Unilateral Appointment Of Arbitrator And Self-Determined Jurisdiction: A Harmonious Reading Of Statutes

I. Introduction

The Arbitration and Conciliation Act, 1996 (Act) embodies the principles of party autonomy, minimal judicial intervention, flexibility and quick resolution. However, the Act lacks a specific provision to address practical challenges arising from biased jurisdictional decisions of an arbitrator on its own jurisdiction. The High Courts entertain appeals against such orders, albeit in exceptional circumstances. This article explores whether the appointment of an Arbitrator, who appears to be prima facie biased but upholds his own jurisdiction, would be considered as a case with exceptional circumstance. The article also assesses the extent to which courts have shown proactiveness in entertaining appeals in such situations.

II. Framework for Appointment of an Arbitral Tribunal under Section 11

The Act permits parties to appoint the Arbitral Tribunal through a pre-determined and mutually agreeable procedure, in line with the fundamental principles of arbitration namely flexibility, efficiency and quick resolution. However, where the parties fail to reach a consensus, Section 11, by the virtue of sub-sections (4), (5) and (6), entitles either party to approach the Hon'ble Supreme Court or the Hon'ble High Courts having jurisdiction, for such appointments.

The framework laid down under Section 11 is in consonance with the legislative intent of prioritising party autonomy while ensuring fairness in the arbitral process. Courts have repeatedly emphasized that procedural equality and impartiality are indispensable for lawful adjudication. It has been reiterated that unilateral appointment of the arbitral tribunal by a party having financial interest in the outcome of the arbitral proceedings will give rise to justifiable doubts regarding the independence and impartiality of such tribunal. The Hon'ble Supreme Court of India in CORE II case [2024 SCC Online SC 3219] and Perkins Eastmans Architects DPC v. HSCC (India) Limited [AIR 2020 SC 59], examined the legality of unilateral appointment clauses in arbitration agreements. Even in these cases, courts have reinforced the applicability of principles of party autonomy and impartiality to appointments under Section 11 of the Act.

III. Scope of Section 16 –

Once it is established that the appointment of the arbitrator is to be made either with the consent of both parties, or by the appropriate court a consequential question arises regarding the appropriate forum to be approached where doubts persist as to the Tribunal's jurisdiction. Section 16 of the Act incorporates the principle of Kompetenz-Kompetenz, empowering the Arbitral Tribunal to rule on objections to its own jurisdiction.

However, Section 16(6) expressly provides that an order by which the tribunal rejects a jurisdictional challenge is not appealable. In other words, once the Arbitral Tribunal upholds its jurisdiction, the aggrieved party is left with no immediate remedy and must continue with the arbitral proceedings. The Act does not provide for a procedure to challenge an order under section 16; instead, it permits the party to assail the Tribunal's decision only at the stage of challenging the final award under Section 34.

Judicial precedents, including cases like SBP & Co. v. Patel Engineering Ltd. (2005) [AIR 2006 SC 450] and Deep Industries Ltd. v. Oil and Natural Gas Corporation Ltd. (2019) [2020 SCC 15 706], have consistently held that a rejection of a Section 16 application cannot be appealed immediately and must await the final award for challenge under Section 34. High Courts have also been advised to exercise caution while using their constitutional powers to interfere with the arbitral process at such interlocutory stage. 

This effectively compels a party challenging the Tribunal's jurisdiction to continue participating in the arbitral proceedings despite being fully aware that the resulting award is likely to be set aside under Section 34(2)(a)(v). Consequently, parties are forced to expend considerable time, effort, and resources, only for the award to be nullified at a later stage. Such an outcome runs contrary to the objective of efficient and streamlined adjudication envisioned under the Act and, rather than promoting arbitration, risks discouraging parties from adopting it as a dispute resolution mechanism.

IV. Remedies available to the aggrieved party

As discussed above, the concern regarding the Tribunal's impartiality becomes particularly acute in circumstances where, prima facie, the arbitrator appears to be biased yet proceeds to affirm his own jurisdiction. Although the Act itself does not provide an effective statutory remedy to address such a situation, the aggrieved party is not left without recourse. In such cases, the Constitution of India 1950 (Constitution) empowers the High Courts to exercise their inherent and supervisory jurisdiction to correct grave errors and ensure that the administration of justice is not compromised.

Article 227 of the Constitution vests the High Courts with supervisory jurisdiction to ensure that the lower courts act within the limits of their authority. In Surya Dev Rai vs. Ram Chander Rai [AIR 2003 SUPREME COURT 3044], the Apex Court delineated the conditions for invoking this supervisory power, holding that such jurisdiction may be exercised only when –

1. the error is manifest and apparent on the face of the proceedings such as when it is based on clear ignorance or utter disregard of the provisions of law, and
2. a grave injustice or gross failure of justice has occasioned thereby.

