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TMI Blog2024 (11) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... Goel, Adv., Ms. Harsha Tripathi, Adv., Mr. Aditya Nath, Adv., Mr. Shreyas Ranjan, Adv., Mr. S. Ravi Shankar, AOR, Mrs. Yamunah Nachiar, Adv., Ms. Ruhini Dey, Adv., Ms. Meghna Mukherjee, Adv., Ms. Priyanka, Adv., Mr. Sanjeev Kumar Kapoor, Adv., Mrs. Vanita Bhargava, Adv., Mr. Madhav Khosla, Adv., Mr. Rohit Ghosh, Adv., M/S. Khaitan & Co., AOR, Mr. R. Anand Padmanabhan, Sr. Adv., Ms. Ruchi Arya, Adv., Mr. Arimardham Sharma, Adv., Ms. Divya Swami, Adv., Mr. Nikhil Swami, AOR, Mr. Arvind Kamath, A.S.G., Mr. Pai Amit, AOR, Ms. Pankhuri Bhardwaj, Adv., Mr. Nikit Bala, Adv., Mr. Abhiyudaya Vats, Adv., Mr. Nikhil Pahwa, Adv., Mr. Kushal Dube, Adv., Mr. Tathagata Dutta, Adv., Mr. S.K. Gangele, Sr. Adv., Ms. Priya Sharma, Adv., Mr. Prathvi Raj Chauhan, AOR and Mr. Arjun Sain, Adv. For the Respondent : Mr. Gourab Banerji, Sr. Adv., Mr. George Pothan Poothicote, Adv., Ms. Manisha Singh, Adv., Ms. Jyoti Singh, Adv., Mr. Prakarsh Kumar,, Adv., Mr. Prakarsh Kumar, Adv., Mr. Ashu Pathak, Adv., Mr. T S Sundaram, Adv., Mr. Venkata Supreeth, Adv., Mr. Mohit Pandey, Adv., Mr. Rakesh Talukdar, Adv., Mr. Sp Mukherjee, Adv., Ms. Raka Chatterjee, Adv., Ms. Adwaita, Adv., Mr. Arunava Mukherjee, AOR Mr. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........................................................................................... 11 B. Issues...............................................................................................................13 C. Submissions ....................................................................................................13 D. Principles underpinning the Arbitration Act ................................................... 18 i. Party autonomy ..............................................................................................20 ii. Mandatory provisions ....................................................................................22 iii. Appointment of arbitrators ............................................................................27 iv. Independence and impartiality of arbitrators ................................................ 32 v. Equality in the arbitral proceedings .............................................................39 vi. Public-private arbitration ..............................................................................41 E. The principle of equality applies at the stage of appointment of arbitrators ................ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties to settle their disputes by arbitrators of their choice. However, the Arbitration Act subjects party autonomy to certain mandatory principles such as the equality of parties, independence and impartiality of the tribunal, and fairness of the arbitral procedure. The reference to the Constitution Bench raises important issues of the interplay between party autonomy and independence and impartiality of the arbitral tribunal. i. Background to the reference 2. The Law Commission of India in its 246th Report opined that party autonomy cannot be stretched to disregard the principles of impartiality and independence of the arbitral process, specifically at the stage of constituting of an arbitral tribunal.2 Hence, the Law Commission suggested automatic disqualification of persons whose relationship with the parties falls under any of the categories specified by law. Following upon the recommendations of the Law Commission, Parliament enacted the Arbitration and Conciliation (Amendment) Act 20153 to incorporate Section 12(5)4 . Section 12(5) renders a person whose relationship with the parties falls under any of the categories specified under the Seventh Schedule ineligible for app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty and secure the principle of independence and impartiality at the stage of the constitution of the arbitral tribunal.9 6. In TRF Ltd v. Energo Engineering Projects Ltd,10 the purchase order issued by the respondent to the appellant contained an arbitration clause that stated that any dispute or difference between the parties in connection with the agreement shall be referred "to sole arbitration of the Managing Director of Buyer or his nominee." After a dispute arose between the parties about the encashment of the bank guarantee, the Managing Director of the respondent appointed a former judge of this Court as the sole arbitrator in terms of the arbitration clause. The issue before the Bench of three Judges was whether the Managing Director was eligible to nominate a sole arbitrator because of Section 12(5) of the Arbitration Act. The Court distinguished the situation where both the parties appoint their arbitrators from a situation where a person ineligible to be appointed as an arbitrator nominates a sole arbitrator: "53. [...] when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter-balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd." (emphasis supplied) 10. In Central Organisation for Railway Electrification v. ECI-SPIC-SMO- MCML (JV) A Joint Venture Company,14 the arbitration was to be held following Clause 64(3)(b) of the General Conditions of Contract. The clause reads thus: "64. (3)(b) Appointment of arbitrator where applicability of Section 12( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with (sic). Accordingly, the Special Leave Petition is dismissed. However, reliance has been placed upon a recent three- Judge Bench decision of this Court delivered on 17.12.2019 in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) A Joint Venture Company, 2019 SCC OnLine SC 1635. We have perused the aforesaid judgment and prima facie disagree with it for the basic reason that once the appointing authority itself is incapacitated from referring the matter to arbitration, it does not then follow that notwithstanding this yet appointments may be valid depending on the facts of the case. 2. We therefore request the Hon'ble Chief Justice to constitute a larger Bench to look into the correctness of this judgment." (emphasis supplied) 13. When the reference came up on 12 July 2023, Mr R Venkataramani, the Attorney General for India, submitted that the Union Government had constituted an Expert Committee on Arbitration Law16 (chaired by Dr T K Viswanathan) to reconsider the provisions of the Arbitration Act. It was further submitted that the issues that have been raised in the present reference would fall within the broad remit of the Expert Committee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any role in the process of appointing an arbitrator, including curation of a panel of potential arbitrators; d. TRF (supra) and Perkins (supra) only carved out an exception for situations where both parties are permitted to appoint an arbitrator of their choice; e. A unilaterally appointed panel is contrary to the principle of equal treatment of parties enshrined under Section 18, which is a mandatory provision. Although Section 18 is part of Chapter V dealing with the conduct of arbitral proceedings, it also applies at the stage of the constitution of arbitral tribunals. A lack of mutuality in the appointment process is a violation of Section 18 because it gives an unfair advantage to one party; f. In Lombardi Engineering Limited v. Uttarakhand Jal Vidyut Nigam Limited,17 this Court held that arbitration agreements must conform with the Constitution. An arbitration clause authorizing one party to unilaterally appoint an arbitrator or curate a panel of arbitrators is unconscionable and violative of Article 14. Section 23 of the Indian Contract Act 187218 also prohibits unconscionable contracts; g. In Voestalpine (supra), this Court directed the constitution of a broad-based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rohibit such an ineligible person from appointing an arbitrator or enlisting a panel of potential arbitrators; d. The Arbitration Act does not recognize any presumed ineligibility concerning arbitrators. The ineligibility must be real and actual according to Section 12; e. The equality of treatment under Section 18 does not refer to inter se equality between the parties at the stage of agreeing upon a procedure for appointing an arbitrator. Section 18 mandates the arbitral tribunal to treat the parties with equality and give them a full opportunity to present their case. Further, Section 18 only applies after the composition of the arbitral tribunal during the conduct of arbitral proceedings; f. The Arbitration Act provides adequate statutory safeguards for securing the independence and impartiality of arbitrators. These safeguards include: (i) Section 12(5) read the Seventh Schedule; (ii) mandatory disclosure under Sections 12(1) read with the Fifth Schedule; (iii) challenge procedures under Sections 13 and 14; and (iv) judicial review of the decision of an arbitrator under Section 34; g. Voestalpine (supra) has upheld the maintenance of a panel of potential arbitrators by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in; (ii) the need to promote uniformity in its application; and (iii) observance of good faith. It further provides that issues not expressly settled under the arbitration law are to be settled in conformity with the "general principles" on which the law is based.23 20. The principles of interpretation suggested by the Model Law require courts to assume a global perspective consistent with the prevailing practice in courts of other jurisdictions and arbitral tribunals.24 The Model Law encourages resort to "general principles" to fill the gaps in the national arbitration laws.25 The term "general principles" is intended to refer to principles widely accepted by legal systems.26 The above principles of interpretation will also apply when interpreting the provisions of the Arbitration Act. i. Party autonomy 21. Section 7 defines an arbitration agreement to mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The arbitration agreement records the consent of the parties to submit their disputes to arbitration.27 Arbitration is premise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncement of arbitral proceedings,39 the language to be used in the arbitral proceedings,40 procedure for hearings and written proceedings,41 consequence of a default by a party,42 appointment of experts43, and the manner of decision making by the arbitral tribunal.44 Thus, the Arbitration Act recognises and enforces mutual commercial bargains and understanding between the parties at all stages of the arbitration proceedings. However, the autonomy of the parties under the Arbitration Act is not without limits. It is limited by certain mandatory provisions of the Arbitration Act. ii. Mandatory provisions 26. Part I of the Arbitration Act applies where the place of arbitration is in India.45 Section 4 deals with a waiver of the right of a party to object in the following terms: "4. Waiver of right to object. - A party who knows that- (a) any provision of this Part from which the parties may derogate, or (b) any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be mandatory and therefore cannot be waived under Article 4 are the following: the requirement that the arbitration agreement be in writing (Article 7(2)); the requirement that the parties be treated with equality and that each party be given a full opportunity of presenting his case (Article 18); the requirement that a party be given notice of any hearing and be sent any materials supplied to the arbitral tribunal by the other party (Article 24(2), (3)); the requirement that an award - including an award on agreement terms - be in writing, that it state its date and place, and that it be delivered to the parties (Article 30(2), 31(1), (3), (4))"57 31. The above extract suggests that an arbitration agreement entered into by the parties is subject to certain well-defined and mandatory legal principles. For instance, Section 34(2)(a)(v) allows for refusal of enforcement of arbitral awards if the composition of the arbitral tribunal or arbitral procedure was not following the agreement of the parties unless such agreement conflicts with the mandatory provisions of the law.58 The composition of the arbitral tribunal or the arbitral procedure must not only be in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppointment procedure in sub-section (3) applies and - (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, The appointment shall be made, on an application of a party, by the Supreme Court or, as the case may be, by the High Court or any person or institution designated by such Court. (5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court. (6) Where, under an appointment procedure agreed upon by the parties, - (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator." 38. Section 11(8) requires an appointing authority to have due regard to the qualifications required for the arbitrator as agreed by the parties. For instance, if the agreement only allows a professional of a particular class such as a chartered accountant to serve as an arbitrator, the appointing court should normally abide by this requirement. However, while appointing an arbitrator following the agreed qualifications, the appointing court must also have due regard for considerations that are likely to secure an independent and impartial tribunal. Section 11(8) imposes a duty on the appointing court to ensure the appointment of an independent and impartial arbitrator. 