Andhra Pradesh High Court : Unilateral Arbitrator Appointment By East Coast Railways Non Est In Law | Upholds Equal Treatment Mandate | Appoints Former Bombay Chief Justice As Independent Arbitrator
Isabella Mariam
The High Court of Andhra Pradesh Single Bench of Chief Justice Dhiraj Singh Thakur allowed an application under Section 11 of the Arbitration and Conciliation Act, 1996. The Court held that the appointment of a sole arbitrator by a party to the arbitration agreement, which was also an interested party in the dispute, was contrary to established legal principles and binding precedent. Consequently, the Court declared the said appointment as non est in the eyes of law and proceeded to appoint an independent arbitrator to adjudicate the disputes between the contracting parties.
The Court directed the appointment of Justice Naresh Harishchandra Patil, former Chief Justice of the Bombay High Court, as the sole arbitrator to enter upon reference and render an award within the statutory period. The arbitral proceedings are to continue, allowing both parties the liberty to file their detailed claims and counter-claims. The appointment comes with the provision that the learned arbitrator shall be entitled to claim the fee in consultation with the parties. The Court found that no further challenge was required to the previous appointment, as it was rendered invalid by operation of law under the binding precedents of the Supreme Court.
The application was filed under Section 11 of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to resolve disputes arising from an agreement dated 25.09.2017, as amended by a supplementary agreement dated 27.08.2019. The existence of the agreement and the arbitration clause therein was undisputed by the parties.
The arbitration clause in question stated: "Section 13.5 Arbitration: In the event of any question, dispute or difference arising out of or under this Contract in connection therewith (except as to matters, the decision to which is specifically provided under this Contract) the same shall be resolved by amicable settlement failing which the matter will be referred to the Sole Arbitrator appointed by the Competent Authority i.e. General Manager of concerned Zonal Railways. The arbitration shall be conducted in accordance with the provisions of Arbitration and Conciliation Act, 1996 as amended in 2015 and the Rules made thereunder. The decision of the Arbitrator shall be final and binding upon the parties."
Following disputes between the parties, the respondent, East Coast Railways, invoked the arbitration clause through a communication dated 15.04.2021. A panel of officers was forwarded, requesting the applicant to nominate at least two names from the panel, from which one would be chosen as the sole arbitrator.
In response, the applicant, by letter dated 03.05.2021, objected to the course adopted by the respondent. The applicant contended that forwarding a panel of officers for nomination was in violation of the Arbitration and Conciliation Act, specifically contravening Schedules V and VII. The objection was also grounded on the judgment of the Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Limited [(2020) 20 SCC 760], which held that a party interested in the outcome of the dispute cannot unilaterally appoint the arbitrator.
Despite the objection, the respondent appointed Mr. B. K. Joshi, a retired railway officer, as the sole arbitrator. Mr. Joshi proceeded to enter upon the reference. However, the Court, by an interim order dated 17.09.2021, restrained the arbitrator from passing an award. The interim relief was extended periodically and remained in force until the final adjudication.
The central issue before the Court was whether the appointment of the sole arbitrator by East Coast Railways was legally sustainable in light of judicial pronouncements and the statutory provisions of the Arbitration and Conciliation Act. The applicant asserted that an independent arbitrator unconnected to the parties should be appointed, and that the existing appointment lacked legality.
The Court noted that the appointment of the arbitrator by one of the parties to the agreement, who also had an interest in the outcome of the dispute, was impermissible. Referring to the Supreme Court's judgment in Perkins Eastman Architects DPC, the Court recorded the following observation from para 20: "If the interest that he has in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present irrespective of whether the matter stands under the first or second category of cases."
The Court further noted: "We are conscious that if such deduction is drawn from the decision of this Court in TRF Ltd., all cases having clauses similar to that with which we are presently concerned, a party to the agreement would be disentitled to make any appointment of an arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an arbitrator."
The Court also relied on the Constitution Bench decision of the Supreme Court in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) [2024 SCC OnLine SC 3219], where it was held: "A clause that allows one party to unilaterally appoint a sole arbitrator is exclusive and hinders equal participation of the other party in the appointment process of arbitrators."
The Constitution Bench further recorded: "An arbitral process where one party or its proxy has the power to unilaterally decide who will adjudicate on a dispute is fundamentally contrary to the adjudicatory function of arbitral tribunals."
On the question of whether the Court could entertain the application under Section 11 despite an existing appointment, the Court referred to Bharat Broadband Network Ltd. v. United Telecoms Ltd. [(2019) 5 SCC 755], where the Supreme Court held: "Where such person becomes 'ineligible' to be appointed as an arbitrator, there is no question of challenge to such arbitrator, before such arbitrator."
The Court concluded that the appointment made by East Coast Railways was not sustainable and that there was no requirement for the applicant to initiate proceedings under Section 13, as the appointment was rendered void under Section 12(5) of the Act read with Section 14(1)(a).
The Court held: "This Court holds that the appointment of Mr. B. K. Joshi as the sole arbitrator by the respondent is non est in the eyes of law."
Accordingly, the Court allowed the application and appointed an independent arbitrator, stating: "Justice Naresh Harishchandra Patil, former Chief Justice of the Bombay High Court, is appointed as an Arbitrator, who shall enter upon the reference and render the Award within the statutory period."
The parties were directed: "The parties shall be free to file detailed claims and counter-claims, before the learned Arbitrator."
Regarding the arbitrator’s fee, the Court held: "The learned Arbitrator shall also be entitled to claim the fee in consultation with the parties."
All pending miscellaneous applications were closed with the remark: "Pending miscellaneous applications, if any, shall stand closed. No costs."
Advocates Representing the Parties:
For the Petitioner: Mr. W. B. Srinivas, Senior Counsel, appearing for Mr. V. Subrahmanyam
For the Respondents: Mr. Jupudi V. K. Yagnadutt, Central Government Counsel
Case Title: Rashtriya Ispat Nigam Limited vs Union of India and Others
Neutral Citation: APHC010278272021
Case Number: Arbitration Application No. 25 of 2021
Bench: Chief Justice Dhiraj Singh Thakur
