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Article By - Esha Jaiswal (This Article was written by her during her Internship at Legal Soch Foundation)
Abstract
An in-depth analysis of the legal framework and practical ramifications of ex-parte orders issued by arbitrators who were unilaterally constituted in the Indian setting is provided in this research paper. Ex-parte orders can be difficult to enforce, and unilateral nominations are sometimes contentious. The challenges encountered in carrying out such orders in India are examined in this document together with the pertinent legal precedents and laws.
Introduction
In India, arbitration is a popular form of alternative conflict settlement. When they are unable to agree on the selection of an arbitrator, parties may in some circumstances unilaterally appoint one. Ex-parte orders can occasionally be issued as a result of this procedure. Ex-parte orders are issued without informing the opposing party. They raise concerns regarding their legality, efficacy, and impartiality when they are rendered by arbitrators who were unilaterally chosen. Ex-parte orders, justice, and the enforceability of verdicts made by arbitrators who were unilaterally chosen are all intertwined in our study subject. We will examine the legal foundations, principles of due process, and practical difficulties surrounding ex-parte orders in arbitration to clarify this complex subject, with a focus on situations where such orders are made by arbitrators who have been appointed unilaterally.
Legal Framework
In India, the Arbitration and Conciliation Act, of 1996, as well as provisions from the Indian Contract Act, of 1872, serve as the primary legal framework guiding the implementation of ex-parte orders by arbitrators who were unilaterally constituted. A thorough review of the pertinent law is provided below.
The Arbitration and Conciliation Act (1996)
Section 2 of the Arbitration and Conciliation Act (1996) deals with definitions such as Arbitration, Arbitration Agreement, etc.
The appointment of arbitrators is defined under section 11 of the Arbitration and Conciliation Act.
Appointment Procedure: In the event the parties are unable to agree, this section deals with the appointment of arbitrators. It enables parties to request an arbitrator by contacting the Chief Justice or any other individual or organization that the Chief Justice has authorized.
Unilateral Appointments: When parties cannot agree on the nomination of arbitrators, unilateral appointments frequently occur. This occasionally raises questions about the arbitrator's objectivity and the reliability of their judgments.
Unilateral Appointment of Arbitrators
Nemo judex in causa sua, no one is judge in there own case which is a well-known concept, is fundamentally violated by the clause allowing for the unilateral appointment of an arbitrator. Despite this obvious misconception, many parties nevertheless maintain the unilateral appointment language in their arbitration agreements, which taints and biases the
whole arbitration process.
The provisions for the appointment of an arbitrator and the circumstances under which the appointment may be legitimate or invalid are outlined in Section 12 of the Arbitration and Conciliation Act, 1996 (the "Act"). This article will examine the internationally accepted principle of unilateral appointment of arbitrators in India, the practice of unilateral appointment of arbitrators in India, and significant court opinions that attempt to circumvent the practice.
Scenario Before the 2015 Amendment
Unilateral appointments were lawful in India before the Arbitration and Conciliation (Amendment) Act, of 2015 ("2015 Amendment"). Such appointments, particularly by PSUs, were made from a panel of arbitrators chosen by one of the disputing parties or from a single arbitrator chosen from among one of those parties' personnel. Naturally, this would tip the scales in favor of the party appointing or serving as the arbiter.
The Hon'ble Apex Court upheld the practice of appointing employees as arbitrators in the case of Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd1, holding that while the appointment of employees of private parties is not appropriate, there is no prohibition against an employee of a government agency, statutory corporation, or public-sector unit acting as an arbitrator, so long as the person being appointed as an arbitrator has no connection to the contract in respect of which such dispute has arisen.
In the case of Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd.1, the Hon'ble Apex Court upheld the practise of appointing employees as arbitrators, ruling that while the appointment of employees of private parties is improper, there is no restriction on an employee of a government agency, statutory corporation, or public-sector unit acting as an arbitrator, so long as the individual being appointed as an arbitrator has no connection to the contract in question.
Scenario Post-2015 Amendment
After the 2015 Amendment, the law governing unilateral appointment was tightened up and several constraints were placed in place regarding who might serve as an arbitrator. However, the question of "who can appoint an arbitrator" is left unanswered by the law. The practice of unilaterally appointing arbitrators is still practiced by many large corporations and PSUs. When the Hon'ble Apex Court ruled in TRF Limited v. Energo Engineering Projects Ltd.2 that a person who is barred from acting as an arbitrator by Section 12(5) of the Act could not even appoint another person as an arbitrator, it put an end to the debate over whether or not corporate or PSU employees could be appointed as arbitrators.
In the case of TRF Ltd. v. Energo Engineering Projects Ltd., the Supreme Court of India ruled against unilateral appointments of arbitrators 1. The case involved a dispute between TRF Limited and Energo Engineering Projects Limited over unpaid supplies and encashed Performance Bank Guarantees (PBGs) 2. TRF invoked the arbitration clause and obtained an interim order from the Supreme Court staying further proceedings before the Arbitral Tribunal 2. The Delhi High Court had earlier decided in favor of unilateral appointments in the matters of DK Gupta v. Renu Munjal and Bhayana Builders Pvt. Ltd. v. Oriental Structural Engineers Pvt. Ltd1. However, the ambiguity surrounding the interpretation of TRF was finally put to rest by the Supreme Court in the matter of Perkins Eastman Architects DPC v. HSCC (India) Limited 1.