39. Section 11 is based on Article 11 of the Model Law. The draft text of the Model Law contained a provision which invalidated an arbitration agreement if it accorded a predominant position or unfair advantage to one party in the appointment of the arbitrator. The provision is extracted below: "An arbitration agreement is inval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iting any circumstances that are likely to affect the ability to devote sufficient time to the arbitration and in particular the ability to complete the entire arbitration within twelve months. The duty of disclosure is a continuing duty. Section 12(3) provides that an arbitrator may be challenged only if: (i) circumstances exist that give rise to justifiable doubts as to independence or impartiality; or (ii) the arbitrator does not possess the qualifications agreed to by the parties. 43. Before the 2015 amendment, this Court generally upheld arbitrator appointment clauses which gave one party "unfettered discretion" to appoint a sole arbitrator.76 It was also held that there was no bar under the Arbitration Act for an employee of a government or Public Sector Undertaking 77, which is a party to an arbitration agreement, to act as an arbitrator.78 However, it was observed that there could be justifiable apprehension about the independence or impartiality of an employee arbitrator who was the "controlling or dealing authority" regarding the subject contract or if the arbitrator was a direct subordinate to the officer whose decision was the subject-matter of the dispute.79 The Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly involved in the matters in dispute in the arbitration." 47. Section 12(5) overrides any prior procedure for appointing the arbitrators agreed upon between the parties under Section 11(2) due to the non obstante clause. However, the proviso to Section 12(5) allows parties to waive the applicability of that provision after the dispute has arisen. The proviso secures "real and genuine party autonomy" by allowing parties to waive the applicability of Section 12(5).81 48. Section 12(5) does not prescribe a method to challenge the appointment of an ineligible person. Section 14 deals with the termination of the mandate of an arbitrator who is unable to perform their functions.82 A person who is ineligible to be appointed as an arbitrator in terms of Section 12(5) becomes de jure unable to perform functions according to Section 14. Resultantly, the mandate of such an ineligible person gets automatically terminated and they are liable to be substituted by another arbitrator under Section 14.83 49. The disclosure requirement helps prevent the appointment of an unacceptable candidate.84 The duty of disclosure is a continuing requirement to: (i) provide the information to any party w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med into a separate article considering its overall importance. The Working Group stated that the freedom of parties is subject to mandatory provisions including the then paragraph 3 of Article 19: "3. The freedom of the parties is subject only to the provisions of the model law, that is, to its mandatory provisions. The most fundamental of such provisions, from which the parties may not derogate, is the one contained in paragraph (3). Other such provisions concerning the conduct of the proceedings or the making of the award are contained in articles 23(1), 24(2)-(4), 27, 30(2), 31(1), (3), (4), 32 and 33(1), (2), (4), (5)." (emphasis supplied) 54. Ultimately, paragraph 3 of Article 19 was placed in a separate article in the form of Article 18. This was meant to distinguish two distinct issues: party autonomy to determine rules of procedure and fairness of arbitral proceedings.92 Moreover, the separation was meant to emphasise the importance of procedural fairness over the autonomy of parties to determine procedural rules. 55. Article 18 constitutes a fundamental principle that is "applicable to the entire arbitral proceedings."93 The Working Group has also stated that the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he arbitrator made an award in favour of the contractor. When the contractor sought to enforce the award, the State government obtained a stay by relying on Order XXVII Rule 8-A of the Code of Civil Procedure 1908.102 This Court held that since the Arbitration Act is a self-contained code, the provisions of the CPC "will apply only insofar as the same are not inconsistent with the spirit and provisions of the Arbitration Act." Noting that no special treatment can be given to the government under the Arbitration Act, the Court observed: "26. Arbitration proceedings are essentially alternate dispute redressal system meant for early/quick resolution of disputes and in case a money decree - award as passed by the arbitrator against the Government is allowed to be automatically stayed, the very purpose of quick resolution of dispute through arbitration would be defeated as the decree-holder would be fully deprived of the fruits of the award on mere filing of objection under Section 34 of the Arbitration Act. The Arbitration Act is a special Act which provides for quick resolution of disputes between the parties and Section 18 of the Act makes it clear that the parties shall be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of an arbitrator are principally the result of the contractual relations with the parties.107 However, the position under common law is that the rights and duties of an arbitrator are derived from a conjunction of contract and quasi-judicial status granted by national laws. In Norjarl v. Hyundai Heavy Industries, Lord Browne-Wilkinson observed that it is impossible to distinguish contractual matters from those of quasi-judicial status.108 Similarly, in ONGC v. Afcons Gunanusa JV, this Court recognized that the rights and duties of arbitrators flow from: (i) the national laws governing arbitration which give a quasi-judicial status to arbitrators wheres they have to act as impartial adjudicators; and (ii) the arbitrator's contract with the parties which governs many aspects of the arbitrator-party relationship including remuneration, confidentiality, and timelines for completion of arbitral proceedings.109 61. An arbitral tribunal performs a quasi-judicial function because it substantially determines the rights and liabilities of competing parties through adjudicative means.110 The tribunal is generally required to arrive at decisions or awards based on procedural and substantiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d signed by all members of the arbitral tribunal.116 The provision further provides that an arbitral award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given. This provision is consistent with the principle that a quasi-judicial authority must generally record its reasons in support of the order it makes.117 Further, the decision rendered by an arbitral tribunal is binding and enforceable "in the same manner as if it were a decree of the court."118 66. Arbitral tribunals serve as effective alternatives to traditional justice dispensing mechanisms. The purpose of arbitral tribunals is to be expeditious where the law is slow, cheap where the law is costly, simple where the law is technical, and a peace-maker instead of a stirrer up of strife.119 Arbitral tribunals can inspire confidence in their adjudicatory process by conducting fair and impartial hearings and providing sufficient and cogent reasons for their decisions.120 Given the adjudicatory functions performed by arbitral tribunals, the decisions which emanate from them must be grounded in a process that is independent and impartial. ii. Equality applies at the stage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equires the arbitrator to treat the parties with equality (that is to say without bias) and give each party full opportunity to present his case. Nothing in Sections 11, 12, 18 or other provisions of the Act suggests that any provision in an arbitration agreement, naming the arbitrator will be invalid if such named arbitrator is an employee of one of the parties to the arbitration agreement." Raja Transport (supra) was delivered before the 2015 amendment. Section 12(5) now renders an employee of either of the parties ineligible for being appointed as an arbitrator. 70. The concept of equality under Article 14 enshrines the principle of equality of treatment. The basic principle underlying Article 14 is that the law must operate equally on all persons under like circumstances.132 The implication of equal treatment in the context of judicial adjudication is that "all litigants similarly situated are entitled to avail themselves of the same procedural rights for relief, and for defence with like protection and without discrimination."133 In Union of India v. Madras Bar Association,134 a Constitution Bench held that the right to equality before the law and equal protection of laws gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l aspects of adjudication for the process to approach legitimacy.138 Participation in the adjudicatory process is meaningless for a party against whom the arbitrator is already prejudiced.139 Equal participation of parties in the process of appointment of arbitrators ensures that both sides have an equal say in the establishment of a genuinely independent and impartial arbitral process. 74. Under Sections 12(1) and 12(5), the Arbitration Act recognises certain mandatory standards of independent and impartial tribunals. The parties have to challenge the independence or impartiality of the arbitrator or arbitrators in terms of Section 12(3) before the same arbitral tribunal under Section 13.140 If the tribunal rejects the challenge, it has to continue with the arbitral proceedings and make an award. Such an award can always be challenged under Section 34. However, considerable time and expenses are incurred by the parties by the time the award is set aside by the courts. Equal participation of parties at the stage of the appointment of arbitrators can thus obviate later challenges to arbitrators. 75. Independence and impartiality of arbitral proceedings and equality of parties are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions and ensures fairness and equality of treatment.152 Violation of the principles of natural justice results in arbitrariness.153 The principle of reasonableness is an essential element of equality.154 Resultantly, a procedure contemplated under Article 21 must be just, fair, and non- arbitrary. This Court has recognized that the concept of reasonableness and non-arbitrariness pervades the entire constitutional scheme.155 79. In Union of India v. Tulsiram Patel,156 a Constitution Bench of this Court observed that violation of the principles of natural justice results in arbitrariness: "95. The principles of natural justice have thus come to be recognized as being a part of the guarantee contained in Article 14 because of the new and dynamic interpretation given by this Court to the concept of equality which is the subject-matter of that article. Shortly put, the syllogism runs thus: violation of a rule of natural justice results in arbitrariness which is the same as discrimination; where discrimination is the result of State action, it is a violation of Article 14: therefore, a violation of a principle of natural justice by a State action is a violation of Article 14. Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Government constituted a Special Selection Board for selecting officers to the Indian Forest Service in the senior scale and junior scale from the serving officers of the Forest department of the State of Jammu and Kashmir. One of the members of the selection board was the officiating Chief Conservator of Forests of Jammu and Kashmir. However, the Chief Conservator was also one of the candidates in contention for the posts in the Indian Forest Service. Although the Chief Conservator was not present when his name was considered for selection by the board, he was present and participated in the deliberations when the names of other candidates were being considered. 83. The Constitution Bench held that the real question was not whether the Chief Conservator was biased, but whether there was a reasonable ground for believing that he was likely to have been biased. It was observed that a reasonable likelihood of bias has to be determined by taking into consideration human probabilities and the ordinary course of human conduct.163 It was observed that the Chief Conservator had an interest in keeping his rivals out and securing the position for himself. Further, it was held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the other members may not be influenced by the fact that the book which they are considering for approval was written by one of their members. Whether they were so influenced or not is, however, a matter impossible to determine. It is not, therefore, the actual bias in favour of the author- member that is material but the possibility of such bias." (emphasis supplied) 86. In J Mohapatra (supra), it was observed that a decision-maker who is prejudiced can possibly influence the decision of the authority in tangible and intangible ways. This Court recognized that the doctrine of necessity serves as an exception to the nemo judex rule. An adjudicator, who is subject to disqualification on the ground of bias or interest in the matter which he has to decide, may be required to adjudicate in three situations: (i) if there is no other person who is competent or authorized to adjudicate; (ii) if a quorum cannot be formed without him; or (iii) if no other competent tribunal can be constituted. 87. In Ashok Kumar Yadav v. State of Haryana,165 some members of the selection committee of the Haryana Public Service Commission were related to the candidates who appeared for the viva voce exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellor decreed in favour of a canal company in which he held substantial shares. The House of Lords observed that the principle that no person should be judge in their own cause "is not to be confined to a cause in which he is a party, but applies to a cause in which he has an interest."175 90. In R v. Bow Street Metropolitan Stipendiary Magistrate, ex parte Pinochet Ugarte (No. 2), 176 the House of Lords held that the former head of Chile was not immune from extradition to Spain for trial of alleged crimes against humanity. Lord Hoffman was one of the five members who agreed with the majority. During the hearings, Amnesty International,177 a human rights body, intervened and participated in the proceedings. It came to light after the judgment that Lord Hoffman was a director and chairman of Amnesty International Charity Limited,178 which was wholly owned and controlled by AI. Resultantly, the House of Lords set aside its previous decision and directed a rehearing of the matter. 91. Lord Browne-Wilkinson observed that AI and AICL were all "parts of an entity or movement" working in different fields to establish that Pinochet was not immune from extradition as a former head of Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were sitting. However, in Metropolitan Properties Company v. Lannon,182 Lord Denning expressed the test of the real likelihood of bias as being whether a reasonable person would think it "likely or probable" that a judge or member of a tribunal was biased. 95. In Regina v. Gough,183 the House of Lords observed that the probability standard laid down by Lord Denning in Metropolitan Properties (supra) was "too rigorous a test." It reconciled the real likelihood of bias test by grounding it in terms of possibility rather than the probability of bias. Therefore, it restated the test in terms of the real danger of bias: "[...] having ascertained the relevant circumstances, the court should ask itself whether, having regard to those circumstances, there was a real danger of bias on the part of the relevant member of the tribunal in question, in the sense that he might unfairly regard (or having regarded with favour), or disfavour, the case of a party to the issue under consideration by him." The House of Lords observed that the court "personifies the reasonable man" to ascertain the relevant circumstances from the available evidence. The real danger of the bias test was criticized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribunal was biased." 98. The shift in the bias test in the UK has "at its core the need for the confidence which must be inspired by the courts in a democratic society."188 In Lawal v. Northern Spirit Limited, 189 Lord Bingham observed that a "fair-minded and informed observer"190 will adopt a balanced approach and as "a reasonable member of the public is neither complacent nor unduly sensitive or suspicious." The above discussion shows that the bias test has undergone significant development in the UK over the last four decades. The current bias test in the UK is the real possibility of a bias test. 99. The real likelihood of bias test has also been applied by the UK Supreme Court in the case of arbitral bias. In Haliburton Company v. Chubb Bermuda Insurance Ltd.,191 the issue before the UK Supreme Court was whether or not the UK Arbitration Act imposed a legal obligation on arbitrators to disclose facts and circumstances known to the arbitrator which would give rise to justifiable doubts as to their impartiality. Although the UK Arbitration Act does not expressly impose a duty of disclosure on arbitrators or potential arbitrators, the UK Supreme Court read the general duty un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objective test takes into consideration hierarchical and other links between a judge and the parties to the proceedings. The ECtHR's approach, therefore, emphasizes determining "whether the relationship in question is of such a nature and degrees as to indicate a lack of impartiality on the part of the tribunal."200 The real possibility of bias test as evolved by the English courts is in alignment with the bias test evolved by the ECHR. 201 The ECtHR has held that an arbitration agreement does not constitute a waiver of the fair procedure guarantees contained in Article 6, particularly the right to have disputes settled by an independent and impartial tribunal.202 iv. Indian approach to the bias test 103. This Court has consistently adopted the real likelihood test to determine bias.203 In Manak Lal v. Dr. Prem Chand Singhvi,204 Justice P B Gajendragadkar (as the learned Chief Justice then was) observed that the test to determine bias is whether a litigant could reasonably apprehend that a bias attributable to a member of the tribunal might have operated against him in the final decision. In S Parthasarathi v. State of AP,205 Justice KK Mathew observed that the test of likeliho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f "real danger" or "reasonable apprehension" of bias. 25.3. The Pinochet case added a new category i.e. that the Judge is automatically disqualified from hearing a case where the Judge is interested in a cause which is being promoted by one of the parties to the case." 107. Although there have been vacillations about the test in England, the Indian courts have been largely consistent in their approach by applying the test of real likelihood of bias or reasonable apprehension of bias. Recently, the court has used the real danger of bias test. However, the above discussion shows that there is no significant difference between the real danger of bias test and the real possibility of bias test if the question of bias is inferred from the perspective of a reasonable or fair-minded person. 108. This Court has consistently applied the test of real likelihood of bias to determine arbitrator bias. In HRD Corporation v. GAIL (India),212 the Court explained the application of the real likelihood of bias test to determine the issue of arbitrator bias thus: "20. [...] As has been pointed out by us hereinabove, the items contained in the Schedules owe their origin to the IBA Guidelines, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on a person who is approached for appointment as an arbitrator to disclose in writing any direct or indirect circumstances such as: (i) the existence of any direct or indirect past or present relationship with any of the parties; (ii) interest in any of the parties; or (iii) interest in relation to the subject-matter in dispute, whether financial, business, professional, or other kind. The disclosure of circumstances made by an arbitrator is a procedural safeguard which allows the parties to assess whether disqualification of the arbitrator is required for a case.216 Disclosure allows an arbitrator to overcome an appearance of bias. The parties may challenge the appointment of an arbitrator if the circumstances give rise to "justifiable doubts" as to their independence or impartiality. 112. In Voestalpine (supra), this Court explained the distinction between independence and impartiality thus: "22. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective views of the parties or the arbitrators. According to Gary Born, the standard of proof adopted under Article 12 of the Model Law is relatively low to ensure "the integrity of the arbitral tribunal and arbitral process, particularly given the extremely limited review available for substantive or procedural errors by the arbitrators."223 The issue of arbitrator bias is to be resolved by applying the test of the real likelihood of bias in the given facts and circumstances. 116. Section 12(5) automatically disqualifies any person whose relationship with the parties or counsel or subject matter of the dispute falls under any of the categories mentioned under the Seventh Schedule. The categories listed in the Seventh Schedule in essence denote situations where an arbitrator might have a pecuniary, proprietary, or cause-based interest in the arbitration. For instance, employees of either of the parties are barred from acting as an arbitrator because they have an immediate financial and cause-based interest in the arbitration. If such an employee is appointed as an arbitrator, they would be sitting as a judge in their cause because they have a pecuniary interest in the outcome of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged the appointment of the State's arbitrator on the ground that he was a former employee of the State government. The issue before this Court was whether Section 12(5) read with the Seventh Schedule disqualifies a former employee from being appointed as an arbitrator. 119. Justice Indu Malhotra, writing for the Bench of two judges, held that the apprehension of bias against the State's arbitrator was unjustified because: (i) the arbitrator was employed by the State over ten years ago; (ii) the use of the expression "is an" under Entry 1 of the Seventh Schedule indicates that an arbitrator is disqualified only if they are current employees of one of the parties; and (iii) the expression "other" under the said entry indicates a relationship other than an employee. It was observed that the expression "other" cannot "be used to widen the scope of the entry to include past/former employees."225 120. The categories mentioned under the Seventh Schedule are such that it is difficult to distinguish the interests of an arbitrator from those of a party to which an arbitrator is connected. In such cases, the issue is whether the outcome of the arbitration will realistically affect the arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iples of arbitration by giving priority to the autonomy of parties. 