Delhi High Court Ceases Mandate Of Unilaterally Appointed Arbitrator Under General Conditions Of Contract

Brief Facts:

The Petitioner filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), seeking the appointment of a sole arbitrator to resolve disputes arising from the premature termination of a work order, assigned to the Petitioner by Respondent no.1. The work order included construction for the Director's Residence and Residential Quarters for NIAB, with the arbitration clause outlined in Clause 25 of the GCC.

The Petitioner initially approached the Delhi High Court (“High Court”) seeking arbitrator appointment but was directed to exhaust dispute resolution mechanisms in the work agreement/GCC. The Petitioner subsequently sought resolution from Respondent No.2, the appealing authority, who rejected the claims on 14th June 2023. The Petitioner, having exhausted all remedies, formally requested the appointment of a fair, neutral, and unbiased arbitrator as per Clause 25 of GCC.

The primary contention arose as Respondent No.2 unilaterally appointed Sole Arbitrator without the Petitioner's concurrence. The Petitioner argued that this appointment violated principles of neutrality, independence, and impartiality.

In response, the Respondent argued that the arbitrator's appointment aligned with the arbitration agreement and, since the Petitioner did not challenge the mandate, the petition should be dismissed.

Observations by the High Court:

The High Court held that it is a well-established legal principle that an arbitration agreement allowing only one party the exclusive right to appoint an arbitrator is inherently flawed and contrary to legislative intent. Referring to the decision of the Supreme Court in Perkins Eastman Architect DPC and Anr. vs. HSCC (India) Ltd.: (2020) 20 SCC 760,x the High Court held that the unilateral appointment of an arbitrator is invalid. It firmly held that the provision in Clause 25 of the GCC, empowering unilateral appointment, is vitiated.

Rejecting the Respondent's contention that the appointment aligned with the contract and challenging the arbitrator's mandate was the only recourse, the High Court held that the unilateral appointment, as per Clause 25 of GCC, was legally flawed. It stressed that allowing such illegality to persist merely because the petition was filed under Section 11 of the Arbitration Act, and not under Sections 14 and 15, was not acceptable.

Consequently, the High Court held that the arbitrator's mandate shall cease to operate. It appointed Justice Vipin Sanghi, Former Chief Justice, Uttarakhand High Court, as the sole arbitrator to adjudicate the disputes between the parties.

Case Title: Chabbras Associates vs M/s Hscc (India) Ltd & Anr.

Citation: 2024 LiveLaw (Del) 293

Case Number: ARB.P. 1352/2023.

Advocate for the Petitioner: Ms.Krishna Parkhani, Adv.

Advocate for the Respondent: Mr.Harshit Agarwal, Mr.Kamal Kumar and Mr.Baldev Singh, Advocates (VC) for R-1 & 2.

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