In Surender Kumar Singhal v. Arun Kumar Bhalotia [AIROnline 2021 Del 415], the Hon'ble Delhi High Court undertook a detailed examination of the interplay between a challenge to an order passed under Section 16 of the Arbitration and Conciliation Act, 1996 and the supervisory jurisdiction of the High Court under Article 227 of the Constitution. The Court observed that Arbitral Tribunals constitute a species of tribunals over which High Courts may exercise writ jurisdiction. It further held that orders passed by an arbitral tribunal are, in principle, amenable to challenge by way of a writ petition. However, the Court circumscribed the scope of such intervention, holding that judicial interference under writ jurisdiction against arbitral orders is permissible only in exceptional and rare circumstances.

V. Interplay between Section 5 of the Act and Article 227

Section 5 of the Act categorically restricts judicial intervention unless where the same is specifically permitted under the Act. The provision furthers the legislative intent of ensuring speedy and efficient dispute resolution, promoting party autonomy and minimizing delays. At the same time, while curbing routine court interference, the Act preserves limited scope for judicial intervention where necessary to prevent injustice and ensure fairness.

The Hon'ble Supreme Court in the case of Punjab State Power Corporation Ltd. vs. Emta Coal Ltd. and Anr. [2020 (17) SCC 93] has held that, "We are of the view that a foray to the Writ Court from a section 16 application being dismissed by the arbitrator can only be if the order passed is so perverse that the only possible conclusion is that there is a patent lack in inherent jurisdiction."

Subsequently, the Hon'ble High Court of Delhi in the case of Surender Kumar Singhal vs. Arun Kumar Bhalotia [AIROnline 2021 Del 415] further observed that, judicial interference under writ jurisdiction against orders passed by an arbitral tribunal, is permissible only in exceptional circumstances. It also clarified that, such interference would be justified solely where the impugned order under Section 16 is manifestly perverse, to the extent that the perversity is apparent on the face of the record.

The Hon'ble Supreme Court in the case of Bhaven Construction Vs. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Ors. [AIROnline 2021 SC 6], while dealing with a Special Leave Petition concerning unilateral appointment of an arbitrator, clarified the position to challenge the order of the Tribunal under 227 of the Constitution and held- "No doubt the ambit of Article 227 was broad and pervasive, however, the High Court should not have used its inherent power to interject the arbitral process at this stage. It was brought to our notice that subsequent to the impugned order of the sole arbitrator, a final award was rendered by him on merits, which was challenged by the Respondent No. 1 in a separate Section 34 application, which was pending."

Therefore, a conjoint reading of the judicial precedents gives a clear understanding that an order of the Arbitral Tribunal under Section 16 rejecting a plea for lack of jurisdiction or excessive authority cannot be independently challenged under Article 227 of the Constitution. Such judicial intervention is permissible only where the order suffers from inescapable perversity or reveals a patent lack of inherent jurisdiction. While the courts have not precisely defined what constitutes "perversity," it is understood that this determination is fact-specific and must be assessed on a case-to-case basis.

On the other hand, where establishing the absence of jurisdiction requires detailed arguments and substantive examination, the appropriate remedy is not to seek immediate judicial intervention under Article 227. In such cases, the aggrieved party must raise the jurisdictional challenge in a petition under Section 34 of the Act, while assailing the final arbitral award after the arbitration proceedings have concluded.

VI. Conclusion

The legal and factual position exposes a notable gap in the Act while dealing with the unique scenario where the arbitrator, despite being prima facie biased, proceeds to uphold his own jurisdiction. The Act itself provides no direct statutory remedy against such an order. Nevertheless, an aggrieved party is not entirely without recourse, as constitutional remedies remain available through a harmonious reading of the Arbitration Act and the Constitution of India.

A review of judicial decisions on this issue highlights that courts have exercised caution, and rightly so, while interfering with orders of the Tribunal. The exercise of supervisory jurisdiction under Article 227 of the Constitution has been deliberately restricted to cases involving orders that are patently perverse. Through a series of pronouncements, courts have narrowly defined the contours of what constitutes "perversity," thereby effectively addressing the legislative silence within the Arbitration Act for such exceptional situations.

Remarkably, courts have refrained from overstepping their role, ensuring a careful balance between the principle of minimal judicial intervention embodied in Section 5 of the Act and the need to correct manifest injustice through supervisory powers. By limiting interference to cases of glaring jurisdictional error or perversity, courts have upheld legislative intent and discouraged premature or frivolous challenges at the threshold of arbitral proceedings. This calibrated judicial approach has largely obviated the need for introducing a separate, tailored statutory remedy within the Act itself.

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