123. In Bharat Broadband Network Ltd. (supra), this Court held that the proviso to Section 12(5) requires an express agreement in writing, that is, an agreement made in words as opposed to an agreement that can be inferred by conduct.232 It was explained that such an agreement must be made by both parties with full knowledge of the fact that although a particular person is ineligible to be appointed as an arbitrator, the parties still have full faith and confidence in them to continue as an arbitrator.233 The principle of express waiver contained under the proviso to Section 12(5) also applies to situations where the parties seek to waive the allegation of bias against an arbitrator appointed unilaterally by one of the parties. After the disputes have arisen, the parties can determine whether there is a necessity to waive the nemo judex rule. This balances the autonomy of parties and the principles of an independent and impartial arbitral tribunal. vi. Unilateral appointment of arbitrators is violative of the equality clause under Section 18 124. The doctrine of bias as evolved in English and Indian law emphasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person. This poses a greater risk of bias against the weaker party, especially if the arbitrator is unilaterally appointed by the other party. 128. If a person having a financial interest in the outcome of the arbitral proceedings unilaterally nominates a sole arbitrator, it is bound to give rise to justifiable doubts on the independence and impartiality of the arbitrator. The possibility of bias by the arbitrator is real because the person who has an interest in the subject matter of the dispute can chart out the course of the entire arbitration proceeding by unilaterally appointing a sole arbitrator. A party may select a particular person to be appointed as a sole arbitrator because of a quid pro quo arrangement between them. Moreover, the fact that the sole arbitrator owes the appointment to one party may make it difficult to decide against that party for fear of displeasure. It is not possible to determine whether the sole arbitrator will be prejudiced, but the circumstances of the appointment give rise to the real possibility of bias. 129. Equal treatment of parties at the stage of appointment of an arbitrator ensures impartiality during the arbitral proceedings. A clause th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Jal Vidyut Nigam Ltd.246 132. In Voestalpine (supra) and CORE (supra), one of the parties curated a panel of arbitrators and mandated the other party to select their arbitrator from the panel. Since the curation of the list is exclusively undertaken by one party, the other party is effectively excluded from the process of curating the panel from which exclusively, the appointment of an arbitrator is to be made. The other party has to mandatorily select its arbitrator from a curated panel, restricting their freedom to appoint an arbitrator of their choice. This is against the principle of equal treatment contained under Section 18. In this situation, there is no effective counter-balance because both parties do not participate equally in the process of appointing arbitrators. The party curating the panel can restrict the choice of the party only to a person who is on the panel selected by the other party and to no other person. 133. Many PSUs are regularly involved in arbitration disputes and constantly need the services of arbitrators. Such institutions often maintain a pool of potential arbitrators with the sole object of having a ready pool of qualified professionals who hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractor is bound by the names enlisted in the panel. 136. In a three-member tribunal, the independence and impartiality of a third or presiding arbitrator are prerequisites to the integrity of the arbitral proceedings. In CORE (supra), the arbitration clause allowed the General Manager to unilaterally nominate the presiding officer out of the panel of three arbitrators. The clause does not countenance any participation from the contractor in the process of appointing or nominating the presiding officer. Thus, the process of appointing and nominating the presiding officer is unequal and prejudiced in favour of the Railways. The fact that the General Manager is nominating the presiding officer gives rise to a reasonable doubt about the independence and impartiality of the entire arbitration proceedings. 137. Given the above discussion, it needs reiteration that the Arbitration Act does not prohibit PSUs from empanelling potential arbitrators. However, an arbitration clause cannot mandate the other party to select its arbitrator from the panel curated by PSUs. The PSUs can give a choice to the other party to select its arbitrators from the curated list provided the other party ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 23 codified the common law position that "all contracts and agreements which have as their object anything contrary to principles of sound policy are void." 252 The prevalent view in the nineteenth century was that the doctrine of public policy should be governed by precedent and courts should refrain from inventing new heads of public policy. The purpose behind limiting the grounds of public policy was to respect the freedom of contract of parties, which was also considered as a paramount policy in common law.253 Under the common law, a contract for marriage brokerage, creation of a perpetuity, in restraint of trade, gaming or wagering, or assisting the King's enemies were unlawful and opposed to public policy.254 142. This Court has adopted a flexible approach to the application of the doctrine of public policy to contracts. In Gherulal Parakh v. Mahadeodas Maiya,255 this Court had to decide on the validity of a wagering contract under Section 23 of the Contract Act. The three-Judge Bench observed that public policy is a branch of common law and can be applied in clear and incontestable cases of harm to the public. It was further observed that the doctrine could be invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The principle deducible from the above discussions on this part of the case is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in Article 14. This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that since a public authority possesses powers only to use them for the public good, they have a duty to act fairly and "to adopt a procedure which is 'fair play in action'."264 146. In Tata Cellular v. Union of India,265 this Court held that contractual decisions of government and its instrumentalities "must be free from arbitrariness not affected by bias or actuated by mala fides." In a public- private contract, the state must act fairly, justly, and reasonably. 266 When a state acts contrary to the public good or public interest, it acts contrary to Article 14.267 147. In ICOMM Tele Ltd. v. Punjab State Water Supply and Sewerage Board, 268 this Court had to adjudicate on the validity of a pre-deposit arbitral clause in a public-private contract. According to the pre-deposit clause, a party invoking arbitration was required to furnish a "deposit-at-call" for ten percent of the amount claimed. To determine the validity of the clause from the viewpoint of arbitrariness, this Court held that a contractual clause would be arbitrary "which would be unfair and unjust and which no reasonable man would agree to."269 This Court termed the pre-deposit clause to be violative of Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man would accept on the other."276 Unconscionability has also been defined to include: (i) an absence of meaningful choice on the part of one of the parties; and (ii) unreasonable contractual terms favourable to one party.277 The unconscionability doctrine seeks to balance the freedom of contract with the values of protecting the weaker parties from imposition and oppression.278 151. Unconscionability focuses on abuses relating to the contract formation process (procedural unconscionability) and the substantive terms of the contract (substantive unconscionability).279 In determining procedural unconscionability, the court is concerned with factors such as the relative bargaining power of the parties and whether the parties had a meaningful choice. Substantive unconscionability is geared towards pitting the substance of the contractual terms against the legitimate interests of the parties and considerations of public policy.280 152. US courts have consistently held that an arbitration agreement which provides for the unilateral formation of a panel of arbitrators by one of the parties is inherently inequitable and unconscionable.281 The reason is that a unilateral arbitrator sele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yee were required to mutually select a sole arbitrator from that pool of arbitrators by alternatively striking names until only one remained. The Court held that the process of selection of the arbitrator prevented the arbitration from being an effective substitute for a judicial forum because: (i) the employer exercised unilateral control over the entire panel; (ii) the arbitrator selection procedure allowed the employer to create a symbiotic relationship with its arbitrators, which promulgated bias; and (iii) the arbitrator selection procedure inherently lacked fairness and neutrality. iii. Public-private contracts and public policy of arbitration 155. Although arbitration law is an autonomous legal field,288 it functions within the boundaries prescribed by the state. For instance, adjudication of certain proceedings is reserved by the legislature exclusively for the courts as a matter of public policy.289 The non-arbitrable proceedings generally include disputes relating to rights and liabilities that give rise to or arise out of criminal offences, matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody, and guardianship ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said that (a) violation of the principles of natural justice; (b) disregarding orders of superior courts in India or the binding effect of the judgment of a superior court; and (c) violating law of India linked to public good or public interest, are considered contravention of the fundamental policy of Indian law." 159. In Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd.,296 this Court held that the most basic notions of morality and justice under the concept of "public policy" will include bias. 160. The provisions of the statute, including Section 34, highlight the important role played by the Indian legal system in recognising and enforcing arbitral awards. It is one such instance where the Indian courts exercise a measure of control over the private arbitral process.297 This control over the arbitral process ensures that the arbitral awards are made by following certain minimum standards of due process and justice.298 Thus, the courts must ensure that the arbitral awards are consistent with the fundamental policy of Indian law such as compliance with the principles of natural justice. As a corollary, Section 34 places a responsibility on the arbitral tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive of the equality principle under the Arbitration Act. H. Necessity of maintaining the principle of minimum judicial interference 164. In re Interplay Between Arbitration Agreements under Arbitration and Conciliation Act 1996 and the Stamp Act 1899,302 a seven judge Bench of this Court emphasized the importance of minimal judicial interference by the courts at the Section 11 stage. This Court held that the scope of the proeceeding under Section 11 must be confined to the existence of an arbitration agreement. The Court further observed: "165. The legislature confined the scope of reference under Section 11(6-A) to the examination of the existence of an arbitration agreement. The use of the term "examination" in itself connotes that the scope of the power is limited to a prima facie determination. Since the Arbitration Act is a self- contained code, the requirement of "existence" of an arbitration agreement draws effect from Section 7 of the Arbitration Act. In Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729: (2017) 4 SCC (Civ) 764], this Court held that the Referral Courts only need to consider one aspect to determine the existence of an arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and validity of an arbitration agreement." (emphasis supplied) The Constitution Bench held that the nature of objections to the jurisdiction of an arbitral tribunal on the basis that stamp duty has not been paid or is inadequate cannot be decided on a prima facie basis.303 Hence, it was observed that objections of such a kind will require a detailed consideration of evidence and submissions and a finding as to the law as well as the facts. 