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Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.

Arbitration Application · 2019 INSC 1285Decided 26 Nov 2019
Arbitration Application No. 32 of 2019
Justice Uday Umesh Lalit · Justice Indu Malhotra

Background

A consortium led by Perkins Eastman Architects DPC was engaged by HSCC (India) Ltd., a government body, to design All India Institute of Medical Sciences campuses at Guntur and Nagpur under contracts that gave HSCC's Chairman and Managing Director (CMD) the power to appoint a sole arbitrator for any disputes. After disputes arose, HSCC's own officer appointed a sole arbitrator unilaterally under this contractual clause. Perkins Eastman challenged this appointment and approached the Supreme Court under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking appointment of an independent arbitrator instead, arguing that a party with a direct stake in the dispute should not get to unilaterally pick the arbitrator.

Decision Breakdown

The Supreme Court annulled HSCC's unilateral appointment of the arbitrator and itself appointed a former Supreme Court judge (Dr. Justice A.K. Sikri) as the sole arbitrator for both the Guntur and Nagpur disputes. Building on its earlier ruling in TRF Ltd. v. Energo Engineering Projects Ltd. (which held that a person rendered ineligible to act as arbitrator cannot nominate another arbitrator either), the Court extended the same logic to a situation where the authority given to one party's CMD to unilaterally appoint the sole arbitrator inherently carries an element of exclusivity and favours that party's own interest, undermining the essential requirement of impartiality in the appointment process itself, regardless of whether the appointed arbitrator personally has a Seventh-Schedule disqualification. The Court held that where one party alone controls the appointment of the arbitrator, it offends the basic principle that no one should be a judge in their own cause, justifying the Court stepping in to make an independent appointment.

Lesson Learnt

A contract clause letting one side to a dispute single-handedly choose the arbitrator is now vulnerable to being struck down as inherently biased, even if that clause was validly agreed to at the time of contracting: commercial parties (especially those dealing with government bodies or large corporations) should insist on neutral, mutually-agreed arbitrator-appointment mechanisms.

Official source (sci.gov.in)View Judgment (PDF)

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