Kaleidoscope Series – Bulk Vs Unilateral Appointment

by Prince Pawaiya, GNP Legal

In this edition of Kaleidoscope series, we will be targeting the judgements which impacts the bulk arbitration process prompting the need to revisit the appointment procedure.

Periodically, we will be picking up & discussing 1 judgement per post.

# 1 – Perkins Eastman Architects D.P.C. & Anr. v. HSCC (India) Ltd.[1]

A.             Background of the Case

1.    The dispute arose from a contract between Perkins Eastman, an architectural firm, and HSCC (India) Ltd., a public sector undertaking. The contract included an arbitration clause that allowed for the resolution of disputes through arbitration. However, the clause contained provisions that permitted one party to unilaterally appoint an arbitrator, which became contentious when a dispute arose.

2.    Perkins Eastman contested the validity of the unilateral appointment of the arbitrator by HSCC, arguing that it violated the principles of fairness and impartiality in arbitration. The firm contended that the arbitration process must be equitable, ensuring that both parties have an equal say in the appointment of arbitrators. This dispute eventually led to the matter being brought before the Supreme Court of India.

B.             Arbitration Agreement: 

“24.0 DISPUTE RESOLUTION

24.1 Except as otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, design, drawings and instructions herein before mentioned and as to the quality of services rendered for the works or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, design, drawings, specifications estimates instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the cancellation, termination, completion or abandonment thereof shall be dealt with as mentioned hereinafter:

(i) If the Design Consultant considers any work demanded of him to be outside the requirements of the contract or disputes on any drawings, record or decision given in writing by HSCC on any matter in connection with arising out of the contract or carrying out of the work, to be unacceptable, he shall promptly within 15 days request CGM, HSCC in writing for written instruction or decision. There upon, the CGM, HSCC shall give his written instructions or decision within a period of one month from the receipt of the Design Consultant’s letter. If the CGM, HSCC fails to give his instructions or decision in writing within the aforesaid period or if the Design Consultant(s) is dissatisfied with the instructions or decision of the CGM, HSCC, the Design Consultants(s) may, within 15 days of the receipt of decision, appeal to the Director (Engg.) HSCC who shall offer an opportunity to the Design Consultant to be heard, if the latter so desires, and to offer evidence in support of his appeal. The Director (Engg.), HSCC shall give his decision within 30 days of receipt of Design Consultant’s appeal. If the Design Consultant is dissatisfied with the decision, the Design Consultant shall within a period of 30 days from receipt of this decision, give notice to the CMD, HSCC for appointment of arbitrator failing which the said decision shall be final, binding and conclusive and not referable to adjudication by the arbitrator 

(ii) Except where the decision has become final, binding and conclusive in terms of sub-Para (i) above disputes or difference shall be referred for adjudication through arbitration by a sole arbitrator appointed by the CMD HSCC within 30 days from the receipt of request from the Design Consultant. If the arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office due to any reason, whatsoever another sole arbitrator shall be appointed in the manner aforesaid. Such person shall be entitled to proceed with the reference from the reference from the stage at which it was left by his predecessor. It is a term of this contract that the party invoking arbitration shall give a list of disputes with amounts claimed in respect of each such dispute along with the notice for appointment of arbitrator and giving reference to the rejection by the CMD, HSCC of the appeal. It is also a term of this contract that no person other than a person appointed by such CMD, HSCC as aforesaid should act as arbitrator. It is also a term of the contract that if the Design Consultant does not make any demand for appointment of arbitrator in respect of any claims in writing as aforesaid within 120 days of receiving the intimation from HSCC than the final bill is ready for payment, the claim of the Design Consultant shall be deemed to have been waived and absolutely barred and HSCC shall be discharged and released of all liabilities under the contract and in respect of these claims. The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory modifications or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause.”

C.            Relief sought Vs Relief granted vis-à-vis principle laid

Following “principal relief” was sought before the Apex Court:

“Appoint a sole arbitrator, in accordance with clause 24 of the contract…. 

D.            The issues emanating from the titled petition and finally decided by the Apex Court were:

1.    Jurisdiction – Whether the Apex Court has jurisdiction to adjudicate the application under section 11(6) read with Section 11(12)(a) of the Act on the ambiguity being raised in the Application as to Whether the arbitration in the present case would be considered an international commercial arbitration? 

2.    Whether a case is made out for exercise of power by the Court to make an appointment of an arbitrator? 

E.             Conclusion on the first issue - On the issue of jurisdiction, the Apex Court determined that the lead member of the consortium, Perkins Eastman, is an architectural firm with its registered office in New York, fulfils the criteria outlined in section 2(1)(f) of the Act. Consequently, this case qualifies as an instance of international commercial arbitration.

While reaching the aforesaid conclusion, the following judgements were relied upon by the Court:

1.    L&T-SCOMI V. MMRDA (2019) 2 SCC 271 : (2019) 1 SCC (Civ) 609

2.    TDM infrastructure (P) Ltd. V. UE Development (India) (P) (Ltd.) 4 (2008) 14 SCC 271

F.             This leads us to the second issue i.e. Appointment of Arbitrator. It was not the case of the Applicant that the appointment was not made, but the issue in the petition (raised) seeking the principal relief was premised broadly on the following assertions:

1.    Appointment was made by HSCC post expiry of the 30 days period [Section 21 read with Section 11(4) (a)] – The Apex court viewed this as technical objection, which although correct, but held not to be of that magnitude, which warranted exercise of power of this court under Section 11 merely on this ground. 