165. At the Section 11 stage, a referral court only has to determine the existence of arbitration agreement. The validity of the arbitration clause providing for the procedure for appointment of arbitrators will require the referral court to enter into a detailed consideration of evidence and render a finding as to law and facts. This issue should be left to be decided by the arbitral tribunal in view of the doctrine of competence-competence. The arbitral tribunal is competent to rule on its jurisdiction, including the issue of validity of the arbitration clause for violating the equality principle under the Arbitration Act. I. Prospective Overruling 166. A decision of this Court has retrospective effect unless expressly given a prospecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointments to be made after the date of this judgment. This direction only applies to three-member tribunals. J. Conclusion 169. In view of the above discussion, we conclude that: a. The principle of equal treatment of parties applies at all stages of arbitration proceedings, including the stage of appointment of arbitrators; b. The Arbitration Act does not prohibit PSUs from empanelling potential arbitrators. However, an arbitration clause cannot mandate the other party to select its arbitrator from the panel curated by PSUs; c. A clause that allows one party to unilaterally appoint a sole arbitrator gives rise to justifiable doubts as to the independence and impartiality of the arbitrator. Further, such a unilateral clause is exclusive and hinders equal participation of the other party in the appointment process of arbitrators; d. In the appointment of a three-member panel, mandating the other party to select its arbitrator from a curated panel of potential arbitrators is against the principle of equal treatment of parties. In this situation, there is no effective counterbalance because parties do not participate equally in the process of appointing arbitrators. The pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointment of arbitrator but will also ensure party autonomy. It is also imperative to observe that Courts should exercise judicial restraint at the threshold stage of appointing an arbitrator. This will then safeguard the core principles of equality, party autonomy, and minimal judicial intervention in the arbitration domain. 5. The notion that Alternative Dispute Resolution offers 'rough justice' rather than true justice, is no more in vogue although some scepticism towards arbitration was earlier noticed, across various jurisdictions1. Trusting the arbitral process is essential and we must dispel the notion that arbitration provides 'second-hand justice'. To lend credibility to the arbitral process, statutory procedural safeguards promoting basic fairness must be given full play. A key factor in establishing arbitration's legitimacy lies in ensuring independence and impartiality at all stages of the arbitral process. At the same time, excessive judicial intervention must be avoided. By striking this balance between procedural protections and judicial restraint, we can reinforce arbitration's role as an autonomous system capable of delivering justice on par with traditional co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to note that the Parliament in Section 5, made a significant departure from Article 5 of Model law by adding a non-obstante clause, 'Notwithstanding anything contained in any other law', emphasizing that the Courts should exercise restraint and other laws should not be made the basis for court's intervention with the agreed arbitral process. 9. Section 11 deals with 'Appointment of Arbitrator'. Section 11(2) provides that subject to Section 11(6), parties are 'free to agree on a procedure for appointing the arbitrator or arbitrators'. At this stage, the language in Section 11(6) of the Arbitration Act needs to be noticed which reads thus: "(6) Where, under an appointment procedure agreed upon by the parties,- (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure" 10. The consideration to be given to the agreed procedure is also clear from Section 11(8) of the Arbitration Act: [11(8) The Supreme Court or, as the case may be, the Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explicit on the parties' freedom to determine the procedures for selection of arbitrators. The provision would have stated that a procedure agreed upon by the parties would be invalid if or to the extent that it gave one party a 'predominant position' or in the words of an alternate draft a 'manifestly unfair advantage' with regard to the appointment of arbitrators. This provision was later deleted because (1) the problem did not arise frequently; (2) other provisions of the law such as Article 12 and 34, could be used to address the problem and (3) the wording was regarded as too vague and thus could lead to dilatory tactics and potentially invalidation of 'well-established and recognized appointment practices'' 14. The court's role in ensuring an arbitrator's impartiality and independence is indeed essential. However, this duty, as is clear from above, must be grounded in Section 12 of the Arbitration Act which provides adequate standards for dealing with potential conflicts or biases. By setting specific parameters for impartiality, Section 12 effectively limits arbitrary or unjustified challenges while still safeguarding the fairness of arbitration. 15. If the criteria for f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle." [emphasis supplied] 20. In the significant decision on the Interplay Between Arbitration Agreements under A&C Act, 1996 & Stamp Act, 18999,7 judges of this Court had emphasized on the minimal supervisory roles of Court in arbitral process: "81. One of the main objectives behind the enactment of the Arbitration Act was to minimize the supervisory role of courts in the arbitral process by confining it only to the circumstances stipulated by the legislature. For instance, Section 16 of the Arbitration Act provides that the arbitral tribunal may rule on its own jurisdiction "including ruling on any objection with respect to the existence or validity of the arbitration agreement." The effect of Section 16, bearing in view the principle of minimum judicial interference, is that judicial authorities cannot intervene in matters dealing with the jurisdiction of the arbitral tribunal. Although Sections 8 and 11 allow courts to refer parties to arbitration or appoint arbitrators, Section 5 limits the courts from dealing with subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligibility as set in the proposed Fifth Schedule. This could be in situations of family arbitrations or other arbitrations where a person commands the blind faith and trust of the parties to the dispute, despite the existence of objective "justifiable doubts" regarding his independence and impartiality. To deal with such situations, the Commission has proposed the proviso to section 12(5), where parties may, subsequent to disputes having arisen between them, waive the applicability of the proposed section 12(5) by an express agreement in writing. In all other cases, the general rule in the proposed section 12(5) must be followed. In the event the High Court is approached in connection with appointment of an arbitrator, the Commission has proposed seeking the disclosure in terms of section 12(1). and in which context the High Court or the designate is to have "due regard" to the contents of such disclosure in appointing the arbitrator." [emphasis supplied] 26. The Law Commission also significantly noted that if the appointing authority is the State, it is even more essential to have an independent and impartial tribunal. Weighing the observations of the 246th Report of the Law co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal." Section 13(4) next states that if a challenge to an arbitrator under 13(1) or 13(2) is not successful; the tribunal shall continue with the proceedings. 30. Section 14 is titled 'Failure or impossibility to Act'. It provides for the termination of an arbitrator's mandate if he, de facto or de jure, becomes unable to perform his functions or for other reasons, fails to act without undue delay. Unless agreed otherwise, one can apply to 'Court' to decide on the termination of a mandate. It is crucial to note that the term 'Court' herein is not the Section 11 Court. 31. Section 15 is titled 'Termination of mandate and Substitution of Arbitrator'. Section 15(1) states that in addition to the circumstances mentioned in Section 13 and 14, the mandate of an arbitrator shall terminate when he withdraws from office for any reason, or by (or pursuant to) an agreement of the parties. Section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), the issue before the bench of two judges was whether the panel of arbitrators prepared by DMRC violated Section 12 of the Arbitration Act. It was held that Section 12(5) read with the Seventh Schedule does not bar retired government employees, from serving as arbitrators. It however held that in the case of a government contract where the authority to appoint arbitrators rests with a government entity, it is imperative to have a 'broad-based' panel to secure the principle of impartiality and independence of the Arbitrator. It is relevant to note that the basis on which such a panel was upheld in Voestalpine(supra) was that the persons who have been nominated are subject to the rigours of Section 12. 36. In Perkins (supra), the question before the 3-judge bench was whether the Managing Director of the Respondent, who is ineligible to be appointed as an arbitrator under Section 12(5) read with Seventh Schedule, can nominate the sole arbitrator. Therefore, the Court was only concerned with the authority or power of the Managing Director and cannot be understood to conclude that unilateral appointments are impermissible. The distinction between 'ineligibility' and 'unilateral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rined from the stage of inception to conclusion would be like a soulless process. The Arbitration Act as discussed earlier provides for adequate guard rails to ensure that the arbitrator(s) to be appointed are capable of independently discharging their responsibilities. The Sixth and Seventh Schedule requires the proposed arbitrator(s) to disclose any circumstances that might reasonably affect their impartiality, including relationship with the parties, the counsel or the subject matter of the dispute. In this scenario, since parties opt for the arbitration route to avoid redressal in Court, minimal judicial intervention should be the norm. 41. In my view, all unilateral appointments must not be declared void by way of a declaration of this Court. The 2015 Amendment in Section 12(5) itself provides for a specific waiver i.e. (a) an express consent in writing and (b)the consent must be obtained after the dispute has arisen. Therefore, it is abundantly clear that an agreement between the parties(provided it satisfies the specific waiver requirements under Section 12(5)) can effectively cure any concerns about impartiality or independence in such cases. 42. Adequate safeguards are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........................................ 4 C. Arbitration as Substitute Dispute Resolution ........................................................... 5 i. Two inviolable values of Arbitration, party autonomy and an independent and impartial Arbitral Tribunal. ................................................................................... 6 D. Party autonomy ..................................................................................................... 