Case at a Glance
A consortium hired to design AIIMS hospital projects fell into a dispute with HSCC, a public sector executing agency. Their contract let HSCC’s Chairman-cum-Managing Director alone appoint a sole arbitrator, and HSCC duly appointed one. Extending its earlier ruling in TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 07 SC CK 0117, the Supreme Court held that a party with an interest in the outcome of the dispute, who is itself ineligible to act as arbitrator, cannot have the power to appoint a sole arbitrator either. It annulled HSCC’s appointment and appointed a former Supreme Court judge as sole arbitrator.
HSCC (India) Ltd., an executing agency of the Union Ministry of Health and Family Welfare, invited bids for design consultancy for new AIIMS projects. A consortium led by Perkins Eastman Architects DPC, a New York firm, with Edifice Consultants of Mumbai, won the work for AIIMS Guntur and signed the agreement on 22 May 2017. After stop-work and termination notices, the consortium invoked the dispute resolution clause on 11 April 2019, raising claims of about Rs. 20.95 crore.
Clause 24 of the contract provided that disputes would be referred to a sole arbitrator appointed by HSCC’s Chairman-cum-Managing Director, and that no other person could act as arbitrator. When the consortium asked for an appointment, HSCC appointed a sole arbitrator of its choice on 30 July 2019. The consortium applied to the Supreme Court under Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996, asking the Court to appoint an independent arbitrator. Two identical applications concerned AIIMS Kalyani and AIIMS Nagpur.
The Key Question Before the Court
Can a party to a contract that has an interest in the outcome of the dispute — and is therefore ineligible to act as arbitrator itself — unilaterally appoint the sole arbitrator?
From TRF to Perkins: Why Interest Taints the Power to Appoint
Justice Uday Umesh Lalit, writing for the Bench, first held that since the lead member of the consortium was registered in New York, the arbitration was an ‘international commercial arbitration’ under Section 2(1)(f), following Larsen and Toubro Ltd. v. Mumbai Metropolitan Region Development Authority, (2018) 10 SC CK 0027. On delay, the Court noted that “Technically, the appointment was not within the time stipulated” but held that a delay of one working day alone would not justify interference.
The real question was neutrality. In TRF Ltd. v. Energo Engineering Projects Ltd., the Court had held that a Managing Director who was himself ineligible under Section 12(5) read with the Seventh Schedule could not nominate an arbitrator, because “Once the infrastructure collapses, the superstructure is bound to collapse.” The Court extended that logic: the disqualification flows from the interest that the person or party has in the outcome of the dispute, so whether the interested party acts as arbitrator or merely as the appointing authority, the result is the same. A person with an interest in the dispute “must not have the power to appoint a sole arbitrator.” The Court distinguished contracts in which each party nominates its own arbitrator, where the advantage one party gets is counter-balanced by the other’s equal power; a sole-arbitrator clause gives exclusive control to one side. Relying on Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd., (2017) 02 SC CK 0087 — “Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings” — and Walter Bau AG v. Municipal Corporation of Greater Mumbai, (2015) 01 SC CK 0099, it held that an appointment which is not ex facie valid cannot be treated as a fait accompli barring Section 11(6) relief.
What the Court Actually Held
- The arbitration was an international commercial arbitration because the lead consortium member was a foreign-registered firm.
- A person or party having an interest in the outcome of the dispute, who would be ineligible to act as arbitrator under Section 12(5), cannot have the power to appoint a sole arbitrator.
- This principle does not apply in the same way where each party nominates its own arbitrator, since the parties’ powers counter-balance each other.
- HSCC’s appointment letter of 30 July 2019 was annulled; the Court appointed Dr. Justice A.K. Sikri, former Judge of the Supreme Court, as sole arbitrator, subject to the Section 12 declaration and the Section 29A time limit, with fees per the Fourth Schedule shared equally; identical directions issued in the two connected applications.
Why This Judgment Matters
- It closed the loophole left by TRF, under which interested parties avoided being arbitrators themselves but continued to choose the sole arbitrator.
- It made neutrality in arbitrator appointments a practical reality for contractors and individuals dealing with public sector bodies and large corporations.
- It is among the most cited Supreme Court decisions on Section 11 applications and arbitrator independence.
What Should Advocates Take Away From the Judgment?
For Contractors and Businesses
- If your contract lets the other side alone choose the sole arbitrator, that appointment may be challenged as invalid.
- You can ask the court under Section 11 to appoint an independent arbitrator instead.
- Raise the objection promptly; do not participate in a way that could be treated as waiver without seeking legal advice.
For Counsel
- Distinguish sole-arbitrator clauses (unilateral control) from three-member tribunals where each side nominates one arbitrator.
- Combine Perkins Eastman, (2019) 11 SC CK 0071 with TRF and Section 12(5) with the Seventh Schedule; note that ineligibility under Section 12(5) can be waived only by an express agreement in writing after disputes arise.
- Check later developments, including the Constitution Bench decision in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) (decided 8 November 2024), before advising on unilateral appointment clauses.
Key Takeaways
- An interested party cannot appoint a sole arbitrator.
- What disqualifies the arbitrator also disqualifies the appointer.
- Party-nominated arbitrators in a balanced three-member tribunal stand on a different footing.
- Courts can annul a one-sided appointment and appoint an independent arbitrator under Section 11.
Frequently Asked Questions
Is a clause allowing one party to appoint the sole arbitrator void?
After Perkins Eastman, an appointment made under such a clause by a party interested in the dispute is not valid, and the court may appoint an independent arbitrator instead.
Does this apply if each party appoints one arbitrator?
No, the Court distinguished such clauses because the power of one party is counter-balanced by the equal power of the other.
Who became the arbitrator in this case?
The Supreme Court appointed Dr. Justice A.K. Sikri, a former Judge of the Supreme Court, as sole arbitrator in all three applications, with fees as per the Fourth Schedule shared equally by the parties.
Conclusion
A design consortium building India’s new AIIMS hospitals found that its contract let the other side choose the only person who would judge their dispute. The Supreme Court refused to accept that arrangement, holding that the taint of interest which bars a party from being an arbitrator equally bars it from appointing the sole arbitrator.
Practical takeaway: When the opposite party unilaterally appoints a sole arbitrator, consider a Section 11 application citing Perkins Eastman and TRF — while checking the latest Constitution Bench position on unilateral appointment clauses.
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