Whether arbitral awards rendered by unilaterally appointed arbitrators are enforceable under the Arbitration Act?
The researcher would like to answer this question with the help of a Judicial Precedent that is Bharat Broadband Network Limited vs United Telecoms Limited (2019).
In the case of Bharat Broadband Network Limited vs United Telecoms Limited (2019), the Supreme Court of India was tasked with interpreting Section 12 (5) of the Arbitration and Conciliation Act, 1996. The case involved a tender floated by Bharat Broadband Network Ltd. (BBNL) for a turnkey project for supply, installation, commissioning, and maintenance of GPON equipment and solar power equipment. United Telecoms Limited was the successful bidder. The General (Commercial) Conditions of Contract (GCC) provided for arbitration in case of any question, dispute or difference arising under the agreement or in connection therewith. The clause stated that the same shall be referred to the sole arbitration of the CMD, BBNL or in case his designation is changed or his office is abolished, then in such cases to the sole arbitration of the officer for the time being entrusted with the functions of the CMD, BBNL or by whatever designation such an officer may be called. If the CMD or the said officer is unable or willing to act as such, then to the sole arbitration of some other person appointed by the CMD or the said officer 1.
The Supreme Court held that appointment of an arbitrator by a person ineligible to be appointed as an arbitrator is not valid 2.
Facts
On August 5, 2013, BBNL published a request for proposals for a turnkey project involving GPON and solar power technology.
As the winning L-1 bidder, United Telecoms Limited (UTL) was chosen.
An advance purchase order was issued on September 30, 2014.
On January 3, 2017, UTL requested the appointment of an arbitrator to resolve the conflict.
The CMD of BBNL selected a Sole Arbitrator on January 17, 2017.
The Supreme Court issued a ruling in TRF Limited during the arbitration process, ruling that the Managing Director could not designate an arbitrator because he was a party to the arbitration.
Due to TRF Limited Judgement, BBNL prayed to Sole Arbitrator that he is de facto unable to fulfill the role of Arbitrator given TRF Judgement. As a result, he should resign from his position as an arbitrator and allow the High Court to choose a replacement.
This application was turned down by the sole arbitrator on October 21, 2017.
BBNL requested the appointment of a substitute arbitrator in a petition under Sections 14 and 15 that was filed with the Delhi High Court on October 28, 2017.
The Delhi High Court denied this petition on November 22, 2017, principally for the reasons listed below:
BBNL, who appointed the arbitrator, is prohibited from arguing that the arbitration cannot proceed; and
UTL did not raise any objections or reserve any objections to the selection of the arbitrator when it filed its Statement of Claim. This would qualify as a waiver under Section 12(5) of the Act since it amounts to express written agreement.
Thus, this challenge was before the Supreme Court.
Issues
Whether High Court was right in rejecting the Petition filed by BBNL seeking the appointment of a substitute Arbitrator and concern about the correct interpretation of section 12(5) of the Arbitration and Conciliation Act (1996)?
Judgment
The Supreme Court allowed the appeal and set aside the judgment passed by the Delhi High Court, thereby, terminating the mandate of Sole Arbitrator. Apex Court further directed the Delhi High Court to appoint a substitute arbitrator with the consent of both parties.
The Supreme Court reiterated the law established in TRF Ltd. in Bharat Broadband when making observations about the unlawfulness of unilateral appointments and held that "it was inconceivable in law that a person who is statutorily ineligible to be an arbitrator can nominate another person as an arbitrator." The superstructure will inevitably collapse once the infrastructure does. Without a plinth, a building cannot exist.
After that, the Supreme Court noted in Bharat Broadband that the underlying arbitral proceedings had continued concurrently and resulted in two awards because there was no stay order in effect in the case. The aforementioned awards were challenged by Section 34 of the Arbitration Act. The Supreme Court overturned the awards that were being challenged and determined the Section 34 procedures to be infructuous because the appointment of the arbitrator had already been ruled unconstitutional and non-existent.
As was said before, the ruling in Bharat Broadband offers much-needed direction on what happens to awards made by arbitrators who were appointed unilaterally. There is no doubt that these arbitral awards result from an underlying illegality.
Conclusion
In the Indian setting, the execution of ex-parte orders by arbitrators who were unilaterally appointed is a complex subject that combines legal requirements, judicial precedents, and practical difficulties. In order to preserve the integrity of arbitration as a reliable method of conflict settlement, parties, arbitrators, and attorneys must carefully navigate this area while following the principles of natural justice and due process.
The Indian legislative and courts must keep improving their strategy to ensure that the enforcement of ex-parte orders stays just and in line with the principles of arbitration in order to fully comprehend and resolve difficulties relating to these orders.
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