Author: Kunal Pratap Singh, Lloyd Law College
Introduction
ADR procedure is contemplated to be the methodology in which the complementary justice mechanism technique is qualitatively distinct from the judicial process. It is a process where disputes are settled with the assistance of a neutral third person generally of parties, own their choice who acted as arbitrator who make sure to collide both the party perspective on the same track through negotiation based tunnel, where more to less the intercessor is generally familiar with the nature of the dispute and the context in which such disputes normally arise; when we deep down to know what is key Aspects of Informality in Arbitration proceeding then we come to know mostly proceedings are generally considered less formal than traditional court litigation where the high degree of flexibility and party autonomy are seen as a key features that distinguish it from the strict rules and procedures of a courtroom, Consequently of it frugality and thriftiness, affiliation plunge in triumphant of arbitral proceeding; arbitral proceeding also seen to be flexible and centroidal toward party autonomy; where the confidentiality of the issue under adjudication of the divergence is persevered in material respects; where decision making process aims is to maintain the integrity of substantial justice, keeping in view the interests involved B and the contextual realities.
In substance the ADR process aims at rendering justice in the form and content which not only resolves the dispute but tends to resolve the conflict in the relationship of the parties which has given rise to that dispute. this article is stirring up strong feelings that the arbitrability with its unconscionability test of favouring a dominant party as one sided clause which nullify the doctrine of equal footing. This article aim is to analyses Clause 24 of the contract in Perkins Eastman to understand how the Supreme Court addressed the conflict between party autonomy and fairness in arbitral proceedings. Perkins Eastman judgement not only rest upon the established jurisprudential precedent concerning the imperative of arbitrator impartiality, but also elucidates and significantly expands the doctrinal contours of the law by unequivocally affirming that a person who is ineligible to act as an arbitrator under the statutory scheme is concomitantly divested of the authority to unilaterally constitute the arbitral tribunal.
Furthermore, the ruling reinforces the principle that the court processes interventionary and supervisory competence under section 11, particularly circumstances where the purported appointment is ex facie invalid, vitiated by ineligibility, or rendered void ab initio.
Clause 24 and Its Mechanism:
Clause 24 of the contract constitutes a comprehensive multi-tiered dispute resolution mechanism governing any controversy, claim, or disagreement arising out of or in relation to the contract. It delineates the procedure for internal adjudication and subsequent arbitration between the Applicants (Perkins eastman) and Respondent (HSCC). In the instant case an executing agency of Ministry of Health and Family Welfare, the respondent was desirous of comprehensive architectural planning and designing for the works provided under Pradhan Mantri Swasthya Suraksha Yojna (PMSSY) therefore a request for Proposals bearing RFP No.HSCC/3-AIIMS/Guntur/2016 was issued on 15.07.2016 for appointment of Design Consultants for the “comprehensive planning and designing for the proposed All India Institute of Medical Sciences at Guntur, Andhra Pradesh.
In response to the RFP, the consortium of the Applicants, namely, Perkins Eastman Architects DPC, an Architectural firm having its registered office in New York entered into a contract which incorporated that any disputes or difference arising out of contract shall be referred to arbitral proceeding under clause 24 and this clause of the contract delineated a unilateral dispute-resolution mechanism, stipulating that any controversy arising between the parties would be referred to a sole arbitrator, who – under the clause – was none other than the chairman – cum – managing director of HSCC (India) Ltd.. The inherent infirmity in this clause stems from the fact that it vested adjudicatory authority in an officer who was himself integrally connected with one of the contracting parties, thereby offending the foundational principle that no persons can be a judge in his own cause (nemo judex in cause sua). Such a mechanism eviscerates the essence of neutrality, confidentiality, and impartiality that undergird arbitral proceedings, rendering the clause manifestly arbitrary and, by necessary implication unenforceable in law. The core dispute thus emanated from the invalidity of Clause 24, which conferred exclusive competence upon the chairman and managing director to appoint a sole arbitrator. The respondents contended that the appointment of Major General K.T. Gajria as the sole arbitrator was made strictly in consonance with clause24, and therefore could not be impugned. Conversely, the applicant argued that the respondent had failed to appoint a legally eligible arbitrator within the statutorily prescribed period, thereby triggering the court’s jurisdiction under Section 11 of the arbitration and conciliation act.
Another pivotal contention raised by the applicant was that the dispute constituted an international commercial arbitration, Since Perkins Eastman Architects DPC, the lead member of the consortium, was a foreign entity.
