by one contracting state to another for easy regulation of trade & investment. While under national treatment clause both – goods imported from contracting state and locally produced ones – are treated equally, MFN Clause ensures that one party is treated no less favourably by the respective member states to a treaty than any other member state. In other words, restricts the states from acting in a discriminate manner, under identical conditions, between the investors of the contracting state and local investors or other overseas investors. This means that pursuant to Article 3 of the UK-china BIT, the UK is under an obligation not to differentiate between Huawei and other locally or foreign investors under identical conditions. In order to safeguard UK’s position, the examination that needs to be made here is about interpreting the term ‘like circumstances’. The term ‘like circumstances’ ensures that only investors or investments with similar traits are compared. These conditions include not only competition in the relevant business sector or economic sectors but also other specific conditions, including the legal and regulatory system in place, or if the differential treatment is rendered on the basis of certain legitimate welfare goals[iv] .

Thus, invocation of these clauses requisites a traditional fact-specific interpretation and requires the conditions surrounding the investment disputes to be holistically considered. After looking into situations in entirety, some awards such as Daniel Midland v. United Mexican States, have held that investors or investments, despite being in “identical situations” have been treated unfairly on the basis of their nationality. However, awards have also been made, for instance, in the case of Grand River Enterprises v. the United States of America, where courts have recognised differences in treatment between investors or investments that are plausibly related to valid public welfare goals and also have given weight to whether investors or investments are subject to similar legal requirements according to their conditions.

In addition to investment law, a breach of the status of MFN through the prism of international trade law may theoretically amount to violation of the obligations of the World Trade Organization (‘WTO’) between UK and China. Nonetheless, it is important to note that member nations are entitled to exclude from being governed by these commitments in such matters relating to national security. Under the defence exceptions of Article XXI of the General Agreement on the Trade and Tariffs (‘GATT’), it is noteworthy that the exception is given to any action, which is deemed necessary for the safety of ‘critical security interests’. For instance, in 2019, in a WTO settlement between Russia and Ukraine, WTO affirmed the assertion of a national security exemption under the GATT in order to validate Russia’s trade blockade in breach of some WTO obligations with a regard to national security.

Conclusion

This ban can potentially trigger investment claims against the UK as Huawei already has made its intention to initiate investment claims against Canada, Australia the Czech Republic, if the ban violates its right as a foreign investor. However, this ban was applauded by countries like USA and Australia who already have banned Huawei from their 5G infrastructure. The UK govt. may justify the ban on grounds of national security. However, the BIT provides sufficient space to accommodate Huawei’s claims. It will be interesting to see how these claims will be dealt with by arbitral tribunals or some other quasi-judicial body.

Alternatively, a solution may also be adopted to avoid disputes: instead of blanket-banning Huawei, the UK government may provide Huawei a window of 6 months or 1 year to remove all gears that are susceptible of snooping and replace them with new gears under the strict supervision of NCSC – this may prove to be a win-win situation for both the parties. Howsoever, this idea too seems far-fetched and is unlikely to happen, for UK’s decision is influenced by the US govt., which is already in loggerheads with the Chinese govt. over trade policies.

[i] Commentary to the Articles on the Responsibility of States for Internationally Wrongful Acts, ILC Yearbook 2001/II (2),80 Para 2; CMS V Argentina (n 4) Para 317

[ii] August Reinisch, ‘Necessity in International Arbitration’ (2010) 41 Netherlands Yearbook of International Law 142, Badar AIModarra, ‘The defense of Necessity in International Law and Investor Versus State Dispute Settlement’ (2019) 23 (37) Journal of Legal Studies 78

[iii] France-New Zealand Arbitration Tribunal, 82 I.L.R. 500 (1990)

[iv] Drafter’s Note on Interpretation of “In like circumstances” under National Treatment and Most Favoured Nation Treatment, http’//www.mfat.govt.nz/assets/Trans-Pacific-Partnership/Other-documents/Interpretation-of-In-Like-Circumstances.pdf.

