As with any legal proceeding, an arbitrator’s impartiality and independence is the bedrock of a fair and valid arbitration proceeding. In its recent decision in the case of Margo Networks Pvt Ltd & Anr. v. Railtel Corporation of India Ltd (“Margo v. Railtel”),[1] the Hon’ble High Court of Delhi exercised its powers under Section 11 of the Arbitration and Conciliation Act, 1996 (“Act”), with the intention to highlight the importance of appointing arbitrators in a manner that is unbiased and does not favour any one party.
The Court examined various decisions of the Hon’ble Supreme Court as well as the Hon’ble High Court of Delhi to determine the validity of the appointment process of the arbitral tribunal.
The Court also delved into other aspects such as when it may be appropriate to make a party choose from a specific panel of arbitrators, as per applicable law, and whether one party can appoint majority of the arbitral tribunal members. This article analyses the impact of the decision on India’s arbitration regime.
FACTUAL BACKGROUND OF THE PROCEEDINGS
The issue in Margo v. Railtel was the arbitration clause in a Request for Proposal (“RFP”). The Petitioner could nominate one arbitrator from a panel of arbitrators provided by the Indian Railways. The Respondent had the power to not only appoint the remaining two arbitrators (from the panel or otherwise) but also indicate the Presiding Arbitrator out of the three.[2]
Margo raised a demand-cum-invocation notice raising certain claims against Railtel and also assailed the RFP’s dispute resolution mechanism on the aspect of appointment of the arbitrator as being “one-sided, onerous and contrary to the law…”.[3] Railtel insisted upon strict compliance with the RFP, asking Margo to appoint its nominee arbitrator from the panel maintained by the Indian Railways. This panel had a total of ten arbitrators, all of whom were former employees of either the Indian Railways or Railtel.[4]
Margo approached the Hon’ble High Court of Delhi under Section 11 of the Act seeking constitution of an independent arbitral tribunal consisting of three arbitrators to adjudicate the disputes between the parties.
ANALYSIS BY THE COURT BASED ON PRECEDENTS
The Court examined and rejected Railtel’s reliance on the judgment of Central Organization for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) a Joint Venture Company (“CORE”)[5] and clarified its applicability. CORE had held that constitution of the tribunal should strictly be in accordance with the terms of the contract, and merely because arbitrators in a panel consist of names of retired employees of the Indian Railways, the same does not make them ineligible. The Court held that certain critical question raised in that case were not covered in CORE, and therefore, the said judgment was distinguishable.[6] Discussed below is the Court’s summarization of the issue into two relevant parts — i) the requirement of having a ‘broad-based’ panel of arbitrators; and ii) the need to ‘counter-balance’ the advantages that parties may have while appointing arbitrators.
Panels to choose arbitrators from should be ‘broad-based’
The Court relied on Voestalpine Schienen Gmbh v. Delhi Metro Rail Corporation Ltd.,[7] wherein it was held that giving a panel of five names from which a party had to nominate its arbitrator was restrictive, creating room for suspicion over the selected names. It was further held that the two arbitrators chosen by the parties should be free to choose the third arbitrator and the panels should not be restricted to appointing serving or retired government employees. Such panels should also consist of lawyers, judges as well as prominent engineers from the private sector.
