ARTICLE
16 January 2025

Unilateral Arbitrator Appointment Clauses In Public Private Contracts Are Invalid: Central Organization For Railway Electrification v ECI SPIC SMO MCML (JV)*

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Tuli & Co

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Tuli & Co is an insurance-driven commercial litigation and regulatory practice established in 2000. With offices in New Delhi and Mumbai, we undertake work for a cross section of the Indian and international insurance and reinsurance market and work closely alongside Kennedys’ network of international offices
A constitutional bench of the Supreme Court recently examined the validity of unilateral arbitrator appointment clauses in public-private contracts.
India Government, Public Sector

A constitutional bench of the Supreme Court recently examined the validity of unilateral arbitrator appointment clauses in public-private contracts. This follows decisions TRF Ltd v Energo Engineering Projects Ltd1 and Perkins Eastman Architects DPC v HSCC India Ltd 2, which held that an ineligible person cannot appoint an arbitrator, nor can they serve as one.

The Court considered whether an arbitrator appointed from a panel curated unilaterally by a government agency is valid if the non-government party can choose two out of three arbitrators. The Court ruled such appointments are invalid.

Background

Disputes arose between the Railways and SPIC over unfulfilled contractual obligations. The Railways withheld payments, and SPIC invoked arbitration. The agreement required a three-member tribunal chosen from a panel curated by the Railways' General Manager. SPIC objected and requested the Allahabad High Court to appoint an independent arbitrator, which it did. The Railways appealed, and in 2019 the Supreme Court reversed the High Court's decision, allowing the General Manager's panel on the basis that the General Manager's unilateral power to nominate a panel of arbitrators was offset by the autonomy to SPIC to choose two out of the three arbitrators.

In 2021, the Supreme Court passed judgment in Union of India v Tantia Constructions Ltd3 and referred the issue to a constitutional bench due to inconsistent rulings on unilateral arbitrator appointments in public-private contracts. Delays occurred as the Central Government's Expert Committee reviewed the matter, but the Supreme Court proceeded when such recommendations were not implemented.

The Decision

The Supreme Court held that the equal treatment of parties applies to all arbitration stages, including arbitrator appointments. The independence and impartiality of arbitrators are non-negotiable principles. The Court reaffirmed that anyone with an interest in the dispute cannot unilaterally appoint an arbitrator or curate a panel. Such clauses violate §18 of the Arbitration and Conciliation Act 1996 and are illegal.

Conclusion

The Supreme Court emphasised that while party autonomy is central to arbitration, such autonomy must ensure an impartial and independent tribunal. The Court has invalidated clauses allowing unilateral arbitrator appointments, settling the law on this issue.

Footnotes

* 2024 SCC OnLine SC 3219

1. (2017) 8 SCC 377

2. (2020) 20 SCC 760

3. 2021 SCC OnLine SC 271

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