BY AYUSHI PANDIT, FOURTH-YEAR STUDENT AND PRANJAL PANDEY, FIFTH-YEAR STUDENT AT MNLU, NAGPUR

Introduction

The arbitration regime in India has been changing it facets from changing judicial mindset towards arbitration to making India the hub of ICA. The last quarter of 2019 saw significant developments with the Supreme Court rendering judgments that will have lasting impact on how the arbitrations are concluded in India. If India is to be seen as a country having a mature and efficacious arbitration regime, arbitration should be treated as an independent mechanism. There exists the cardinal rule of minimal judicial intervention under the Arbitration and Conciliation Act, 1996 (‘the Act’). When parties have chosen arbitration as their preferred mode of dispute resolution party autonomy needs to be respected and given full play. Thus, the scope of the same should be kept to minimum possible. Owing to the minimum judicial intervention, courts rarely review/recall their orders.

In case of a pre-existing arbitration agreement, parties have autonomy for the appointment of arbitrator. However, despite a pre-existing agreement to arbitrate it is possible for the party(s) unwilling to arbitrate to frustrate the terms of the agreement and delay the appointment of arbitrator. In any of the similar circumstances it is a right of either of the parties to seek for appointment of arbitrator from courts vide section 11 of the Act for both ICA and domestic Arbitrations.

The present article discusses the contemporary jurisprudence in the appointment of arbitrators by courts in light of the recent judicial pronouncements and legislative amendments. Making a reference to Adani Enterprises Limited v. Antikeros Shipping Corporation wherein the Bombay High Court recalled an order for appointment of arbitrator in an ICA within the meaning of section 2(1)(f) of the Act on the ground of order being null and non-est. HCs lack inherent jurisdiction for appointment of arbitrator, when either of the party fails to appoint an arbitrator in ICA. Recognizing that the body corporate in question is incorporated and functions out of India, an order passed by HC for the appointment of arbitrator calls for want of jurisdiction and was hence recalled in addition to being barred by limitation period. The subsequent portion of the article discusses at what stage of proceeding a review petition is maintainable asking for a review on procedural grounds.

Appointment of Arbitrator u/s 11

When the parties are unable to appoint arbitrators within 30 days from the receipt of request to do so, recourse to section 11 can be taken. In ICA jurisdiction for appointment of sole/third arbitrator vests solely with Apex Court. In any arbitration other than ICA, HCs are vested with the jurisdiction for appointment of sole/third arbitrators on request of the parties vide Section 11(12)(b) of the Act.  In ICA, when the dispute is of a specified value, the jurisdiction for filing all applications or appeals arising out of such arbitration under the Act vests solely with the commercial division of the respective HC. In similar circumstances, arbitrations other than ICA where the subject matter of dispute is commercial with specified value, the jurisdiction for filing all applications or appeals arising out of such arbitration under the Act vests solely with any principal civil court of original jurisdiction in a district and heard and disposed of by the commercial court exercising territorial Jurisdiction.

Jurisdiction of High Courts to recall their Orders

It was a contentious aspect, because the Act does not provide the Chief Justice with the power to review its order passed under section 11, and the Act being a self-contained Code impliedly excludes the applicability of general procedural law. Hence, the legislative intent of judicial non-intervention must be duly acknowledged.  To clarify, the SC carved out the difference between a procedural review and review on merits. It was held that procedural review is an inherent power of the court/tribunal to set aside a palpably erroneous order passed under a misapprehension and  on the contrary, a review on merits is specifically provided by the statute.

However, when the verdict of the court is erroneous due to a procedural default, the petitioners are not precluded from seeking a procedural review of the matter. HCs possess inherent jurisdiction to recall their orders when either of the parties have committed a procedural irregularity which stretches to the root of the matter inter alia, an order for appointment of arbitrator passed by a court lacking jurisdiction or an order for appointment of arbitrator passed in the absence of arbitration agreement.