The respondents vehemently disputed this, asserting that the matter could not be classified as an international commercial arbitration because both consortium members were jointly and severally liable for the execution of the project, and that the presence of one foreign entity did not alter the essential character of the dispute. Thus, the central issues before the supreme court were twofold: one is whether the arbitration in the present matter qualified as an “International commercial arbitration” under the statutory framework, and whether the court possessed the jurisdiction to appoint an arbitrator under Section 11, given that the appointment made under Clause 24 was ex facie tainted by ineligibility and conflict of interest. It cannot be denied that clause 24 become unconscionable and contrary to natural justice by mandator internal escalation mechanism which compelling to exhaust internal remedies before seeking independent adjudications which is nullifying the doctrine of equal footing and the autonomy of arbitral tribunal. It is pertinent to note that HSCC purportedly appointed major General K.T. Gajria as the sole arbitrator.
Judicial Scrutiny: The Supreme Court’s Analysis
The initial contention presented by Mr. Amar Dave learned advocate for the applicants emphasize case in point of [Walter Bau AG, Legal Successor of the Original Contractor, Dyckerhoff and Widmann, A.G. v. Municipal Corporation of Greater Mumbai and another and TRF Limited v. Energo Engineering Projects Limited in support of the submissions. Mr. Dave, also relied upon the decision of this Court in Larsen and Toubro Limited SCOMI Engineering BHD v. Mumbai Metropolitan Region Development Authority to bring home the point that the arbitration in the present matter would be an International Commercial Arbitration.
Mr. Guru Krishna Kumar, learned Senior
Advocate appearing for the respondent submitted that Director failed to appoint the sole arbitrator within 30 days of the requisition dated 28.06.2019 and that it was the Chief General Manager of the respondent who purportedly made the appointment of sole arbitrator on 30.07.2019 and Secondly, the appointment was actually made by the Chairman and Managing Director but was conveyed by the Chief General Manager, and as such the alleged infirmities were completely non-existent. He further submitted that arbitration, if any, in the instant matter would not be an International Commercial Arbitration. (Alert, 2019), Supreme Court pondered upon this juridical conundrum and articulated its position on how arbitrability and unconscionable clauses must be structured so that, in the future, such provisions never become instruments that vitiate arbitral neutrality or undermine the integrity of the adjudicatory satisfied, and since the lead members of the consortium – Perkins Eastmans Architects DPC – was registered in New York, the competent jurisdiction of the presents matter indisputably fell within the ambit of international commercial arbitration.
In the second limb of reasoning, the supreme court underscored that the court, as the apex as the apex adjudicatory authority, possesses expansive supervisory jurisdiction to appoint an arbitrator who is scrupulously neutral and disinterested in relation to both parties. In doing so, the Court placed reliance on the seminal judgment in TRF Ltd. v. Energo Engineering Projects Ltd. (2017), wherein it was categorically held that any individual who has even a vestige of interest in the outcome of the dispute—or who is otherwise disqualified or statutorily ineligible—is divested of the competence to appoint a sole arbitrator. Permitting such a person to constitute the tribunal would amount to eviscerating the core ethos of arbitral proceedings, namely neutrality, independence, confidentiality, and procedural fairness.
Further, the Supreme Court invoked the principles crystallized in the Indian Oil Corporation case, reiterating that if the Court discerns a reasonable apprehension of bias, or if the nomination of an arbitrator is prima facie tainted by partiality, then the Court retains unfettered jurisdiction to intervene and appoint an independent and impartial arbitrator. Such intervention is not only justified but jurisprudentially mandated to safeguard the sanctity and doctrinal purity of the arbitral process.
Conclusion
A judgment from a court serving as a binding precedent for the principle of natural justice of “nemo judex in causa sua” that is ‘no one should be made a judge in his own case’ which provide us with a judicial decision that acts as an authority for future cases with similar legal questions and with a clear picture that arbitration proceedings should be bounded with fairness, impartiality, unbiasedness. this case filled the role of expansion of Section 24 of arbitration and conciliation Act, 1996 which provide us with a remedies of multi-tiered dispute resolution mechanism that govern any controversy, claim, or disagreement arising out of or in relation to the contract parties can cp-opt for an arbitrator to resolve that altercation among them. This case not only scrutinized about the business deal dispute between the two parties apart form that it reviewed the clause 24 unconscionable and contrary principle to the natural justice by mandator internal escalation mechanism which compelling to exhaust internal remedies before seeking independent adjudications which is nullifying the doctrine of equal footing and the autonomy of arbitral tribunal. Supreme Court made clear that the Managing Director of the respondent would be a person having direct interest in the dispute and as such could not act as an arbitrator. The extension of the submission was that a person who himself was disqualified and disentitled could also not nominate any other person to act as an arbitrator which language employed in seventh schedule. And forwarded the approach of TRF Ltd v. Energo Engineering project Ltd. herein the Supreme Court held that a person who himself is ineligible under the provisions of the Amendment Act to be appointed as an arbitrator, cannot himself/herself nominate a sole arbitrator.
