Supreme Court holds a private entity cannot be forced to appoint arbitrators from a panel curated by a public entity

Introduction

The appointment of an arbitrator is central to arbitrate disputes between consenting parties. Consequently, even the procedure of making such appointments holds value in resolving disputes. The Supreme Court in Central Organization for Railway Electrification v. ECI-SPIC-SMO-MCML delivered a landmark ruling on the unilateral appointment of arbitrators. A five-judge Bench examined whether arbitration clauses allowing one party to curate a panel of arbitrators, from which the other party must choose, complies with the principle of impartiality under the Arbitration and Conciliation Act, 1996 (Arbitration Act).

Brief Facts

Central Organization for Railway Electrification (CORE), a government body, entered a contract with a private joint venture company ECI-SPIC-SMO-MCML (JV) for contract tenders. As per the arbitration clause in the Indian Railways General Conditions of Contract (GCC), CORE would curate a panel of retired railway officers from which the other party must choose two nominees. CORE would then appoint one arbitrator from the two nominees of the other party, along with appointing one other arbitrator. Further, the clause prescribed that CORE will also appoint the third presiding arbitrator.

A dispute arose between the parties and in accordance with the GCC, CORE provided the JV with a list of arbitrators to choose from. However, JV did not choose two nominees and approached the Allahabad High Court to appoint a sole arbitrator instead. They claimed CORE’s nominees were retired officers and were therefore ineligible to become arbitrators. In January 2019, the High Court appointed a retired judge as the sole arbitrator to adjudicate the dispute. This decision of the High Court was challenged by CORE before the Supreme Court of India.

On 17 December 2019, the three-Judge Bench of the Supreme Court set aside the arbitrator appointed by the Allahabad High Court and ruled that the three arbitrators had to be appointed as per the GCC. Further, the court held that a person could not be deemed ineligible simply because he was a retired employee (CORE 1). 

In 2021, three-Judge Bench of the Supreme Court in Union of India v M/s. Tantia Constructions Ltd. disagreed with CORE 1 and referred the case to a larger bench. In August 2024, a five-judge bench of the Supreme Court heard the matter and passed its judgment (CORE 2) reversing CORE 1.

CORE 2

The five-judge bench of the Supreme Court, in a 3:2 majority decision, ruled that arbitration clauses permitting unilateral appointment of arbitrators are invalid. The majority held that such clauses in public-private contracts violate Article 14 of the Constitution of India, which guarantees equality before the law. The Supreme Court further ruled that the principle of equality governs the entire arbitration process, right from the appointment of arbitrators by parties.

The Court also emphasized that while public sector undertakings (PSUs) are not barred from creating panels of potential arbitrators, the other party cannot be compelled to choose from such panels. The Court ruled that unilateral appointment clauses undermine the impartiality and independence of arbitral tribunals, breaching the principle of impartial dispute resolution. The Court reasoned that requiring one party to select arbitrators from a PSU-curated panel denies the other party equal participation in the appointment process. Such an arrangement fails to meet the minimum standards of fairness and integrity expected of quasi-judicial bodies like arbitral tribunals.

Our Thoughts 

CORE 2 represents a defining moment in Indian arbitration law, striking a crucial balance between party autonomy and statutory safeguards. While acknowledging the parties’ freedom to design their arbitration agreements, the Supreme Court has highlighted that this autonomy is not absolute and must operate within the framework of principles ensuring fairness, neutrality, and impartiality.

CORE 2 establishes that mandatory provisions of the Arbitration Act, such as those guaranteeing the independence and impartiality of arbitrators, take precedence over contractual terms. It emphasizes that mechanisms for appointing arbitrators must be balanced, ensuring equal participation of both parties and preventing any undue influence. By doing so, the Court ensures that arbitration agreements, particularly in public-private contracts, adhere to the fundamental principles of equality and fairness. This development is a significant step in reinforcing public confidence in arbitration as an impartial and effective dispute resolution mechanism. By embedding fairness into the arbitration framework, the judgment aligns Indian arbitration practices with global standards, sending a strong message that neutrality, transparency, and equality are non-negotiable pillars of arbitration.

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