FACTS
The dispute arose out of a design consultancy agreement entered into between the Respondent, HSCC (India) Ltd., and a consortium of the Applicants, Perkins Eastman Architects DPC, an architecture company based in New York, and Edifice Consultants Pvt. Ltd., formed in Mumbai, in pursuance of a tender process. Clause 24 was a part of the agreement that gave the Chairman and Managing Director (CMD) of the Respondent the authority to appoint an individual arbitrator in the event of a dispute.
Shortly after the signing of the contract, the Respondent protested default on the part of the Applicants in complying with contractual stipulations and served a stop-work order. The Respondent followed with a notice to terminate the contract. The Applicants, denying these allegations, invoked the arbitration clause through legal advisers. Under Clause 24, the Respondent was required to reply within 30 days but did not do so within the timeframe.
An application thereafter was filed by the Applicants with the Director (Engineering) of HSCC, which also fell on deaf ears. Thereafter, a letter dated 28.06.2019 was sent to the CMD requesting appointment of the arbitrator. Still more than 30 days later, the Chief General Manager and not the CMD appointed Major General K.T. Gajria as the sole arbitrator.
Questioning the propriety of such an appointment on the grounds of bias and ineligibility, the Applicants filed a petition before the Hon’ble Supreme Court under Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996, for the appointment of an independent and impartial arbitrator according to law.
ISSUE RAISED
- Whether the arbitration in the case at hand would be an International Commercial Arbitration or not.
- Whether an argument could be made in support of exercise of power by the Court for appointing an arbitrator.
CONTENTION
I. Contentions on behalf of the Applicants (Perkins Eastman Architects DPC and Edifice Consultants Pvt. Ltd.)
- That as per Clause 24 of the agreement, only the Chairman and Managing Director (CMD) of the Respondent had the authority to appoint a sole arbitrator. But it was done by a letter of the Chief General Manager, thus became null and void.
- That the Respondent did not make the appointment of an arbitrator within the given time limit of 30 days as required under Clause 24. Therefore, the Applicants were entitled to seek judicial appointment under Section 11(6) of the Arbitration and Conciliation Act, 1996.
- That the CMD, as a party interested in the case, could not appoint an arbitrator since doing so would violate the principle of impartiality. Emphasis was placed on the Supreme Court’s decision in TRF Ltd. v. Energo Eng’g Projects Ltd.
- That there must be an independent and impartial arbitrator appointed in order to uphold the tenets of natural justice and dispense justice in a fair manner.
- That the arbitration was an International Commercial Arbitration under Section 2(1)(f) of the Act, as the project leading member of the applicant consortium, Perkins Eastman, is a foreign firm with its base in New York.
II. Arguments on behalf of the Respondent (HSCC (India) Ltd.)
- That Major General K.T. Gajria was appointed purely in accordance with Clause 24 of the agreement, and no procedural irregularity was involved. The appointment was sanctioned by the CMD and merely passed on by the Chief General Manager.
- That the delay, if any, in the appointment process was not material since the period of requisition expired on a Friday and the appointment was issued on the next working day.
- That there was no contravention of Clause 24, and hence no opportunity arose for the exercise of the court’s jurisdiction under Section 11(6) and 11(12)(a) of the Act.
- That the dispute is not an International Commercial Arbitration since the two Applicants were liable jointly and severally for the completion of the project in terms of Clause 9 of the Consortium Agreement.
RATIONALE
The Hon’ble Supreme Court, in permitting the application under Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996 (“the Act”), established a concise reasoning based on statutory interpretation and binding precedent.
Initially, the Court held that the arbitration constituted an “International Commercial Arbitration” pursuant to Section 2(1)(f) of the Act. As the lead member of the applicant consortium, Perkins Eastman Architects DPC, is a New York corporation, the dispute met the jurisdictional test for a Section 11(12)(a) application to be sustainable in the Supreme Court.
Secondly, the Court referred to the character of the appointment of the arbitrator. Drawing heavily from its previous decision in TRF Ltd. v. Energo Eng’g Projects Ltd., it reasserted that a party with an interest in the determination of the dispute cannot appoint an individual arbitrator unilaterally. The Court insisted that allowing such unilateral appointments by an “interested” party would vitiate the principles of impartiality and neutrality enshrined in the current post-2015 Amendment legal regime.
The Court highlighted the intent of the legislation that introduced the Arbitration and Conciliation (Amendment) Act, 2015. The addition of Section 12(5) and the Fifth and Seventh Schedules in the Act demonstrates a seismic shift towards ensuring not just that arbitrators remain independent but also that they seem to be independent.
