A Party Cannot Unilaterally Appoint The Presiding Arbitrator Upon The Failure Of The Nominee Arbitrators To Reach A Consensus: Delhi High Court

The High Court of Delhi has held that a party cannot unilaterally appoint the presiding arbitrator upon the failure of the nominee arbitrators to reach a consensus.

The bench of Justice Sachin Datta held that a procedure, allowing the Director General of a party to appoint the presiding arbitrator upon the failure of the nominee arbitrators to mutually appoint the presiding arbitrator, is invalid. It held that a person ineligible to act as an arbitrator should not have any role in appointing one. The procedure lacked effective counterbalancing, favouring one party in the constitution of the arbitral tribunal.

Facts

FThe petitioner filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, related to a construction contract for a road over bridge in Maharashtra. Disputes arose, leading to arbitration proceedings.

The petitioner and respondent no.1 appointed their nominee arbitrators as per the arbitration clause. Nominee arbitrators failed to agree on a presiding arbitrator, triggering the need for intervention.

As per the agreement, the Appointing Authority (Director General, MoRTH) was to appoint the presiding arbitrator in case of disagreement. Respondent no.1 referred the matter to the Director General, who appointed a presiding arbitrator. Petitioner objected to the appointment, citing a conflict of interest.

Submissions of the Parties

• Petitioner argued that the Director General, being part-time member of respondent no.1, had an interest in the dispute and was ineligible to appoint the presiding arbitrator.
• Respondent contended that the appointment was valid, citing Supreme Court decisions supporting such procedures.

Analysis and Findings by the Court

The court considered two key questions: (i) the validity of the Director General's power to appoint the presiding arbitrator and (ii) the maintainability of the petition once the Arbitral Tribunal was constituted.

The court found that the appointment procedure, allowing the Director General to appoint the presiding arbitrator, was invalid. It emphasized that a person ineligible to act as an arbitrator should not have any role in appointing one. The procedure lacked effective counterbalancing, favoring one party in the constitution of the arbitral tribunal.

Contrary to the respondents' argument, the court held that the petition was maintainable even after the constitution of the Arbitral Tribunal. Citing Perkins, the court asserted its authority under Section 11(6) to appoint an independent arbitrator, especially when doubts about the nominee arbitrators' independence exist.

The court annulled the effect of the Director General's appointment and the subsequent communication declaring the constitution of the Arbitral Tribunal. It appointed Mr. Justice (Retd.) R. Subhash Reddy as the independent presiding arbitrator, emphasizing the need for requisite disclosures and fee fixation. The order clarified that it did not express any opinion on the case's merits.

Case Title: J.S.R. Constructions v. NHAI, ARB.P. 753 of 2023

Citation: 2023 LiveLaw (Del) 1250

Date: 01.12.2023

Counsel for the Petitioner: Mr. Shamik Sanjanwala

Counsel for the Respondent: Mr. C. S. Chauhan and Ms. Jasleen Singh Sandha

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