INTRODUCTION
The Hon'ble Supreme Court of India, on November 26, 2019, in the matter of Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd.1, decided that the person who has an interest in the outcome or decision of the dispute must not unilaterally appoint a sole arbitrator. This judgment, although is in express consonance of the amended A&C Act, 1996, it seems to have applied one of the fundamental principles of natural justice i.e. "Nemo judex in causa sua" (No one can be a judge in his own cause). Even though, the judgment does not specifically make a mention of the said principle, the underlying gist of the judgment bears the sense of it.
BRIEF FACTS
The respondent had floated a tender on 15.07.2016 for the appointment of Design Consultants for "comprehensive planning and designing, including preparation and development of concepts, master plan for the campus, preparation of all preliminary and working drawings for various buildings/structures, including preparation of specifications and Schedule of quantities" for the proposed All India of Medical Sciences at Guntur, Andhra Pradesh.
Appellants comprising the consortium of (i) Perkins Eastman Architects DPC, an architecture firm having its registered office in New York and (ii) Edifice Consultants Private Limited, having its registered office in Mumbai submitted their bid on 28.09.2016 and was awarded the LOA by the respondent on 22.02.2017. The contract was entered into by the Appellant and the Respondent on 22.05.2017, which provided inter alia for a dispute resolution in Clause 24 which read as follows: "24.0
DISPUTE RESOLUTION
(i)..... 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 failin 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......"
Furthermore, within six days of signing of the said contract, the respondent alleged failure on the part of the Appellants vide its letter dated 26.05.2017 and eventually issued a 'stop work notice' to them on 03.11.2017. Subsequently, the respondent issued a termination notice on 11.01.2019 and a termination letter dated 20.02.2019 alleging non-compliance of contractual obligations on the part of the appellant was issued.
In response to this, the Appellant invoked the dispute resolution clause of the contract raising a claim of Rs. 20.95 crores. As per clause 24 of the contract, the respondent was required to take a decision in respect of the notice dated 11.04.2019 within 1 month; instead, the respondent sent a communication on 11.05.2019 intimating that a reply to the notice would be sent within 30 days.
An appeal was filed by the Appellants before the Director (Engineering) in terms of said Clause 24; subsequently, by letter dated 28.06.2019, the Chief Managing Director of the respondent was called upon to appoint a sole arbitrator in terms of said Clause 24. However, no appointment of an arbitrator was made within thirty days but a letter was sent by Chief General Manager of the respondent on 30.07.2019, thereby, appointing one Major General K.T. Gajria as the sole arbitrator.
ISSUES RAISED
1. Whether the court had the jurisdiction to deal with the present application under section 11(6) r/w section 11(12) (a) of the A&C Act vis-à-vis whether the arbitration in the present case was tantamount to International Commercial Arbitration or not?
2. If yes, whether there was a case made out for exercise of power by the court to make an appointment of an arbitrator?
ARGUMENTS ADVANCED BY THE APPELLANTS
As per the contract, the Appellant had duly invoked the arbitration clause, as per which the Chairman and Managing Director was the competent authority to appoint a sole arbitrator as per clause 24 of the contract. Having said that, the Chairman and Managing Director not only failed to appoint the sole arbitrator within the stipulated time, but the sole arbitrator so appointed was wrongfully appointed by the Chief General Manager of the respondent, as against the Chairman and Managing Director. It was further alleged, that the Chairman and Managing Director of the Respondent would naturally be interested in the outcome or decision in respect of the dispute, therefore, an independent and impartial arbitrator was required to be appointed. The decision of the Hon'ble Supreme Court in the case of TRF Limited v Energo Engineering Projects Limited2 was relied on. Lastly, it was argued that the matter was an International Commercial Arbitration since as per the Consortium Agreement entered between the Appellants, Appellant no. 1 i.e. Perkins Eastman Architects, having its registered office in New York, was stated as the lead member of the Consortium.
ARGUMENTS ADVANCED BY THE RESPONDENT
The period of requisition expired on a Friday and the arbitrator was appointed at the first available working day thereafter. It was argued that the appointment of Major General K.T. Gajria was in consonance with clause 24 of the contract and such appointment could not in any way be said to be illegal. The arbitrator was appointed by the Chairman and the Managing Director of the Respondent but was only conveyed by the Chief General Manager. Further, the instant matter was not an International Commercial Arbitration as under Clause 9 of the Consortium Agreement both the Applicants were jointly and severally responsible for the execution of the project.
FINDINGS OF THE COURT
Issue 1: While deciding Issue no 1, the Hon'ble court placed reliance on the Consortium Agreement entered into between the Appellants on 20.09.2016 which described Perkins Eastman Architects as the lead member of the Consortium. The court further relied on the case of Larsen and Toubro Limited SCOMI Engineering BHD3and observed that even though it was held in that case that "Association" and "Body of individuals" referred to in section 2(1)(f) of the Act would be separate categories, the lead member of the Association/Consortium in that case being an Indian entity, the "Central Management and Control" of the Association was held to be in India, thereby not qualifying it as International Commercial Arbitration (ICA).
However, in the instant case, the lead member of the consortium was an architectural firm with a registered office in New York, therefore the 'Control and Management" of the Association was in a country other than India, hence the requirements of section 2(1)(f) of the Act were satisfied. Consequently, the present case was held to qualify as an ICA, thereby conferring upon the Hon'ble court with the jurisdiction to deal with the present application.
Issue 2: While deciding this issue, the Hon'ble court placed heavy reliance on the case of TRF Limited4 wherein the provisions of the Amending Act (Act no 3 of 2016) and the insertion of Fifth and Seventh Schedules in the Act were discussed at length, and it was further held that the Managing Director became ineligible by operation of law to act as an arbitrator. It was observed by the court that any person having direct interest in the dispute and as such could not act as an arbitrator. The Apex court in the instant matter sought an extension of this principle to hold that any person who himself was disqualified and disentitled could also not nominate any other person to act as an arbitrator. An excerpt of the judgment is reproduced hereunder:
"16. ...The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter-balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited MANU/SC/0755/2017 : (2017) 8 SCC 377."
CONCLUSION
It may be correct to conclude that this judgment brings a paradigm shift in dealing with the applications under the scheme of Section 11 of the A&C Act. Moreover, in view of the above mentioned judgment, the courts across the jurisdiction have widely started recognizing that if there are justifiable doubts as to the independence and impartiality of the person nominated, and if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, such an appointment can be made by the Court5.
This judgment reinforces the significance of independence and impartiality in the appointment of an arbitrator or arbitrators, as the case may be in order to grant impartial and justifiable reliefs to the parties involved. It also comes as a ray of hope in cases of
contracts with unequal bargaining power between the parties, where one of the parties is left with very little to no option while entering into a contract with a dominating party, who may take over the right to appoint sole arbitrator in case of a dispute. Therefore, the attempt, as one may presume, is to ensure a healthy arbitration environment by making stringent requirements for appointment of impartial and independent arbitrators.
Footnotes
1 MANU/SC/1628/2019
2 (2017) 8 SCC 377
3 (2019) 2 SCC 271
4 (2017) 8 SCC 377
5 Central Organisation for Railway Electrification vs. ECI-SPIC-SMO-MCML (JV) [MANU/SC/1758/2019]; SMS Ltd. vs. Rail Vikas Nigam Limited [MANU/ DE/0077/2020]; Bilva Knowledge Foundation and Ors. vs. CL Educate Limited [MANU/DE/4556/2019]
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