03 January 2020, Friday

Legal principles on appointment of sole arbitrator summarised (Bombay High Court)

by Editor

Lite Bite Foods Pvt. Ltd. v. Airports Authority of India

Court: Bombay High Court | Case Number: COMM ARB APP (L) No. 495 of 2019 | Citation: 2019 SCC OnLine Bom 5163 | Bench: GS Patel J | Date: 04 December 2019

The principle enunciated by the Supreme Court in Perkins Eastman Architect DPC v. HSSC (India) Ltd., 2019 SCC OnLine SC 1517 was invoked in this case. In Perkins, taking forward the principle of TRF Limited v. Energo Engineering Limited, (2017) 8 SCC 377, the Supreme Court had ruled that a party (or any official of the party) or anyone having an interest in the dispute cannot unilaterally appoint a sole arbitrator.

See our update on Perkins here.

The arbitration clause in Lite Bite provided that any dispute “shall be finally decided by reference to arbitration by a Sole Arbitrator to be appointed by the tender approving authority as per AAI delegation of power in vogue”. Was this clause hit by the Perkins principle? Yes, it was, the court concluded.

A. The facts

Lite Bite nominated its sole arbitrator; AAI appointed another. Lite Bite rejected AAI’s appointment as statutorily impermissible. According to it, a sole arbitrator could be appointed only (i) by mutual consent of the parties or (ii) by an order of a High Court in a commercial arbitration petition.

Lite Bite then filed a petition under Section 11 of the Arbitration and Conciliation Act. 1996 (“ACA”) for the appointment. It argued that the choice by AAI of a person from a panel that it has itself drawn up, and to which Lite Bite never consented, violates Section 12(5) and the Seventh Schedule of the ACA. Further, the non obstante clause in Section 12 overrides any previous agreement permitting a unilateral appointment by one side.

B. The court’s decision

The court held that the clause was hit by the Perkins principle: – “I see no means to separate or distinguish the case at hand from Perkins Eastman at all. It is entirely within the frame of that decision.”

It rejected the argument that Perkins was per incuriam (as contrary to a previous two-judge bench decision in Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665.

The court examined the law and summarised the legal principles: –

  1. An officer or employee of one party cannot be the arbitrator or the person empowered to appoint an arbitrator. This is the TRF category or rule.
  2. Where the arbitration clause provides for nomination by each side, and for the appointment of an umpire by the two nominee arbitrators, of a person from a panel: (i) that panel cannot be hand-picked by one side; and (ii) it must be broad-based and inclusive, not narrowly tailored to persons from a particular category. The opponent and the two nominee arbitrators must have the plenitude of choice. This is the rule in Voestalpine. Conceivably, a broad-based panel commonly agreed in the contract by both sides would serve the purpose.
  3. A clause that confers on one party’s employee the sole right to appoint an arbitrator, though that employee is not the arbitrator, is also not valid, and this is a logical and inescapable extension of TRF. It makes no difference whether this power is to be exercised by choosing from a panel or otherwise. This is the rule in Perkins.
  4. The court also then remarked that the guiding principle is neutrality, independence, fairness, and transparency even in the arbitral-forum selection process.

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