The bench, which also included Justices Hrishikesh Roy, P S Narasimha, J B Pardiwala, and Manoj Misra, heard arguments from several senior lawyers, including Mahesh Jethmalani, N K Kaul, and Gourab Banerji. Mehta remarked that extreme arguments could undermine the goal of strengthening arbitration.
New Delhi, Aug 30: On Friday, the Supreme Court reserved its judgment on the complex issue of whether an individual who is ineligible to serve as an arbitrator can nominate someone else for the role.
During the proceedings, Solicitor General Tushar Mehta emphasized to a five-judge constitution bench led by Chief Justice D Y Chandrachud that the priority should be on reinforcing arbitration as a dispute resolution mechanism.
The bench, which also included Justices Hrishikesh Roy, P S Narasimha, J B Pardiwala, and Manoj Misra, heard arguments from several senior lawyers, including Mahesh Jethmalani, N K Kaul, and Gourab Banerji. Mehta remarked that extreme arguments could undermine the goal of strengthening arbitration.
Mehta told the bench, which also included Justices Hrishikesh Roy, P S Narasimha, J B Pardiwala, and Manoj Misra, “
Our focus should be on strengthening arbitration as a mechanism. I initially expressed that extreme arguments on either side could undermine our shared objective of improving the arbitration process.”
During the arguments on Thursday, the Solicitor General informed the bench that the government aims to promote the growth of arbitration as an alternative dispute resolution mechanism and address any obstacles, particularly those affecting government agencies.
The bench noted the significant public and national interest in ensuring fairness in the arbitration process. Submissions were heard regarding the provisions of the Arbitration and Conciliation Act, 1996, including those related to the appointment of arbitrators. The Law Commission of India’s 246th report on proposed amendments to the Act was also discussed.
Background
In 2021, two references were made by three-judge Supreme Court benches for the formation of a larger bench to address the issue. The Court had previously ruled in 2017 and 2020 that an ineligible person cannot nominate another as an arbitrator. However, in a 2020 case, the Court permitted an appointment made by someone ineligible to serve as an arbitrator.
In June of the previous year, the Chief Justice established a five-judge constitution bench to review the matter.
The Bench was deliberating on a series of petitions addressing significant questions of law, including:
- Whether an individual who is ineligible to be an arbitrator can appoint an arbitrator?
- Whether courts can deviate from the agreed procedure for appointing arbitrators under Section 11 of the Arbitration Act?
- Whether retired employees are ineligible to act as arbitrators in disputes involving their former employers?
In February, the Supreme Court referred to a larger bench the question of whether courts can modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. Further, in July of the previous year, the Central Government established a committee to review legislatively whether courts could deviate from the agreed procedures for arbitrator appointments as stipulated under Section 11 of the Act.
Solicitor General Mehta argued,
“Party autonomy is ingrained throughout the architecture of the Arbitration Act,”
-emphasizing the fundamental importance of this principle.
CJI Chandrachud shared an anecdote related to tribunal appointments to illustrate the challenges inherent in the arbitrator selection process. He remarked,
“I have been chairing selection committees to appoint the chairman of many tribunals. The moment we circulate an advertisement for the post, the senior ones do not apply. That is why we call it a search cum selection committee. There is an element of good faith also when the CJI or a senior judge is on board. Now if railways is constituting a panel, it is headed by a GM—then how would selection be made? The devil lies in the fine print. There are very good arbitrators, but there is another end of the spectrum also. So will the Government of India undertake the exercise of having panels for each ministry? See how complex it will become.”
Kamath, representing the Bengaluru Metro Rail Corporation Limited, defended the practice of contractual autonomy in forming arbitration panels. He argued,
“It falls within party autonomy under Section 11(2) of the Arbitration Act. Parties are free to bargain their rights as long as it is not contrary to public policy or law. Adding names to a panel is not conferment of any right or giving any remuneration. Perception-based challenges to the appointment procedure are not sustainable in law. The statute lays down a four-tiered structure for safeguards of the appointments, including mandatory disclosure that is akin to a conscientious oath by a judge. Appointments can be challenged. Formation of the panel should be divested from the way it operates.”
Advocate Kumar added that the statute does not explicitly prohibit the unilateral appointment of arbitrators, reinforcing the autonomy of parties in arbitration agreements.
Representing Mahindra & Mahindra Financial Services Limited, a non-banking financial company, Senior Advocate Divan argued in favor of unilateral appointments by such companies. However, CJI Chandrachud expressed concern over the potential for injustice in such arrangements, particularly for vulnerable parties. He pointed out,
“Ms. Divan, the point is only about the unilateral arbitration clause by virtue of which you say ‘look, I will appoint a lawyer as an arbitrator, as a finance company,’ and the matter will proceed ex parte and the poor taxi or truck driver will be dispossessed. That is the reality—that then the drivers will be thrown out in the middle of the night by goons who will take the truck away. That is happening. This is turning arbitration on its head and giving it a bad name. I have dealt with n number of cases at the Bombay High Court where the less said, the better. Speaking from my experience even in Division Benches, I have seen how defaulters are dealt with under unilateral arbitration. Harshly against poor drivers, (it) has perverted the system.”
On February 21, the Centre informed the Court that an expert committee led by former law secretary T K Vishwanathan had submitted recommendations for reforming the arbitration sector to the law ministry. This reform effort is part of a broader initiative to establish India as a global hub for international arbitration.
