Bhayana Builders Pvt. Ltd. v. Oriental Structural Engineers Pvt. Ltd.
Background
A sub-contract between the two companies contained a clause letting the Managing Director of the respondent company unilaterally nominate a sole arbitrator to resolve any disputes. When a dispute arose, the appellant sought to terminate that arbitrator's mandate before the Delhi High Court, arguing that a person who is himself ineligible to be an arbitrator (like a company's own Managing Director, who has a stake in the dispute) cannot be allowed to unilaterally pick someone else as arbitrator either. The High Court rejected this plea, relying on the law as it stood at the time.
Decision Breakdown
By the time the appeal reached the Supreme Court, a Constitution Bench of the Court (in the CORE v. ECI SPIC SMO MCML case) had settled the law, confirming and expanding on the Court's earlier rulings in TRF Ltd. and Perkins Eastman: a unilateral arbitrator-appointment clause raises justified doubts about independence and impartiality and denies the other party equal say in the process. Applying this, the Supreme Court held that since the Managing Director himself was legally ineligible to be an arbitrator under Section 12(5) of the Arbitration and Conciliation Act, he could not nominate someone else as sole arbitrator either. It terminated the arbitrator's mandate and referred the matter to the Delhi International Arbitration Centre to appoint a fresh, neutral arbitrator.
Lesson Learnt
A contract clause that lets only one side pick the arbitrator, especially through someone with a personal or corporate stake in the dispute, is now firmly invalid in Indian law; both parties are entitled to an equal say in choosing a neutral decision-maker.