The division bench of the Bombay HC set aside the order of a single bench in an appeal filed u/s 37 of the Act which recalled an order for appointment of arbitrator on the ground that Part 1 did not prescribe any provision for the court to review its own orders. A petition was raised before SC for consideration of this issue. Then the Apex Court in the case of Municipal Corporation of Greater Mumbai & Anr clarified that HCs being the courts of record must have an inherent jurisdiction to correct the records. The acts and proceedings enrolled in perpetual memory and testimony of the Court must be in accordance with law and entitled for review/recall if vitiated by any patent illegality. The SC relied on various judicial precedents inter alia National Sewing Thread Co. Ltd. v. James Chadwick & Bros. Ltd concluded that HC being constitutional courts and superior court of record have an inherent power to recall its own orders. In the instant case parties did not choose for arbitration as a forum for dispute resolution. The dispute resolution contract expressly stated an in-house dispute resolution mechanism as the first resort and expressly repudiated for arbitration as a method for dispute resolution, Hence, an order for appointment of arbitrator which is bad in law and is a sheer procedural default, must be ratified. 

The power of courts enshrined in section 11(6) is non-derogable. The same cannot be waived of by consent or acquiescence. It can be only vested by a statute. This non-derogable power is not barred by the law of limitation. It is well within the jurisdiction of the courts to condone the delay in filing for a review petition if the impugned order is vitiated by parent illegality. 

Adani Enterprises Limited v. Antikeros Shipping Corporation

The dispute arose between Antikeros Shipping Corporation (company incorporated in Liberia) and Adani Enterprises Limited (company incorporated in India). The parties on failing to appoint an arbitrator resorted to relief envisaged in section 11 of the Act. Being undisputed that the impugned dispute is an ICA. Hence, HCs inherently lacked jurisdiction for appointment of sole/third arbitrator in an ICA. Jurisdiction for the same exclusively vests with the SC.

A review petition was filed seeking a review of the order for appointment of arbitrator on the ground of suffering from procedural default. The Bombay HC concluded that the impugned order called for want of jurisdiction. The impugned dispute qualified to be an ICA. 

The dispute being an ICA, calls for an application for the appointment of arbitrator to be filed before SC and not before the HC. In view of the order being null and non-est in law condoned the delay of eight years and the review petition was allowed and the impugned order was recalled.

In another significant ruling the Allahabad HC refused to exercise its power under section 11 of the Act, as the recourse under section 15(6) was not taken by the applicant. The Court observed that where the mandate of an arbitrator terminates by virtue of section 15(6), a substituted arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. Once the parties fail to appoint an arbitrator in terms of the rules, only then the Chief Justice or his delegate under section 11(6) on a request by a party can appoint an arbitration. In the instant case, the procedure was not followed therefore review petition was not held maintainable.

Conclusion

The Law Commission of India observed that ad hoc arbitration in India usually ends up in the shackles of litigation. Thus, to ensure a successful enactment of minimal judicial intervention both judiciary and the legislature are taking efforts for institutionalization of arbitration. This by and large includes referring to the rules of Arbitral Institutions at the stage of formation of arbitration agreement itself. The clause “Any Institution designated by such Court” in the act can be inferred as a statutorily formed Arbitration institution conferred with the status of national importance. In line with this school of thought, the 2019 Amendment Act  seeks to establish the body- The Arbitration Council of India, which is an integral step towards institutionalization of Arbitration. Bodies like Delhi International Arbitration Centre and Mumbai Council of International Arbitration (MCIA) have been successfully implementing the recommendations of the committee and Courts often refer the arbitral disputes to these institutions. Thus, this will thus ensure a paradigm shift to project India as the hub of arbitration.  