FAQS
What were the key reasons the Supreme Court found Clause 24 of the Perkins Eastman–HSCC contract to be unconscionable and contrary to natural justice?
Answer – The Supreme Court considered Clause 24 of the contract between Perkins Eastman and HSCC to be fundamentally unfair because it vested HSCC’s Managing Director with the exclusive right to appoint the sole arbitrator, even though HSCC was itself a disputing party. This unilateral power created a serious conflict of interest and undermined the basic rule of natural justice that no party can influence the determination of a dispute in its own favour. The Court emphasized that the clause was imposed in a setting where HSCC had greater bargaining strength, rendering the term oppressive and inconsistent with the standards of fairness mandated by the 2015 amendments, which aim to ensure arbitrator impartiality and independence.
How did the Supreme Court determine whether the dispute qualified as an “International Commercial Arbitration,” and what role did the foreign entity in the consortium play in this classification?
Answer – To determine whether the arbitration qualified as an International Commercial Arbitration, the Supreme Court examined the composition of the consortium and the nationality of its members under Section 2(1)(f) of the Arbitration and Conciliation Act, 1996. Since Perkins Eastman Architects DPC was incorporated in the United States, its participation as a consortium partner automatically introduced a foreign element into the contractual relationship. This foreign corporate presence was sufficient for the Court to conclude that the dispute involved at least one party of non-Indian nationality, thereby satisfying the statutory test for ICA classification and giving the Supreme Court jurisdiction to appoint an arbitrator under Section 11.
In what way did the Court apply the principles from TRF Ltd. V. Energo Engineering Projects Ltd. To conclude that the Managing Director of HSCC could neither act as nor appoint the sole arbitrator?
Answer – In arriving at its conclusion, the Court leaned heavily on the principle from TRF Ltd. V. Energo Engineering Projects Ltd., which held that a person who is himself disqualified from acting as an arbitrator cannot appoint another arbitrator. The Supreme Court reasoned that allowing such a person to appoint would indirectly permit them to influence the arbitration, defeating the purpose of the impartiality safeguards in Section 12(5). Since HSCC’s Managing Director was undeniably an interested party in the dispute, he was automatically ineligible both to serve as arbitrator and to make any appointment on behalf of the company. This interpretation ensured that the spirit of neutrality embedded in the Act was preserved.
What were the main arguments presented by both parties regarding the legality and validity of the appointment of Major General K.T. Gajria as the sole arbitrator?
Answer – Both sides advanced sharply contrasting arguments regarding the legality of appointing Major General K.T. Gajria as sole arbitrator. Perkins Eastman contended that the appointment was invalid because it stemmed from an authority—the Managing Director—who was disqualified under the law due to a vested interest in the dispute. They insisted that any appointment made through such a tainted process was void from the outset. HSCC, on the other hand, argued that it merely exercised a contractual right conferred by Clause 24, emphasizing that the appointed arbitrator was an independent individual with no ties to HSCC. Despite this, the Supreme Court rejected HSCC’s defence, finding the appointment unsustainable because the MD lacked the legal competence to initiate the process.
How does this judgment reinforce the importance of neutrality, independence, and party autonomy in arbitration proceedings under the Arbitration and Conciliation Act, 1996?
Answer – This decision sends a strong message about the centrality of neutrality and impartiality in arbitration. The Court clarified that party autonomy, though a foundational principle of the Arbitration and Conciliation Act, cannot be stretched to justify procedures that compromise the fairness of the process. By invalidating unilateral appointments and emphasising strict compliance with qualification standards for arbitrators, the judgment upholds the requirement that arbitral tribunals must be free from any appearance of bias. It also aligns Indian arbitration jurisprudence with international best practices, reinforcing the reforms introduced through the 2015 amendments and promoting increased confidence in the integrity of arbitration proceedings.
