I.Background—The supreme court's TRF case

In TRF Limited v. Energo Engineering Limited, (2017) 8 SCC 377 (“TRF”),^[1] [1] Supreme Court 3-judge bench, Dipak Mishra, AM Khanwilkar & Mohan M Shantanagoudar JJ. Show More the arbitration clause provided that any dispute “shall be referred to sole arbitration of the Managing Director of buyer or his nominee.” By the time this matter was heard, several provisions relating to the independence and impartiality of arbitrators had been introduced in the Arbitration and Conciliation Act, 1996 (“ACA”). Given the amended provisions, it was common ground that the Managing Director was disqualified to himself act as an arbitrator.^[2] [2] Section 12 (5)—Grounds for Challenge; Cf. items 1, 5, and 12 of the Seventh and items 22 and 24 of the Fifth Schedule. Show More The question was if he could nonetheless nominate another person? The court held: “once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator.” [Cf. the note below for the reasoning in TRF]

II. The Perkins decision

A. The main question before the court in Perkins—if the Chairman & Managing Director of the respondent could appoint a sole arbitrator

A consortium comprising Perkins Eastman Architects, a New York architectural firm, and Edifice Consultants Private Limited, a company organized in Mumbai (“Perkins”), was appointed design consultants by the respondent HSCC, a government of India enterprise.

Like in TRF, the parties in Perkins also intended arbitration by a sole arbitrator. In TRF, as noted above, a party’s Managing Director or his nominee was to act as the sole arbitrator. In Perkins, however, the Chairman & Managing Director (“CMD”) of the respondent had the right to appoint/nominate another. A request was made to the CMD, but the appointment was made a day after the stipulated time. It was also (allegedly) made by the Chief General Manager instead of the CMD.

Perkins applied under section 11 ACA for appointment by the court. It argued that the court should make the appointment since (i) the CMD did not discharge its obligations and thus lost the right to appoint, and (ii) an independent and impartial arbitrator was required to be appointed.

The main question was whether the clause giving the right to the respondent’s officer^[3] [3] Effectively, this was a right vested with the respondent. The clause just identified who among the respondent enterprise would make the nomination. Show More to nominate a sole arbitrator was enforceable?^[4] [4] The court phrased the question generally, “whether a case has been made out for exercise of power by the Court for an appointment of an arbitrator”. Show More

The court answered NO by referring to and relying on the TRF case. It held:-^[5] [5] In TRF it was common ground that with the introduction in the ACA of the Fifth and Seventh Schedule in 2015, a Managing Director was disqualified to be an arbitrator [Cf. items 1,5 and 12 of the Seventh and items 22 and 24 of the Fifth Schedule]. Show More

1. There are two categories of cases: –
   1. First, like TRF, where the Managing Director is named an arbitrator with the additional power to appoint another person as an arbitrator.
   2. Second, where the Managing Director is not to act as an arbitrator but is empowered or authorised to appoint any other person of his choice or discretion as an arbitrator.
2. In the first category, the Managing Director was found incompetent^[6] [6] The incompetency in TRF was with regard to acting as an arbitrator. Show More because of the interest he would be said to have in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such an outcome or decision.
3. If that be the test, similar invalidity would always arise and spring even in the second category of cases. Suppose the interest that he has in the outcome of the dispute is taken to be the basis for the possibility of bias. In that case, it will always be present irrespective of whether the matter stands under the first or second category of cases.
4. The court stated it was conscious that if such deduction is drawn from the decision in TRF, all cases having similar clauses, a party to the agreement would be disentitled to make any appointment of an arbitrator on its own. It would always be available to argue that a party of an official or an authority having an interest in the dispute would be disentitled to appoint an arbitrator.
5. But that has to be the logical deduction from the TRF judgment for the following reasons: –
   1. The ineligibility referred to in TRF was as a result of the operation of law, in that a person having an interest in the dispute and its outcome must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else.
   2. The TRF case further shows that the situation where both parties could nominate respective arbitrators was completely different. Whatever advantage a party may derive by nominating an arbitrator of its choice would get counterbalanced by equal power with the other party. But, where only one party has a right to appoint a sole arbitrator, the choice will always have an element of exclusivity.
   3. Naturally, the person who is interested in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That is the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015) and recognized in TRF.

The court then also concluded, if there are justifiable doubts as to the independence and impartiality of the person nominated and if other circumstances warrant the appointment of an independent arbitrator by ignoring the procedure prescribed, the appointment can be made by the court. This conclusion was stated: –

1. Relying on and following Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd., (2009) 8 SCC 520 where the scope of the then-existing text of section 11 was summarised by a 2-judge bench of the Supreme Court (RV Raveendran and DK Jain JJ.).
2. Citing paragraphs 53 to 60 (under the heading “Neutrality of Arbitrators”) of the 246th Law Commission Report of August 2014.
3. Following Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd., (2017) 4 SCC 665, a section 11 proceeding, where the 2-judge bench of Dr. AK Sikri & RK Agrawal JJ has explained the concept of neutrality of arbitrators (independence and impartiality).

B. Whether the court can exercise power under Section 11 when a party has already made an appointment?

Yes, the court held, relying on Walter Bau AG v. Municipal Corpn. of Greater Mumbai, (2015) 3 SCC 800, a decision by the designated judge (Ranjan Gogoi J) under the old section 11 provision.^[7]. [7] Walter Bau distinguished Antrix (2014) 11 SCC 560 and Pricol Ltd., (2015) 4 SCC 177. In both decisions by the designated judge, it was said that after the appointment of an arbitrator is made, the remedy of the aggrieved party is not under Section 11(6). Show More

C. Delay by the appointing authority in making the appointment—how relevant?

The contractual time limit for the appointment expired on 28th July 2019. The next day, 29th July, was a working day, but the appointment was made on 30th July. It was not within time, but such delay is not an “infraction of such magnitude” that the court must appoint an arbitrator on that ground alone.

D. Whether the arbitration in the matter was an ‘International Commercial Arbitration’ under the ACA?

Perkins Eastman and Edifice were a consortium and thus ‘association’ under Section 2(1)(f) of the ACA. Perkins Eastman was the lead member. So, the central management and control of the association was exercised out of India (relying on Larsen and Toubro Limited SCOMI Engineering BHD v. Mumbai Metropolitan Region Development Authority, (2019) 2 SCC 271, a decision by RF Nariman & Navin Sinha JJ).

III. Editor’s note on the reasoning in TRF

First, the TRF court referred to the body of case laws cited by counsel: –

1. State of Orissa v. Commr. of Land Records & Settlement, (1998) 7 SCC 162 ^[8] [8] Where it was held that the Board of Revenue could not revise an order passed by its delegate, since the order would be treated as an order passed by the Board itself. Show More and other similar cases from administrative law, where considering some statutes on tenancy and land laws, the Supreme Court had held that an order passed by a delegate is, for specific purposes, an order given by the one who delegated.
2. Pratapchand Nopaji v. Kotrike Venkata Setty & Sons, (1975) 2 SCC 208 where two maxims were applied: (i) the latin maxim qui facit per alium facit per se (what one does through another is done by oneself), and (ii) what cannot be done directly may not be done indirectly.

These “aforesaid authorities”, the TRF court said, “have been commended to us to establish the proposition that if the nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself.”

Then the court held: “by our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per the prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without a plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated.”