BY AANCHAL GUPTA, A FOURTH-YEAR STUDENT AT HNLU, RAIPUR

Introduction

The arbitration regime in India has struggled with the seat v. venue debate for quite some time now. The ‘venue’ of arbitration proceeding determine where the proceedings will be conducted whereas the ‘seat’ of arbitration proceeding determines which court has a supervisory jurisdiction over the proceeding and which substantive law will be applicable to the proceeding. Issue arises when the arbitration agreement does not mention the specifics of the venue and seat. There is a long list of cases discussing the issue in International Commercial Arbitrations as well as Domestic Arbitrations. The Supreme Court recently made pertinent observations regarding this issue in the case of Quippo Construction Equipment Ltd. v. Janardan Nirman Pvt. Ltd. and held that objections regarding the place of arbitration are not significant in a domestic arbitration proceeding.

Background of The Case

The case involved four distinct agreements for the supply of construction equipment, containing arbitration clauses. Three of these agreements assigned New Delhi as the venue of arbitration whereas one stated Kolkata as the venue. When a dispute arose, the appellant gave notice invoking arbitration and a sole arbitrator was appointed to conduct the proceedings according to the Construction Industry Arbitration Association Rules. The respondent denied the existence of any agreement between the parties and chose not to participate in the arbitral proceedings. Instead an application initiating civil proceedings was moved in the District Court of Sealdah seeking injunction against conducting arbitration proceedings under Section 5 and Section 8 of the Arbitration and Conciliation Act, 1996 (‘the Act’). An ex-parte award was passed in the appellant’s favour covering claims under all of the four agreements. Aggrieved by the award, the respondent filed a petition for setting aside of the award under Section 34 of the Act but was rejected due to lack of jurisdiction. However, the High Court of Calcutta observed that the respondent was amenable to the jurisdiction of the court and sent the case back to the lower court. A revision petition was filed in the Calcutta High Court which was dismissed as not being maintainable. Aggrieved by this order, the appellant has preferred the instant appeal.

Decision of The Court

The SC held that the venue in an arbitration proceeding is of significance in an international commercial arbitration proceeding as it determines which crucial law would be applicable, however in the instant case, the substantive law applicable to the proceedings would be the same in either of the venues. Hence, the court held that the venue of arbitration is not significant in a domestic arbitration proceeding. According to the court, a change in the venue of a domestic arbitration proceeding within the territorial limits of the country will not make a difference on the proceedings as the substantive law applicable throughout the territory is the same.

Analysis

Although prima facie the judgement of the court seems to be pro-arbitration for all the right reasons, on a closer look it reveals a problem. As a result the rules that can be adduced from the judgement lay on unsteady ground.

The court dismissed the set aside application filed by the respondent quoting ‘lack of jurisdiction’. The court determined that the seat of arbitration was at New Delhi based on the fact that arbitration proceedings were held at New Delhi and the award was made at New Delhi. The court stated that the venue of arbitration is only significant to determine the crucial substantive law that is applicable in the arbitral proceedings and in the instant case the substantive law applicable would be the same in either of the venues. However, the court failed to recognise that the choice of venue would result in the determination of the seat of arbitration and an essential consequence of the choice of seat would be the jurisdiction of the court.

The determination of the seat not only determines which crucial law would be applicable but is vital to determine which court has jurisdiction to set aside the award or make any order on other allied questions. In the instant case, the issue of venue and seat of arbitration is ambiguous. The four agreements between the parties with different venues were clubbed and an award was made which makes it difficult to determine the seat of arbitration clearly. No argument can be made to rely on a seat specified in one agreement as the arbitrator would have no jurisdiction to club all the agreements. The questions of jurisdiction of arbitrator and the selection of venue of arbitration are mixed and the court decides on the issue of waiver.

The SC in its earlier judgements regarding this issue has taken two different views. In the case of BGS SGS SOMA JV v. NHPC Ltd., the SC observed that choice of seat determines which court has the exclusive jurisdiction to deal with set-aside application or any other proceeding related matter. It held that the ‘venue’ of arbitration will be regarded as the ‘seat’ of arbitration in absence of any contrary indication. However, in the instant case one of the agreements related to arbitration designated Kolkata as the venue and seat of arbitration which clearly marks a contrary indication but the court did not consider the same and answered the question of the venue of arbitration partially.