7 E. Obligations of parties to the Arbitration Agreement to constitute an independent and an impartial Arbitral Tribunal................................................................................ 9 i. Distinct duties of Arbitrators and Arbitrating Parties.................................................. 9 ii. Freedom of Contract and its limitations under Contract Act. ................................. 10 iii. Public Policy Consideration to Constitute an Independent Tribunal.. .................... 11 iv. The limits of public policy considerations for commercial transactions and inapplicability of unconscionability. ........................................................................ 12 v. Section 28 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitute an independent and impartial arbitral tribunal within the Indian Contract Act, 1872,2 and the Arbitration Act, and not to apply public law principles evolved in constitutional and administrative laws. This is to ensure party autonomy, coupled with minimal judicial intervention, a foundational principle of dispute resolution through arbitration. When parties choose arbitration over Court proceedings as an exception under Section 28 of the Contract Act, they are under a duty to constitute an independent and impartial tribunal as an effective substitute, failing which the arbitration agreement will be void as opposed to public policy under Section 23 of the Contract Act. This obligation is the Second Principle that governs arbitration. Whether the agreement is compliant with the duty to constitute an independent and impartial tribunal and not opposed to the public policy effecting access to justice is always determined by the Court. This is the third principle. There is a clear statutory incorporation of these three principles in the Contract Act and the Arbitration Act. I believe that enduring answers to the questions before this Constitution Bench will lie in the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, confidential, and a fair dispute resolution remedy by empowering the parties to choose their arbitrators and also the procedure for conduct of the arbitral proceedings. Recognising party autonomy, Section 53 of the Act restrains judicial authorities from intervening with the arbitral remedy except as provided in the Act. The mandate of Section 5 is reflected in a number of judicial decisions of this Court, enabling easy access to arbitration by merely examining the existence of an arbitration agreement between the parties, and at the same time refraining from interfering with the arbitral award on grounds other than manifest arbitrariness or against public policy.4 6. Two inviolable values of Arbitration, party autonomy and an independent and impartial Arbitral Tribunal: Two important values are inviolable for arbitration to be a viable, effective, and at the same time, credible alternative dispute resolution remedy; they co-exist in the duality of freedom and duty. They are the freedom to contract, constitute, and channel arbitration proceedings, i.e., party autonomy on the one hand, and the duty towards constituting an independent and impartial arbitral tribunal on the other. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im and defence20, including amendments21, whether the arbitral tribunal will conduct oral hearings or proceed on the basis of documents and other material22, in cases of default by a party to communicate statement of claim or defence, or failure to appear at an oral hearing or produce documentary evidence23, and regarding the appointment of experts by the arbitral tribunal24. 8.3 Fourth, the parties to the arbitration agreement have the freedom to determine the procedure as well as the termination of arbitral proceedings. This will include the determination of the rules applicable for the resolution of the dispute25, whether the decision will be made by a majority of the members in an arbitral tribunal with more than one arbitrator26, extension of time limit for the completion of proceedings27, fast track procedures28, grant of pendente lite and pre-reference interest29, and whether the arbitral tribunal can make an additional arbitral award as to claims presented in the arbitral proceedings but omitted from the award30. 8.4 Fifth, the parties can challenge and/or apply for the enforcement of the award. Chapter VII and Chapter VIII set out the recourse available to parties after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al', 'promise' and 'consideration', and reflect the autonomy of the parties declaring the terms and conditions and reciprocal promises. Section 2(e) provides that "Every promise and every set of promises, forming the consideration for each other, is an agreement". Agreements are contracts if they are made by the free consent of parties35, and free consent36 exists when it is not caused by coercion37, undue influence38, fraud39 and misrepresentation40. Furthermore, agreements attain the status of contracts only if they are made for lawful consideration and with a lawful object.41 The consideration or object of an agreement is lawful only when it is not opposed to public policy. It is here that the duty and obligation of the Court arises as it is the exclusive province of the Court to decide if an agreement is in consonance with public policy or not. This position is clear from the text of Sections 10 and 23 of the Contract Act, which are extracted hereinbelow for ready reference; "10. What agreements are contracts.-All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic policy. This ground is particularly relevant for our analysis as Mr. Banerji has pointed out several US cases wherein arbitration agreements that allow one party to control the pool of potential arbitrators were held to be unconscionable. Therefore, it is necessary to set out the contours of unconscionability under Indian contract law. 15. Through the doctrine of unconscionability, this Court in Brojo Nath Ganguly (supra) introduced inequality of bargaining power as a ground to refuse enforcement of unreasonable and unfair contracts that shock the conscience of the court. It has envisaged for this principle to apply in cases where the weaker party does not exercise meaningful choice and must agree to a standard form of contract.48 However, the Court has also circumscribed the applicability of unconscionability and held that it will not apply when parties have equal or almost equal bargaining power, such as in commercial transactions and contracts between businessmen.49 The inapplicability of 'unconscionability' to commercial contracts has been reiterated by this Court in the context of arbitration agreements.50 In view of the settled position, I cannot accept the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and amicable resolution. 18. Access to justice, as provided through ordinary courts and tribunals, can be substituted through other systems and forums. As the substitution is only a replacement of the forum, the essentiality of remedy such as credibility, efficiency, etc. must continue to inhere in the substituted forum as well. In public law remedies, this issue was considered when administrative tribunals were constituted for the first time to substitute ordinary remedies. It was upheld subject to the condition that the tribunals are worthy successors, meaning that they must have the necessary credibility, efficiency and other features that are integral to judicial remedy. 19. Similarly, arbitration being a substituted remedy contracted by the parties, it must also comprise the basic features of a judicious remedy, the most important being an independent and impartial decision-making forum. 20. The question whether the substituted forum continues to inhere the essentiality of a remedy, in order to be compliant with the larger principle of access to justice, is for the court to examine. The Arbitration Act incorporates this principle of public policy in Sections 11, 12 as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dment is that there are now two separate categories for the parties to challenge the appointment of an arbitrator. First, a challenge under Section 12(3) to an appointed arbitrator based on justifiable doubts regarding his independence and impartiality, by using the procedure under Section 13. While Section 12(3) itself remains unamended, the insertion of Explanation 1 in Section 12(1), read with the Fifth Schedule, now enlists the circumstances that give rise to justifiable doubts as to an arbitrator's independence and impartiality. The Fifth Schedule contains 34 entries that have been adopted from the Red and Orange Lists of the IBA Guidelines. A written disclosure on these grounds must be made in the form provided in the Sixth Schedule.51 22.1 The second category is under Section 12(5) which declares certain persons to be 'ineligible' to be appointed as arbitrators. These ineligibilities are enlisted in the Seventh Schedule. The provision itself stipulates that such ineligibility is notwithstanding any prior agreement to the contrary. In these situations, the ineligibility of the person to act as an arbitrator is a matter of law and goes to the root of their appointment52. As t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l by placing a restriction on the choice of the parties in appointing certain persons as arbitrators, who are declared as "ineligible" under the Seventh Schedule. Section 12 is therefore a statutory incorporation of the public policy principle of access to justice that I have delineated hereinabove, and the Fifth and Seventh Schedules enlist the situations when the appointment of certain persons could and would conflict with the independence of the tribunal. The courts can examine whether an appointment procedure accords or violates this provision. Therefore, the court will be guided by Section 12 of the Act, read with the Fifth and Seventh Schedules, to determine whether arbitration agreements providing for unilateral appointments and panel appointments are opposed to the public policy duty on the parties to appoint an independent tribunal. 26. The next important question is the stage at which the court will exercise its power and jurisdiction to examine whether the arbitration agreement is in consonance with Section 12 and the broad public policy principle of constitution of an independent and impartial tribunal. I will now consider this question. G. Power of the Court to Const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned with sub-section (6) here, as it applies when the parties have determined an appointment procedure but it fails due to the failure of one of the parties, the appointed arbitrators, or the entrusted arbitral institution. In such cases, the court will appoint the arbitrator upon an application from the parties, and while doing so, it shall have due regard to the qualifications required of the arbitrator by the agreement and other consideration as are likely to secure the appointment of an independent and impartial arbitrator, as provided under sub-section (8). 30. While the general rule is that the court may adhere to the appointment procedure in the agreement in view of party autonomy, it is not bound by this procedure.57 Rather, Section 11(8) allows the Court to weigh other considerations regarding the qualifications of the arbitrator under the agreement, or to secure the independence and impartiality of the arbitrator, and in that light, appoint a person as an arbitrator by deviating from the procedure in the agreement.58 When "there is material to create a reasonable apprehension that the person mentioned in the arbitration agreement as the arbitrator is not likely to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointments or appointments from a panel maintained by one party. All it does is that it leaves it open for the parties to the agreement to apply to the court if there are concerns regarding the neutrality or objectivity of arbitrators appointed through the agreed upon procedure. The court will then examine the facts, circumstances, material, and evidence in every application before it, to determine whether a case is made out to appoint an arbitrator de hors the agreement, but such ruling will be specific to that case rather than a declaration prohibiting such agreements altogether. 