While relying upon various other judgments which had upheld this view,[8] the Court observed that the panel shared in the case had only ten names, all of whom were ex-Railway and RailTel employees, therefore not meeting the ‘broad-based’ requirement..[9] If this requirement is not met, it is incumbent upon the courts under Section 11 of the Act to appoint an impartial arbitrator.[10]
The ‘counter-balance’ requirement of the landmark Perkins judgment
In significant judgments of Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.[11] (which follows the landmark decision in TRF Limited v. Energo Engineering Projects Limited,[12] holding that unilateral appointments of arbitrators are not valid), the Hon’ble Supreme Court held that where both parties could nominate their respective arbitrators, whatever advantage one party may derive from nominating an arbitrator of its choice, the other party ought to be able to ‘counter balance’ that advantage by an equal power.[13]
While determining this aspect in Margo v. Railtel, the Court examined various judgments on the aspect of counter balancing where one of the parties had the power to appoint 2/3rd of the arbitral tribunal.[14] Thereafter, the Court thereafter concluded that in the case at hand, where one of the parties has a right to choose from a panel and where the remaining two out of three arbitrators are appointed by the other party, the test of counter balancing as laid down in Perkins is not met.[15]
Exercise of powers under Section 11
In view of its findings on the requirements of broad-based panels for appointing arbitrators and a need for counter balancing the advantages of both parties involved in an arbitration, the Hon’ble High Court of Delhi exercised its powers under Section 11 of the Act and appointed two former judges of the Supreme Court as arbitrators to adjudicate the disputes between the parties. Further, the two arbitrators were also directed to concur to appoint the third and presiding arbitrator.[16]
CONCLUSION: A DECISION FURTHERING PARTY EQUALITY
Earlier this year, the Hon’ble Calcutta High Court had also come down strongly against the practice of unilateral appointment of arbitrators, considering them biased and prejudiced, particularly the frequency with which it was done by banking institutions,.[17] In another recent decision, the Hon’ble High Court of Delhi allowed a petition under Section 34 of the Act for setting aside the award due to apparent bias and the clear propensity of the arbitrator to decide a matter in a particular way. The Court found justifiable concerns related to the arbitrator’s neutrality on account of information available.[18]
The decision in Margo v. Railtel only further cements the tests laid down to assess the issues of independence, neutrality and impartiality of the arbitrator(s). The Indian legal position has become quite unshakeable in this regard – justifiable doubts about the independence and impartiality of arbitrators shall be considered seriously and, in such cases, deviation from the contractual procedure of appointment of arbitrators is permissible, paving way for the courts to take upon the duty of appointment of arbitrators. This robust mechanism to protect the parties to an arbitration from partial or biased adjudicators is in keeping with the international arbitration regime and institutional rules that have also prescribed the standard of ‘justifiable doubts’ to ascertain the impartiality and independence of arbitrators.
For further information, please contact:
Gauhar Mirza, Partner, Cyril Amarchand Mangaldas
gauhar.mirza@cyrilshroff.com
[1] ARB. P. NO. 400 / 2022 [Judgment dated 10.07.2023; Delhi HC].
[2] Ibid., Para 4.
[3] Ibid., Para 5.
[4] Ibid., Para 6.
[5] (2020) 14 SCC 712
[6] Ibid., Para 11-20.
[7] (2017) 4 SCC 665
[8] SMS Limited v. rail Vikas Nigam Limited, 2020 SCC OnLine Del 77; Simplex Infrastructure Ltd. v. Rail Vikas Nigam Limited, 2018 SCC OnLine Del 13122; Overnite Express Limited v. Delhi Metro Rail Corporation, 2022 DHC 3144; BVSR-KVR (Joint Ventures) v. Rail Vikas Nigam Ltd., 2020 SCC OnLine Del 456; Consortium of Autometers Alliance Ltd. and Canny Elevators Co. Ltd. v. Chief Electrical Engineer / Planning, Delhi Metro Rail Corporation, 2021 DHC 68; M/s Singh associates v. Union of India, 2022 DHC 004244; Gangotri Enterprizes Ltd. v. General Manager Northern Railways, 2020 DHC 4520; L&T Hydrocarbon Engineering Limited v. Indian Oil Corporation Limited, 2020 DHC 004531.
[9] Supra Note 1, Para 28.
[10] Ibid., Para 35.
[11] 2019 SCC OnLine SC 1517
[12] (2017) 8 SCC 377
[13] Supra Note 10, Para 21.
[14] M/s CMM Infraprojects Ltd. v. IRCON International Ltd., 2021 DHC 2578; Pankaj Mittal v. Union of India, Arb. P. No. 607/2021 [Order dated 16.12.2021, Delhi HC].
[15] Supra Note 1, Para 42.
[16] Ibid., Para 43.
[17] Cholamandalam Investment & Finance Company Ltd. v. Amrapali Enterprises, EC No. 122 / 2022 [Judgment dated 14.03.2023, Calcutta HC]
[18] Microsoft Foundation v. Zoai Founder, OMP (Comm.) No. 188/2019 [Judgment dated 03.07.2023, Delhi HC]