2.    Appointment made by incompetent authority - The competent authority to appoint arbitrator as per the arbitration agreement was Managing Director and not the Chief General Manager, who appointed the sole arbitrator in contradiction to the arbitration agreement.

G.            Conclusion on the second issue - The Apex Court accepted the application and decided the second issue, which, for ease of reference, is being summarised point-wise:

1.    A person who is interested in the outcome of arbitration is ineligible to act as an arbitrator;

2.    Ineligible person cannot appoint anyone else as an arbitrator;

3.    Ineligible person cannot have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator

Thus, the appointment made by HSCC was nullified and the Court appointed an arbitrator to decide the disputes between the parties.

While reaching the aforesaid conclusion, the following judgements were relied upon by the Court: 

1.    Walter Bau AG Vs MCGM (2015) 3 SCC 800 : (2015) 2 SCC (Civ) 450

2.    TRF Ltd. V. Energo Engg. Projects Ltd. 4 (2017) 8 SCC 377: (2017) 4 SCC (Civ) 72

3.    IOCL V. Raja Transport (P) Ltd., (2009) 8 SCC 520: (2009) 3 SCC (Civ) 460

4.    Voestalpine Shienen GmbH V. DMRC, (2017) 4 SCC 665

5.    Bharat Broadband Network Ltd. V. united Telecoms Ltd., (2019) 5 SCC 755

6.    Antrix Corpn. Ltd. V. Devas Multimedia (P) Ltd., (2014) 11 SCC 560

7.    Pricol Ltd. V. Johnson Controls Enterprises Ltd., (2015) 4 SCC 177

8.    Datar Switchgears Ltd. V. Tata Finance Ltd (2000) 8 SCC 151

IN MY OPINION… 

1.    Powers to appoint an arbitrator - In author’s opinion, while the Court settles the principle on unilateral appointment, overlooks the far reaching consequence in bulk arbitration matters. While reviewing the exercise of powers under Section 11, the Court ought to consider delegation of its powers to district courts to appoint arbitrators by setting preset framework and/or parameters such as defining pecuniary limit, etc. within which district courts can exercise the delegated function. This will benefit the Banking sector, which is the largest stakeholder seeking resolution of disputes through ADRs, to a very large extent and promote ADR. 

2.    Blanket restriction – Interest of parties in the outcome and appointment of arbitrators is one way of looking at fair and unbiased arbitration process. However, the Court ought to consider, the restriction of number of arbitrations to be conducted by an arbitrator, or onboarding the number of arbitrators either by an Institute or otherwise is practically impossible. In author’s opinion, exclusions and exemptions from applicability of Fee Schedule and restriction on number of arbitrations to be conducted by an arbitrator must be relaxed in cases of bulk arbitrations.

3.    Bulk Arbitrations – It is imperative to consider defining “Bulk Arbitrations” [filing of more than 20 arbitrations in a batch to be considered as “Bulk Arbitrations”] and provide a proper framework in consultation with the relevant stakeholders who seek resolution of disputes through Arbitration, which runs in 1000s and 1000s per month. Establishing a clear definition for “Bulk Arbitrations” and creating a framework for handling them would address the challenges faced by stakeholders involved in high-volume arbitration cases.

4.    Administrative Issues – Pendency in litigation is not something like discovering fire, but, the thought of High Court staff reviewing each Section 11 petition, doing data entry (imagine 1000 Section 11 petitions being filed in 1 day) require consideration. Administrative issues ought to consider while retaining the appointment power by the High Court, especially in money disputes where the amount involved is less than 5 Lakh.

5.    Rules for individuals seeking appointment as Arbitrators – May be its time to change from “anyone can be appointed as an arbitrator” to “not - anyone can be appointed as an arbitrator”. There is a difference between arbitrator and an expert. A qualified individual or a person possessing specific skill set may be considered as an expert but an arbitrator must have knowledge of law, consequences, orders, directions, claims, counter-claims, legal nomenclatures and acumen to comprehend not just as an expert in a specific field but as an arbitrator who can actually decide / settle the disputes between parties.

There should be a shift in perspective regarding who can be appointed as an arbitrator, emphasizing the need for legal knowledge and expertise beyond mere specialization.

Conclusion

The court’s ruling on unilateral appointments highlights the need for a more structured approach in bulk arbitration cases. Delegating powers to district courts with defined parameters could streamline the process, particularly beneficial for the banking sector. The fairness principle in arbitrator appointments is crucial, but the practicalities of managing multiple arbitrations necessitate a revaluation of restrictions on the number of cases an arbitrator can handle. 

The Perkins Eastman judgment by the Supreme Court of India marks a significant development in the legal landscape of arbitration. By addressing the issue of unilateral appointment of arbitrators, the court has reinforced the principles of fairness, mutual consent, and natural justice in the arbitration process.

Legal practitioners, businesses, and individuals involved in arbitration must take heed of the court’s ruling and ensure that their arbitration agreements are clear, fair, and reflective of the mutual consent required for the appointment of arbitrators.

In a world where disputes are inevitable, fostering a fair and balanced arbitration process is essential for maintaining trust and integrity in commercial relationships. The Perkins Eastman judgment stands as a significant step toward achieving that goal, ensuring that arbitration remains a viable and equitable means of resolving disputes in India.

[1] (2020) 20 SCC 760