Can either of the parties be conferred the power to appoint a majority of the arbitral tribunal?
Recently, a single-judge bench of the Hon’ble High Court of Delhi headed by Justice Jyoti Singh in the case of Sri Ganesh Engineering Works v. Northern Railways, ARB.P 609/2023 struck down an arbitration clause conferring upon a party, the right to nominate 2/3rd of an arbitral tribunal as being violative of the ‘principle of counter-balancing’ which was introduced by the Hon’ble Supreme Court of India in the landmark judgment of Perkins Eastman v HSCC (2020) 20 SCC 760. It was held that conferring one party with the right to nominate the majority of the arbitral tribunal takes away the neutrality and impartiality of the tribunal.
The arbitration clause in the agreement between the parties provided for the appointment of a three-member tribunal with two arbitrators, including the presiding arbitrator being appointed by the Respondent. The Petitioner had to choose its nominee from a panel of 4 arbitrators proposed by the Respondent. When a dispute arose, the Petitioner invoked the arbitration clause but the Respondent was non-responsive to the same. The Petitioner being aggrieved by the arbitrary and non-responsive approach of the Respondent approached the High Court for the appointment of an independent arbitral tribunal on the grounds of maintaining equilibrium and counter-balancing.
The Court struck down the arbitration clause on the grounds of:
- The requirement of a broad-based panel given by the Supreme Court in Voestalpine Schienen GmbH v Delhi Metro Rail Corporation Ltd. 2017 SCC OnLine SC 172
- The violation of the ‘principle of counter-balancing’ given in Perkins.
What was held in Perkins and Voestalpine?
The Supreme Court in Perkins had ruled out any kind of unilateral appointments of an arbitral tribunal based on the reasoning that a person with a vested interest in the outcome of the decision should not have an unequal say in the appointment of the decision-making authority, in order to ensure impartiality and independence of the tribunal, which were held to be the hallmarks of any arbitral proceeding.
The Supreme Court in Voestalpine had dealt with the aspect pertaining to the number of arbitrators, which a party can propose so as to have a valid panel of arbitrators in place. As it so transpired, the concerned arbitration clause had provided for one party to propose a list of five names for the other party to choose from, which was struck down on the ground that the party has to choose from the proposed list, which was rather imposed upon it, offered a very limited choice, however, a panel of 31 names proposed subsequently was upheld as the same provided the party to choose from a relatively wider variety of arbitrators. Eventually, the Court directed that a panel has to be broad-based, although, did not specify as to how many people have to be on a panel to consider it valid.
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