The Court drew support from Indian Oil Corp. Ltd. v. Raja Transport (P) Ltd., in which it had held that courts have the authority to override the process of appointment of arbitrators under contractual arrangements where there are reasonable doubts concerning the nominee’s impartiality. This reinforced the Court’s finding that the CMD of the Respondent, being institutionally interested in the dispute, could not appoint an arbitrator under Clause 24.
Lastly, the Court dismissed the idea that a contract appointment done late must preclude judicial interference. It elucidated that until the appointment is ex facie valid and meets the requirements for independence under Section 12 and the time limit under Section 11(6), courts need not regard it as a fait accompli. With this, the Court cancelled the appointment of the Respondent and appointed an independent arbitrator. It also ordered that the appointee in question should submit a declaration of impartiality pursuant to the amended Section 12 and meet the time-limit under Section 29A.
DEFECTS OF LAW
The Supreme Court’s judgment in Perkins Eastman Architects DPC v. HSCC (India) Ltd. attempted to preserve the essential values of objectivity and impartiality in arbitration, however, it has also faced criticism for extending the TRF precedent without the proper contextual distinction.
A key concern is that the Court failed to distinguish the facts of Perkins sufficiently from the facts in TRF Ltd. v. Energo Engineering Projects Ltd. In TRF, the question was whether a statutorily disqualified person from serving as an arbitrator can nominate someone else to stand in for him. The Court struck down such nomination on the basis of the maxim “qui facit per alium facit per se (he who cannot do something directly, cannot do so indirectly)”. Perkins was not concerned with the nomination by an ineligible party, but with unilateral appointment by a party with contractual authority. Extending TRF’s reasoning, the Court seems to have transformed a precedent confined to nominations by disqualified parties into a more general doctrine inhibiting all unilateral appointments. This interpretive step has arguably set a new benchmark not necessarily founded in the statute text.
Furthermore, the ruling creates doubt regarding the ongoing validity of the Supreme Court’s previous decision in Voestalpine Schienen GmbH v. Delhi Metro Rail Corp. Ltd., affirming a scheme in which one side offers a list of arbitrators and the other chooses from the offered list. While Voestalpine judgment was based on the concept of “controlled mutuality,” the Perkins ruling muddies the boundaries of acceptable consent-based appointments. If mere interest or connection to the institution is now enough to render even contractually provided appointment mechanisms invalid, Voestalpine might be on uncertain footing unless otherwise reconciled.
Others have also criticized the Court for effectively having taken up judicial legislation. Neither the 2015 Amendment Act nor the 2019 Amendment had outlawed unilateral appointments; they rather established minimum standards of independence and supplemented those with procedural safeguards. Had the legislature wished to prohibit all such agreements, it could have done so. Without making such a legislative action, the Court’s decision can be seen as judicially legislating a new category of disqualification, potentially disturbing scores of arbitration clauses in current contracts—particularly those involving government entities and banking institutions.
INFERENCE
The Perkins Eastman v. HSCC judgment is a major turning point towards enhancing fairness and impartiality in arbitral hearings of disputes in India. By nullifying unilateral appointments by the concerned party, the Supreme Court has enhanced procedural safeguards and aligned Indian arbitration law closer to global trends of impartiality.
In practice, the ruling will compel parties in sectors like infrastructure, finance, and government procurement to reconsider standard arbitration clauses. Powers of appointment that work on the sole discretion of a party can now become unenforceable, and more need for equitable mechanisms like mutual consent or institutional arbitration.
This decision also provides basis for the courts to examine not just the form but the equity of appointment processes, going beyond contract text to structural justice. As institutional arbitration is a new field of law in India, The Perkins case is in effect asking for reform and embracing of it.
In the future, the choice could have an influence on both draft directions and future judicial construction, and further legislative input may be required on scope and limits of party autonomy in selecting arbitrators.
CONCLUSION
The decision of the Supreme Court in Perkins Eastman v. HSCC lays down a significant principle: a party with an interest in the case cannot unilaterally designate the sole arbitrator. This promotes fairness and impartiality in arbitration and is particularly pertinent in unequal bargaining power contracts.
Although the judgment advances procedural integrity, it is also problematic. The Court’s extensive use of precedent opens up questions on the boundaries of party autonomy and the legitimacy of popular appointment mechanisms. It raises questions on whether parties can opt out or adopt hybrid appointment paradigms.
In practice, the ruling has created more vigilance over arbitration clauses and encouraged parties to opt for neutral or mutual appointments. While institutional arbitration is still underdeveloped in India, the decision promotes its growth.
On balance, the ruling is a step toward balanced arbitration but requires greater precision in both contract drafting and statutory interpretation.
Author: Raagya Vashishtha
Vivekananda Institute of Professional Studies – Technical Campus, Pitampura