In another case, Mankatsu Impex Pvt. Ltd. Vs Airvisual Ltd. , the SC made an observation on the question of place and seat of arbitration. They observed that the seat of arbitration cannot be decided on the basis of the place of arbitration and instead the seat should be decided by the conduct and agreement between the parties. However, in the instant case, the set-aside application of the respondent was rejected due to lack of jurisdiction. New Delhi was stated to be the seat of arbitration as the proceedings took place and the award was made there. The agreement between the parties also designated Kolkata as a venue for arbitration but it was neglected by the arbitrator and the court.

Suggestions and Conclusion

The SC in this case took steps towards a pro-arbitration approach in an attempt to make India arbitration friendly and hoped to strengthen the domestic arbitration system. The scope of judicial intervention in an arbitration proceeding was narrowed. The non-participation of parties in an arbitration proceeding is discouraged and the court did provide certain amount of clarity on the questions of waiver and time for raising objections regarding the arbitral process; however, the decision suffers from certain loopholes and the mixing up of issues which makes any rules carved out of it to stand on a steady ground. The court had an opportunity to settle the issue of ‘seat’ and ‘place’ of arbitration for once and for all but the court answered it partially and overlooked some important consequences. The issue needs to be tackled effectively soon to ensure that India is set out in on a pro-arbitration path. 

Drafting of the arbitration clause –A well drafted arbitration clause that not only sets out the parties’ intentions but also mentions the specifics of the arbitration proceedings can tackle the entire problem. Changes can be made in the Act to state that an arbitration clause must be well drafted and to be effective must contain the disputes that can be arbitrated and clearly mention the place of arbitration along with the seat of arbitration to avoid confusion. It should also mention the governing law of the arbitration agreement, the number of arbitrators and the method for establishing the arbitral tribunal. These specifics will ensure that the parties do not squander with the questions of intent, ambit and application of the arbitration agreement. The focus should be resolution of the dispute through effective proceedings rather than the frustration of the agreement due to parties’ failure to mention the particulars clearly and this step also ensures that party autonomy is not interfered with.

Prima facie standard of review – In case a dispute regarding the seat and venue of arbitration arises between the parties, the court should undertake the prima facie standard of review. A prima facie enquiry is conducted by the court to ascertain the consequences of selecting a particular seat and whether this will affect any of the terms of the arbitration agreement. A seat which is in consonance with all the other terms of the agreement and does not violate any term which was decided according to common consensus between the parties is picked as the seat of arbitration. The Singapore High Court in the case of K.V.C Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd. applied the prima facie standard of review. In this case the bare arbitration clause did not specify the seat of arbitration and applying this standard, it was held that Singapore is the place and seat of arbitration in each of the cases. This step would effectively ensure that part autonomy is upheld in terms of other specifics of the agreement and a seat of arbitration can be decided.

There is an urgent need to put a rest to the issue of venue and seat of arbitration in domestic proceedings as well. Attempts made by the Indian system to be more arbitration friendly needs these specifics to be sorted out so that the focus of the parties is to resolve their dispute through an alternative mechanism outside the court rather than inevitably dragging the matter to the court.

By Anchit Jain, fourth-year student at ICFAI University, Dehradun and Advocate Sanket Jha, Legal Practitioner at High Court, Mumbai

Introduction

Supreme Court felt trapped in its reasoning and unwillingly landed on a point that might have raised a global question on the approach of the Arbitration system of dispute resolution.

In the case of Perkins Eastman Architects DPC & Anr v. HSCC (India) Ltd, it was provided in the agreement’s clause 24.1(ii) that the Chairman & Managing Director (‘CMD’) will possess the exclusive power to appoint the sole arbitrator on the behalf of both the parties. Moreover, this exclusion clause barred another party from choosing the arbitrator. Applicants challenged the abovementioned clause before the Supreme Court u/s 11(6) of The Arbitration & Conciliation Act, 1996 (hereinafter referred to as ‘Act’) believing the agreed procedure in non-compliance with the Act and prayed for the appointment of a sole arbitrator.

