Unilateral Constitution Of A Narrow Panel Of Arbitrators Violates Impartiality : Delhi High Court

The Bench of Justice Neena Bansal Krishna held that such a unilateral exercise of power creates space for suspicion regardless of the merit of the selected arbitrators who happens to be retired District Judges.

The Court took a divergent view of its judgment in IWorld Business Solutions v. DMRC, wherein similar panel of five Members who were all retired District Judges was considered and it was held that considering that they were all retired Addl. District Judges/ District Judges, their impartiality and neutrality could not be questioned and the panel was held to be valid for nomination of any one as an Arbitrator.

Facts

The parties entered into four license agreements dated 25.04.2019 wherein the respondent licensed few commercial spaces to the petitioner on 'as is where is' basis. A dispute arose between the parties due to the condition and area of the licensed premises.

Accordingly, the petitioner issued the notice of arbitration and suggested the name of the sole arbitrator. However, the respondent did not agree with the proposal of the petitioner and stated that in view of the agreement between the parties, the petitioner can nominate its arbitrator from a panel of 5 arbitrators to be chosen by the respondent.

Thereafter, the petitioner filed an application for appointment of the sole arbitrator.

The contention of the parties

The petitioner sought appointment of the sole independent arbitrator on the following grounds:

• The procedure for appointment of arbitrator as provided under the agreement is contrary to the provision of the A&C Act as the unilateral power on the respondent to handpick arbitrators for the petitioner to choose impairs the principles of impartiality and independence of arbitrator.
• Respondent being an interested party cannot nominate or constitute a narrow panel of arbitrator and restrict the power of the petitioner to choose from that panel only.
• The clause between the parties is one sided and gives undue advantage to the respondent in the appointment of arbitrator, therefore, it is against the principle of natural justice.

The respondent objected to the maintainability of the petition on the following grounds:

• An application under Section 7 of the IBC was admitted by NCLT against the petitioner and the moratorium was declared and IRP was appointed, however, the parties reached a settlement and the NCLAT directed IRP not to constitute CoC.
• In terms of the arbitration clause between the parties, the arbitrator(s) are to be appointed from the fives names which are to be chosen by the respondent from its panel of arbitrator, therefore, the sole arbitrator as contended by the petitioner is not possible.

Analysis by the Court

The Court held that the power conferred on one party to unilaterally choose names from a panel of arbitrators and forwarding it to the other party to select its arbitrator from those names is violative of principle of impartiality in arbitration.

The relied on the judgment of the Hon'ble Supreme Court in Voestelpine v. DMRC, (2017) 4 SCC 665 to hold that such a unilateral exercise of power creates space for suspicion regardless of the merit of the selected arbitrators who happens to be retired District Judges in the present case.

The Court took a divergent view of its judgment in IWorld Business Solutions v. DMRC, wherein similar panel of five Members who were all retired District Judges was considered and it was held that considering that they were all retired Addl. District Judges/ District Judges, their impartiality and neutrality could not be questioned and the panel was held to be valid for nomination of any one as an Arbitrator.

Accordingly, the Court allowed the petition and appointed an independent arbitrator.

Case Title: Overnite Express Ltd v. DMRC, Arb. P. No. 18 of 2020

Citation: 2022 LiveLaw (Del) 801

Date: 22.08.2022

Counsel for the Petitioner: Mr. Rohit Gandhi, Mr. Adhish Srivastava, Mr. Pradeep and Mr. Hargun Singh Kalra, Advocates

Counsel for the Respondent: Ms. Vibha Mahajan Seth and Ms. Divyanshi Anand, Advocate.

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