Right Of A Party To Nominate 2/3rd Of The Arbitral Tribunal Violates Counter-Balancing: Delhi High Court Reiterates
The High Court of Delhi has held that an arbitration clause that confers on a party the right to nominate 2/3rd of arbitral tribunal violates the principles of 'counter-balancing' as sought to be achieved by the Supreme Court in the landmark judgment in Perkins. The bench of Justice Jyoti Singh held that a party cannot have the right to nominate the majority of the arbitral tribunal...
The High Court of Delhi has held that an arbitration clause that confers on a party the right to nominate 2/3rd of arbitral tribunal violates the principles of 'counter-balancing' as sought to be achieved by the Supreme Court in the landmark judgment in Perkins.
The bench of Justice Jyoti Singh held that a party cannot have the right to nominate the majority of the arbitral tribunal and such an exercises casts doubts on the neutrality and impartiality of the arbitral tribunal.
Facts
The parties entered into an agreement dated 03.08.2021. The agreement contained an arbitration clause which provided for appointment of three-members tribunal for the adjudication of the dispute. It further provided that out of the three members, the petitioner would choose its nominee from a panel of 4 names forwarded by the respondent and the remaining two arbitrators, including the presiding arbitrator, would be nominated by the respondent.
A dispute arose between the parties, accordingly, the petitioner invoked the dispute resolution clause. However, there was no response from the respondent to the request of the petitioner to appoint the conciliator. Thereafter, the petitioner invoked the arbitration clause and approached the Court for the appointment of the arbitrator.
Contention of the Parties
The petitioner sought the appointment of an independent arbitral tribunal on the following grounds:
- That the procedure for the appointment of the tribunal contained in the agreement is illegal and in teeth of Section 12(5) of the A&C Act.
- That the procedure provides for the nomination of petitioner's arbitrator from a narrow panel of 4 arbitrators. Such a procedure is against the principle laid down by the Court in Voestalpine.
- Further, it confers on the respondent, the power to appoint the 2/3rd members of the tribunal which disturb the equilibrium and violates counter-balancing.
The respondent made the following counter-arguments:
- That the procedure for the appointment of the arbitrator(s) is valid and does not violate Section 12(5).
- That the Supreme Court in CORE has upheld the validity of a similarly worded arbitration clause and upheld the appointment of arbitrators from a panel maintained by one of the parties.
- The principle of counter-balancing is not violated.
Analysis by the Court
The Court observed that the agreement provided for appointment of three-members tribunal for the adjudication of the dispute. It further provided that out of the three members, the petitioner would choose its nominee from a panel of 4 names forwarded by the respondent and the remaining two arbitrators, including the presiding arbitrator, would be nominated by the respondent.
The Court held that such a procedure is not valid in law for two reasons (a) that the panel is not broad-based as required in terms of directions given by the Supreme Court in Voestalpine (b) and that power given to respondent to nominate 2/3rd members of the tribunal violates the principle of 'counter-balancing' as enunciated by the Supreme Court in Perkins.
The Court held that a party cannot have the right to nominate the majority of the arbitral tribunal and such an exercises casts doubts on the neutrality and impartiality of the arbitral tribunal.
The Court also held that the panel offered by the respondent consists merely of 4 names and is restrictive in nature. Moreover, only the ex-employees of the respondent are part of the panel, therefore, it cannot be said to be a broad-based panel both by numbers as well as by diversity.
Accordingly, the Court allowed the petition and appointed the nominee arbitrators for both the parties and directed the two arbitrators to appoint the presiding arbitrators.
Case Title: Sri Ganesh Engineering Works v. Northern Railways, ARB.P 609/2023
Citation: 2023 LiveLaw (Del) 1210
Date: 29.11.2023
Counsel for the Petitioner: Mr. A.K. Singla, Senior Advocate with Mr. Rahul Shukla, Mr. Vijayshree Pattnaik and Mr. Akash Jandial, Advocates
Counsel for the Respondent: Mr. Bhagvan Swarup Shukla, Central Government Standing Counsel with Mr. Sarvan Kumar, Mr. Shivam Gaur, Ms. Ramya Soni and Mr. Saksham Sethi, Advocates.