Chief Justice DY Chandrachud, with Justices Hrishikesh Roy, PS Narasimha, Pankaj Mithal, and Manoj Misra, delivered the decision, declaring such clauses violate Article 14 of the Constitution.
NEW DELHI: The Supreme Court ruled that government bodies cannot include clauses in public-private arbitration agreements allowing for unilateral appointment of arbitrators.
Chief Justice DY Chandrachud, with Justices Hrishikesh Roy, PS Narasimha, Pankaj Mithal, and Manoj Misra, delivered the decision, declaring such clauses violate Article 14 of the Constitution.
The lead opinion by CJI Chandrachud, supported by Justices Mithal and Misra, clarified that this decision will apply to future appointments and applies specifically to three-member arbitration panels.
Key Legal Questions Addressed:
- Can courts override the agreed arbitrator appointment method under Section 11 of the Arbitration Act?
- Are former employees eligible to arbitrate in cases involving their past employers?
- Can someone ineligible to act as an arbitrator appoint an arbitrator?
Key Points from Majority Opinion:
- No Mandated Selection: The Arbitration Act permits Public Sector Undertakings (PSUs) to create an arbitrator panel, but it cannot mandate the opposing party to select from this panel.
- Equal Appointment Rights: Clauses allowing one party to unilaterally appoint an arbitrator undermine fairness, raising doubts about impartiality and infringing on equal treatment in the selection process.
- Three-Member Panels: In cases involving three-member panels, requiring the opposing party to choose from a curated panel infringes on the principle of equal treatment, favoring PSUs like Railways.
Justice Roy’s Opinion: Justice Roy stated that unilateral appointments should not automatically be invalidated if they meet Section 12(5) eligibility standards. The Arbitration Act does not outright ban unilateral appointments, and eligible arbitrators not disqualified under Schedule 7 may be appointed unilaterally without court interference unless there’s a lack of consensus.
He argued that safeguards in the Arbitration Act provide a balance, and courts should avoid imposing public law principles on arbitration.
Justice Narasimha’s Opinion:
Justice Narasimha agreed that unilateral appointments can impact impartiality. He emphasized that the courts’ duty is to ensure confidence in arbitration agreements and noted that such clauses could be challenged if they violate public policy, but only when raised by the parties.
Case Title: Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company
