New Delhi A Constitution bench of the Supreme Court on Friday reserved its judgment on the complex legal question of whether one party in an arbitration can unilaterally appoint a panel of arbitrators and require the other party to select arbitrators from that panel. Additionally, the five-judge bench, led by Chief Justice of India (CJI) Dhananjaya Y Chandrachud, is examining whether an individual who is ineligible to serve as an arbitrator can nominate members of an arbitration panel.
On the third consecutive day of the submissions, solicitor general Tushar Mehta, representing the Centre and Railways, emphasised the need to strengthen arbitration as a dispute resolution mechanism, cautioning against extreme positions that could undermine its effectiveness. Mehta’s arguments before the bench, also comprising justices Hrishikesh Roy, PS Narasimha, JB Pardiwala and Manoj Misra, underscored the importance of bolstering arbitration to ensure its viability as a fair and impartial process.
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Senior advocates Gourab Banerji and Neeraj Kishan Kaul, representing bodies promoting arbitration and private contractors, also presented their case, advocating for fairness and equality not only in the conduct of arbitrators but also in the appointment process itself. They maintained that unilateral appointments of arbitrators, particularly by public sector units (PSUs), are opposed to the principles of equality and fairness.
During the proceedings on Thursday, the bench highlighted the critical importance of maintaining integrity in arbitration, particularly in cases involving government entities and PSUs. The court warned against any attempt by PSUs to manipulate the arbitration process, stressing that a fair process is vital to instil confidence among both domestic and international investors. It further remarked that, in an economy dependent on private investment, it is crucial for PSUs to uphold the integrity of arbitration to attract and retain investor trust. “Today, we are in an economy where we feel private investment is crucial for the growth of economy. Therefore, from a national perspective, it is necessary that PSUs don’t rig the arbitration in any manner...As a nation, there is a vital interest in ensuring that the process of arbitration is fair,” the court said.
{{/usCountry}}During the proceedings on Thursday, the bench highlighted the critical importance of maintaining integrity in arbitration, particularly in cases involving government entities and PSUs. The court warned against any attempt by PSUs to manipulate the arbitration process, stressing that a fair process is vital to instil confidence among both domestic and international investors. It further remarked that, in an economy dependent on private investment, it is crucial for PSUs to uphold the integrity of arbitration to attract and retain investor trust. “Today, we are in an economy where we feel private investment is crucial for the growth of economy. Therefore, from a national perspective, it is necessary that PSUs don’t rig the arbitration in any manner...As a nation, there is a vital interest in ensuring that the process of arbitration is fair,” the court said.
{{/usCountry}}The case has far-reaching implications for arbitration in India, as the Constitution bench’s decision could redefine the principles governing the appointment of arbitrators and reshape the arbitration landscape. While government entities like the Railways have argued that the Arbitration and Conciliation Act permits unilateral appointments, the court has expressed strong reservations against blending public law principles with private contractual agreements, which could blur legal boundaries and draw global criticism of the Supreme Court of India.
The court on Thursday had also questioned the government’s delay in notifying the provision for the Arbitration Council of India (ACI), which is meant to enhance the quality and credibility of arbitration in India while.
The bench also expressed concern over the practice of financial companies, particularly non-banking financial companies (NBFCs), unilaterally appointing sole arbitrators in disputes involving vulnerable individuals, such as taxi and truck drivers -- a practice the court views as distorting the purpose of arbitration.
In 2019, a three-judge bench upheld an arbitration clause, which provided for the appointment of three serving or retired railway officers, to be appointed by the general manager, Railways, as arbitrators. In January 2021, another three-judge bench doubted the correctness of this judgment, questioning how a person (general manager in this case) who cannot act as an arbitrator due to possible conflict of interest and other handicaps under the act, be given a right to appoint a panel of arbitrators.