The Court found self-interest as a biased element and reasoned it behind the disqualification of CMD. Court referred to its judgment in TRF Limited v Energo Engineering Projects Limited, where it was held that as per Section 12(5) of the Act, an ‘Managing Director’ cannot act as an arbitrator because of his ‘self-interest’ in the outcome of the award. Self-interest disfigures the credibility of an Arbitrator by questioning his ‘Impartiality and Independency’.

Thus, the Court held that a party can neither act as nor can nominate an arbitrator.

This piece will discuss, how this reasoning:

1. May have raised a global debate in appointment procedure of arbitration;

2. Is not settling amongst the various features of the Arbitration mechanism;

3. Is (or not) in consonance with other jurisdictions.

Tossing a Universal Debate

The Court raised the question on the objective of Arbitration, which if not answered then might have raised a global debate. Party Autonomy in Arbitration is the prima facie reason behind its objective of speedy dispute resolution. Parties have the liberty to customize their procedure as per their convenience. They can freely choose their arbitrator. Curtailing their right on the ground of self-interest has not only challenged the basic feature of arbitration but will also question all those agreements, in which parties have provided for the appointment of arbitrator(s) by their choice. In Perkins’s Judgment, the Court realized that self-interest, as reasoning, will ‘disentitle’ the cases of similar nature.

This question would be extended to every agreement where parties have provided to nominate a panel of 3 arbitrators as well. Autonomy is a privilege in arbitration for choosing an arbitrator.  If self-interest will bar the parties from nomination, then a party can never choose an arbitrator, because, directly or indirectly, every party has an interest in the outcome. Autonomy is the privilege of choosing this mechanism.

However, the Court (paragraph 16) referred again to TRF for handling this possible chaos. The Court read that balancing the powers between the parties is the ideal situation through which parties can mutually appoint an arbitrator. The court believed this equilibrium as a solution, although it looks like a self-contradictory statement.

If a party is barred from choosing an arbitrator on the ground of self-interest for eliminating biases, then the question is how parties choosing the arbitrator will ensure the exclusion of biases. On the contrary, the table may get more biased and raise a question on impartiality & independence of the Arbitrators. In this case, only the umpire might be a reasonable and fair person. Court, instead of resolving the dispute, made it more self-contradictory. This problem gets bigger in the case of the sole arbitrator, where both the parties look unsettled over the appointment.

Encouraging Judicial Interferences

Notably, all of this is contentiously ending up with parties seeking the Court’s intervention in the alleged dispute of Impartiality & Independence of Arbitrator. E.g. the case of Bharat Broadband Network Limited v. United Telecom Limited, where the Court upheld the appellant’s argument that as per Section 12(5)’s reasoning from the TRF’s judgment, the appointment made by the CMD stands void.

Arbitration ensures honest practices so that parties can rely on their arrangements and accept the award as a result of their logic and convenience. If parties have to approach the Court for an arbitrator’s appointment, so that the arbitration can commence, then it defeats the aim of a speedy resolution. Moreover, parties already have the right to appeal before the Court. This will never help the Courts in distressing the docket explosion, rather will increase the burden. This is breaching the Arbitration’s objective of minimising judicial interference.

Character of Arbitrator

Supreme Court quoted the 246th Law Commission Report which reads, “Party Autonomy cannot be stretched up to a point where it negates the very basic feature of Arbitrator’s Impartial and Independent character.” If the Court’s reasoning of ‘Tit for Tat’ by balancing the powers amongst the parties will be considered then it will weaken the Commission’s recommendations for ethical procedures. The report emphasizes on not appointing a party or its nominee as the arbitrator even if the same has been agreed between the parties. The reason is to ensure the Impartial & Independent character of the Arbitrator.

Court referred the judgment of Voestapline Schienen Gmbh v. Delhi Metro Rail Corpn. Ltd, which declared Impartiality and Independency as the hallmarks of an arbitration Proceeding. Court, in both the cases, referred to the UK’s Supreme Court’s decision in Jivraj v. Hashwani which backed the ‘Impartial’ character in an Arbitrator and agreed that an arbitrator’s contract for personal service does not ask him for anyone’s personal service. The Indian judgments, also quoted the Cour de Cassation, France’s judgment, delivered in 1972 in Consorts Ury  which focused on the ‘Independent’ character of the Arbitrator and held that an independent mind is the essential quality of an arbitrator for exercising judicial power. These Foreign Judgments of the respective apex Courts allow a party to appoint an arbitrator, but both of them have asked to ensure the Impartial and Independent character of an arbitrator.

Asymmetrical Arbitration Clause

Interestingly, International Arbitration validates the Asymmetrical Arbitration Clause. India’s dissent to this global practice has again weakened its ambition of becoming a global hub of arbitration. This difference with the international approach will be another reason in the list where India as a seat to any International Commercial Arbitration will disappoint the parties on the global standards. The Case of Perkins falls under the jurisdiction of International Commercial Arbitration, where the appellant, the foreign party took the advantage of Indian precedents, against the settled principle of the Asymmetrical Arbitration Clause, despite its prior consent on the Agreement.

Inadequate Reasoning

The Court disqualified the party from making a nomination based on ‘qui facit per alium facit per se’ (what one does through another is done by oneself) from the case of Firm of Pratapchand Nopaji v. Firm of Kotrike Venkata Setty & Sons, but it is pertinent that this case was neither of arbitration nor dealt with any similar issue around the present case. It appears inappropriate to bar the objectives of the Act, through which the referred case was decided. The Court disqualified the party, on whom a pendulum of self-interest swung and did not lay, who is eligible to make the appointment on the party’s behalf. This inadequacy in precedent will take the parties before the court for further clarification which will again breach the arbitration’s objective of minimum court’s intervention.

Test of Arbitrator

The US Court in the case of Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc held that the parties must have equal rights to participate in the selection process of the arbitrators. Thus, it is important to ascertain the rationality status of arbitrators.

However, besides the reasoning of the Indian Court, (i) ‘Complying with the concept of Asymmetrical Arbitration Clause and stimulating it with the Indian public policy’ or (ii) ‘Defining a test of Impartial and Independent Arbitrator for a fair arbitration’, seems as few suitable alternatives.

In the current case, the Agreement was mutually agreed between the parties, all that was required to be ensured was the hallmarks of Impartiality and Independence of Arbitrator. This can be tested through Schedule V and VII or by the received information under Schedule VI of the Act. The same test can allow parties to appoint the arbitrator, as strict emphasis on the abovementioned Schedule will keep the parties cautious about their decision on the fair appointment of an arbitrator.

Conclusion

Supreme Court lacked in complying with the pervasive values i.e. limiting the party’s autonomy and the asymmetrical arbitration clause weakened the objective of minimum judicial intervention. All of this will somewhere damage India’s goal of becoming a global hub of Arbitration. Self-interest is debatable, but this precedent questions the functioning of Arbitration like Party Autonomy and the Court’s intervention. The jurisprudence of Arbitration relies on the UNCITRAL’s Model law which is convenient because of its pervasive uniformity. It is established that all the states operate with the model law and less than the whole have ratified the New York Convention. Thus, it will be suitable for the judicial bodies across the globe to interpret the precedents in a universally accepted version. All that has to be cared about are the public policies of the respective states, which should also be tried to be updated with the prevailing developments. If Arbitration has to comfort the Judiciary then alike Tax or Finance, regular legislative amendments in Arbitration has to be given due attention. Till then, all that can be done is the precedential inclination towards the pervasive schemes.