34. Assertions that a person's freedom to contract is grounded only in common law and statute, are ostensible at best. The freedom of speech and expression engrafted in Article 19(1)(a) of the Constitution and significantly, the freedom to carry on occupation, trade and business Article 19(1)(g) read with the constitutional right to property under Article 300A, do provide a substantial foundation for a constitutional basis for the 'freedom to contract'. The statutory framework governing contract laws, statutory restrictions on what contracts are lawful, what contracts are void and what considerations are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Access to justice, and by implication effective arbitral remedies are equally relevant for "the common man, for the poor and the humble, for those who have businesses at stake, for the "butcher, the baker and the candlestick maker'".62 H. Precedents of this Court on Section 12(5) after its amendment 38. The substantial argument before us is that a unilateral or panel-based appointment process is invalid under Section 12(5) read with the Seventh Schedule. I will now deal with the case-law on Section 12(5), to examine how this Court has interpreted this provision and the public policy consideration to declare certain kinds of arbitration agreements as being violative of Section 12(5). For the sake of brevity and focus, the principles and main holding of each judgment may be stated as follows: I. First, it is important to note that Section 12(5) of the Act is a mandatory and non-derogable provision, which overrides the arbitration agreement between the parties that prescribes a person who is ineligible to act as an arbitrator. However, the proviso enables parties to waive its applicability through an express agreement in writing between them, subsequent to the dispute.63 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. IV. Subsequently, in Perkins,72 the Court interpreted and relied on the ruling in TRF (supra) while considering an arbitration agreement where the Chairman and Managing Director (CMD) of the respondent could appoint the sole arbitrator. It held that even if the arbitration agreement does not provide for the CMD to act as an arbitrator, as was the case in TRF (supra), he remains incompetent to nominate the arbitrator, which stems from his interest in the outcome of dispute, thereby creating a possibility of bias.73 The Court held that the ineligibility to appoint is a result of operation of law, as a person who is ineligible to act as an arbitrator must not have an exclusive role in charting the course of dispute resolution by appointing the arbitrator.74 However, in cases where both parties can nominate an arbitrator of their choice, the advantage to any one party would get counter-balanced.75 The problems in the reasoning in TRF (supra), i.e., the absence of a statutory source for ineligibility to appoint, and justifiable doubts regarding the nominated arbitrator's independence and impartiality to warrant a court appointment de hors the agreement, are not addressed even in P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdi Engineering Limited v. Uttarakhand Jal Vidyut Nigam Limited81, the Court cited and followed Perkins (supra) to appoint an independent arbitrator, as the arbitration agreement therein was similar to that in Perkins (supra). 39. This Court has also interpreted entries of the Fifth and Seventh Schedules of the Act, and has set out their contours in various cases. The following principles can be culled out from the judgments: I. In HRD v. GAIL (supra), this Court held that a broad commonsensical approach must be adopted while interpreting the entries of the Schedules, such that they are not unduly enlarged or restricted.82 It rejected the submission that an expansive view must be taken to remove even the remotest likelihood of bias since the grounds for challenge of an award have been narrowed after the 2015 Amendment.83 Rather, it held that since the entries in these Schedules are based on the Red and Orange Lists of the IBA Guidelines, they must be interpreted as per the principles contained in these Guidelines. The standard to be adopted is that a reasonable third person who has knowledge of the relevant facts and circumstances would conclude that there is a likelihood of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecedents may provide insights, they should be referenced cautiously, acknowledging that differences in context may make direct reliance inappropriate. 42. Legislative framework of certain foreign jurisdictions. Internationally, party autonomy is highly valued in appointing arbitrators and composing arbitral tribunals. For example, the New York Convention90 (Article V(1)(d)) permits refusal of award recognition if the tribunal's composition deviates from party agreement, underscoring the primacy of party autonomy. The UNCITRAL Model Law also upholds party autonomy as a core principle in tribunal composition. Similarly, Section 591 of Federal Arbitration Act of US accords primacy to appointment procedure as agreed to between the parties. The arbitration agreement must be in accordance with Section 2 which requires the same to be, "valid, irrevocable, and enforceable, save upon such grounds as exists at law or in equity for the revocation of any contract." This has been used by US courts to source 'unconscionability' as a ground to test the validity of an arbitration agreement.92 43. Article 2 of Geneva Protocol on Arbitration Clauses93 provides that "the constitution of arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... precedents in this regard and has referred to decisions of the Swiss Federal Tribunal95 and Paris Cour d'Appel96 (Paris Appellate Court), which hold that the composition of the arbitral tribunal is a matter of party autonomy and the appointment, removal, and replacement of arbitrators must be as per the agreement. The Court of Cassation (France), in one of its decisions97, has upheld an arbitration agreement where one party provides a list of potential arbitrators from which the other party must choose an arbitrator. 48. However, at the same time, there are pronouncements which frown upon unilaterality in matters of appointment of arbitrator/arbitral tribunal. For instance, in one Swiss decision98, it has been held: "The Federal Tribunal...has developed principles, under which conditions an arbitral tribunal sufficiently safeguards impartial and independent adjudication. The most important of these principles....is that no party may have a preponderant influence on the appointment of the tribunal." (emphasis supplied) 49. American Courts have also dealt with this issue. Despite there being no express statutory proscription against unilaterality in matters of appointment, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng arbitrators who rule against the company by removing them from the list. Given the unrestricted control that one party (Hooters) has over the panel, the selection of an impartial decisionmaker would be a surprising result." 50. Similarly, in Murray v. United Food and Commercial Workers Union102, the District Court of Maryland held the arbitration agreement to be unconscionable because the arbitrator was selected from a list of potential arbitrators curated by one of the parties to the dispute. In doing so, the court observed that, "Although an arbitration agreement will not be invalidated for failure to "replicate the judicial forum", we again refuse to enforce an agreement so utterly lacking in the rudiments of even- handedness." This line of reasoning continues in McMullen v. Meijer, Inc.103 where the agreement granted one party unilateral control over the pool of potential arbitrators. There, the court noted that, "when the process used to select the arbitrator is fundamentally unfair, as in this case, the arbitral forum is not an effective substitute for a judicial forum, and there is no need to present separate evidence of bias or corruption." 51. The importance of compo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d erudite judgment of the Hon'ble Chief Justice Dr. D.Y. Chandrachud. I have already given reasons for my decision. I find it necessary to indicate certain issues about the perspective and the final conclusion. 54.1 At the outset, I reiterate the necessary distinction between the duty of the parties to arbitration agreement to constitute an independent arbitral tribunal and the duty of the arbitrator to act judicially. In this case, we are concerned with the former and not about the duty of the arbitrator. 54.2 Holding that an arbitral tribunal has the "trappings of a court" as it determines the competing rights and liabilities of parties through an 'adjudicatory process', and therefore it must act judicially has the problems of introducing public law principles in contractual dispute resolution. This formulation has engendered the application of principles of procedural equality, equal treatment under Article 14, fairness, non- arbitrariness, justice, reasonableness, impartiality and bias, all of which have been subsequently invoked in the judgment as core values. I tried to locate the obligations of contracting parties to the arbitration agreement within the province of contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage of considering the application under Section 11. I am of the opinion that we cannot, as an advance ruling, give a declaration that all arbitration clauses enabling unilateral appointments are null and void at this stage. 54.5 I am of the opinion that a priori declaration that arbitration agreements that prescribe unilateral appointment procedures are invalid can lead to many problems in the day-to-day working of arbitral remedies. Particularly for institutions involving multiple transactions such as insurance claims, credit card defaults, etc. involving large number of cases but each claim may be of small sum. Our declaration of law substantially covers domestic arbitration, it will not be confined to high and international commercial arbitration. There could also be situations where the unilateral constitution of the panel of arbitrators could have credible members with respect to which no one can have an objection. Rather than declaring that all such agreements are void, it would be better to strengthen the remedial mechanisms available under the Act. This way, the choice of the parties is not completely ignored, and impartiality and independence of the arbitral tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution, i.e., independence and impartiality must exist in every forum. This essential feature is the inviolable public policy consideration under Section 23 of the Contract Act from which the parties cannot opt out. Arbitration agreements which are not compliant of this public policy consideration are void under Section 23 of the Contract Act. Thus, there is a statutory incorporation of duties of the parties to the arbitration agreement. IV. If an arbitration agreement is considered by the court as not enabling constitution of an independent and impartial tribunal, any submission that the said agreement is a binding contract, or it is in exercise of party autonomy is not tenable as such an agreement will be against public policy and as such not an enforceable contract. V. In view of the statutory incorporation of these duties, it is not necessary to apply public law principles evolved in constitutional and administrative laws. Sourcing these duty obligations from Contract Act and Arbitration Act is important to maintain the integrity of the party autonomy and restraint of judicial institutions. VI. The power to ensure that the arbitration agreement is compliant of the publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exercised in complete disregard of these principles - even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties' apparent agreement. A sensible law cannot, for instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the parties agreed. The Commission hastens to add that Mr. PK Malhotra, the ex officio member of the Law Commission suggested having an exception for the State, and allow State parties to appoint employee arbitrators. The Commission is of the opinion that, on this issue, there cannot be any distinction between State and non-State parties. The concept of party autonomy cannot be stretched to a point where it negates the very basis of having impartial and independent adjudicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator is that much more onerous - and the right to natural justice ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise of persons with legal background like Judges and lawyers of repute as it is not necessary that all disputes that arise, would be of technical nature. There can be disputes involving purely or substantially legal issues, that too, complicated in nature. Likewise, some disputes may have the dimension of accountancy, etc. Therefore, it would also be appropriate to include persons from this field as well.] 9 Voestalpine (supra) [30] ["30. Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the Law Commission also in its report, duty becomes more onerous in government contracts, where one of the parties to the dispute is the Government or public sector undertaking itself and the authority to appoint the arbitrator rests with it. In the instant case also, though choice is given by DMRC to the opposite party but it is limited to choose an arbitrator from the panel prepared by DMRC. It, therefore, becomes imperative to have a much broadbased panel, so that there is no misapprehension that principle of impartiality and independence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith. (2) Questions concerning matters governed by this Law which are not expressly settled in it are to be settled in conformity with the general principles on which this Law is based."] 24 Ilias Bantekas, 'International Origin and General Principles' in UNCITRAL Model Law on International Commercial Arbitration: A Commentary (Cambridge University Press, 2020) 44. 25 Ibid, at 48 26 Gary Born (supra) 2971; Emmanuel Gaillard, Legal Theory of International Arbitration' (Brill, 2010) 55 27 Cox and Kings Ltd v. SAP India Pvt Ltd, 2023 INSC 1051 [60] 28 Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2016) 4 SCC 126 [5] 29 Centrotrade Minerals & Metals Inc v. Hindustan Copper Ltd., (2017) 2 SCC 228 [38] 30 Section 5, Arbitration Act. [It reads: "5. Extent of judicial intervention - Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."] 31 Sections 3, 11(1), 14(2), 15(3), 15(4), 20(3), 21, 23(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions in the Model Law itself: "Firstly, a considerable number of provisions are obviously by their content of a mandatory nature. Secondly, there are a number of provisions granting freedom to the parties, accompanied by suppletive rules failing agreement by the parties; here the question of mandatory nature seems to be a philosophical one and equally redundant. Thirdly, with respect to some draft articles only a part of the provisions (e.g. a time limit) is non-mandatory. Fourthly, in respect of some of the provisions already decided to be non-mandatory, the Working Group was of the view that this should, for the sake of emphasis, be expressed in the individual provision, despite the general listing in article 3. Fifthly, it is suggested that, in addition to the provisions already decided to be non- mandatory and drafted accordingly, [...] there are only few further provisions which may be regarded as non- mandatory and, if so, could be easily marked as such by adding the words "unless otherwise agreed by the parties;"] 57 Holtzmann and Neuhaus (supra) 198 58 Section 34(2)(a)(v), Arbitration Act. [It reads: "(v) the composition of the arbitral tribunal or the arbitral procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d choice, shall be treated as chosen by the parties."] 64 Lord Mustill and Stewart Boyd, Commercial Arbitration (2 nd edn, Butterworths 2001) 23. 65 Ibid, at 57. 66 Section 10, Arbitration Act. [It reads: "10. Number of arbitrators - (1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number. (2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of sole arbitrator."] 67 UNCITRAL, 2012 Digest of Case Law on the Model Law on International Commercial Arbitration (2012) 59 68 Gary Born (supra) 1807 69 Fouchard, Gaillard and Goldman on International Commercial Arbitration (Emmanuel Gaillard and John Savage, eds. 1999) 453. 70 Article 2, Protocol on Arbitration Clauses signed on 24 September 1923 71 A/CN.9/233 [17] 72 ibid 73 Shahla Ali and Odysseas G Repousis, 'Appointment of Arbitrators' in UNCITRAL Model Law on International Commercial Arbitration (Ilian Bantekas, et al eds, 2020) 74 Gary Born, International Commercial Arbitration (3 rd edn.,) 1783; Also see Michael Pryles, 'Limits to Party Autonomy in Arbitral Procedure' (2007) 24(3) Journal of International Arbitratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down by various labour and social welfare legislation, still the court has to respect the terms of the contract entered into by parties and endeavour to give importance and effect to it. When the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause."]; 77 "PSUs" 78 Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd., (2009) 8 SCC 520 [30] 79 Raja Transport (supra) [34]; Denel (Proprietary) Ltd. v. Bharat Electronics Ltd., (2010) 6 SCC 394 [21]; Bipromasz Birpron Trading Sa v. Bharat Electronics Ltd., (2012) 6 SCC 384 [50] 80 Union of India v. Singh Builders Syndicate, (2009) 4 SCC 523 [25]. ["25. We find that a provision for serving officers of one party being appointed as arbitrator(s) brings out considerable resistance from the other party, when disputes arise. Having regard to the emphasis on independence and impartiality in the new Act, Government, statutory authorities and government companies should think of phasing out arbitration clauses providing for serving officers and encourage professionalism in arbitration."]; See North Eastern Railway v. Tripple Engg. Works, (2014) 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12"] 83 Bharat Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755 [17] ["17. The scheme of Sections 12, 13 and 14, therefore, is that where an arbitrator makes a disclosure in writing which is likely to give justifiable doubts as to his independence or impartiality, the appointment of such arbitrator may be challenged under Sections 12(1) to 12(4) read with Section 13. However, where such person becomes "ineligible" to be appointed as an arbitrator, there is no question of challenge to such arbitrator, before such arbitrator. In such a case i.e. a case which falls under Section 12(5), Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e. de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator. This being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator under Section 14(1) itself."] 84 A/CN.9/264, page 30 85 Ibid. 86 Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commercial Arbitration (2020, CUP) 524 93 Report of the United Nations Commission on International Trade Law on the work of its eighteenth session (3-21 June 1985) Supplement No. 17 (A/40/17) [176]. 94 A/CN.9/246 [62] 95 Holtzmann and Neuhaus (supra) 552. [It was observed by the Secretariat that: "It had always been the understanding of the Working Group ... that the fundamental principle enunciated in article 19(3) [Article 18 in the final text] would apply to arbitral proceedings in general; it would thus govern all provisions in chapter V and other aspects, such as the composition of the arbitral tribunal, not directly regulated therein."] 96 Holtzmann and Neuhaus (supra) 551 97 K K Saksena v. International Commission on Irrigation & Drainage, (2015) 4 SCC 670 [43] 98 Jody Freeman, 'The Contracting State' (2000) 28(1) Florida State University Law Review 155 99 Subodh Kumar Singh Rathour v. Chief Executive Officer, 2024 SCC OnLine SC 1682 100 Stavros Brekoulakis and Margaret Devaney, 'Public-private arbitration and the public interest under English law' (2017) 80(1) Modern Law Review 22, 30. 101 (2019) 8 SCC 112 102 "CPC" 103 Pam Developments Pvt Ltd (supra) [27-28] [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration Act. [It reads: 36. Enforcement (1) Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were a decree of the court."] 119 Redfern and Hunter on International Arbitration (7 th edition, 2022) 3 120 Siemens Engg. (supra) [6]. [6. [...] If courts of law are to be replaced by administrative authorities and tribunals, as indeed, in some kinds of cases, with the proliferation of Administrative Law, they may have to be so replaced, it is essential that administrative authorities and tribunals should accord fair and proper hearing to the persons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them. Then alone administrative authorities and tribunals exercising quasi-judicial function will be able to justify their existence and carry credibility with the people by inspiring confidence in the adjudicatory process. The rule requiring reasons to be given in support of an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are able to freely agree on the procedure for the appointment of the arbitrators, provided that there is no violation of the principle of equal treatment."] 130 Section 721(2), Estonian Code of Civil Procedure. [It reads: "(2) If an arbitral agreement gives one of the parties, in the formation of an arbitral tribunal, an economic or other advantage over the other party which is materially damaging to the other party, such party may request that the court appoint one arbitrator or several arbitrators differently from the appointment which already took place of from the rules of appointment agreed upon earlier."] 131 (2009) 3 SCC (Civ) 460 132 M Nagaraj v. Union of India, (2006) 8 SCC 212 [106] 133 Shree Meenakshi Mills Ltd. v. A V Visvanatha Sastri, (1954) 2 SCC 497 [6] 134 (2010) 11 SCC 1 [102] 135 Jerry L Mashaw, 'The Supreme Court's Due Process Calculus for Administrative Adjudication in Mathews v Eldridge: Three Factors in Search of a Theory of Value' (1976) 44(28) University of Chicago Law Review 29, 52. [Professor Mashaw states that "insofar as adjudicatory procedure is perceived to be adversarial and dispute resolving, the degree to which procedures facilitate equal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fourteenth Amendment of the American Constitution, enjoins that equal protection shall be secured to all such persons in the enjoyment of their rights and liberties without discrimination of favouritism. It is a pledge of the protection of equal laws, that is, laws that operate alike on all persons under like circumstances."] 150 State of Andhra Pradesh v. Nalla Raja Reddy, 1967 SCC OnLine SC 85 [24] 151 E P Royappa v. State of Tamil Nadu, (1974) 4 SCC 3 [85] 152 Maneka Gandhi v. Union of India, (1978) 1 SCC 248 [7] 153 Satyavir Singh v. Union of India, (1958) 4 SCC 252 [26] 154 Maneka Gandhi (supra) [7] 155 Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC 722 [16] 156 (1985) 3 SCC 398 157 K L Tripathi v. State Bank of India, (1984) 1 SCC 43 [32] 158 Bank of Patiala v. S K Sharma, (1996) 3 SCC 364 [29] 159 S L Kapoor v. Jagmohan, (1980) 4 SCC 379 [24] 160 Dharampal Satyapal Ltd. v. CCE, (2015) 8 SCC 519 [26] 161 2023 SCC OnLine SC 366 [53] 162 (1969) 2 SCC 262 163 A K Kraipak (supra) [15]. [15. [...] But then the very fact that he was a member of the selection board must have had its own impact on the decision of the selection board. Further admittedly he participa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lucknow, (1976) 3 SCC 585 [12]; Union of India v. B N Jha, (2003) 4 SCC 531 [28] 171 R v. Rand, (1866) LR 1 QB 230, 232. [Blackburn J. observed that "[t]here is no doubt that any direct pecuniary interest, however small, in the subject of inquiry, does disqualify a person from acting as a judge in the matter."]; R v. Camborne Justices, ex parte Pearce, [1955] 1 QB 41. 172 Dimes v. The Proprietors of the Grand Junction Canal, (1852) 3 HLC 759; Locabail (UK) Ltd. v. Bayfield Properties Ltd, [1999] EWCA Civ 3004 173 Locabail (supra) [8] 174 (1852) 3 HL Cas 759 175 Dimes (supra) 793. [Lord Campbell observed: "No one can suppose that Lord Cottenham [Lord Chancellor] could be, in the remotest degree, influenced by the interest that he had in this concern; but, my Lords, it is of the last importance that the maxim that no man is to be a judge in his own cause should be held sacred. And that is not confined to a cause in which he is a party, but applies to a cause in which he has an interest."] 176 [1999] UKHL 1 177 "AI" 178 "AICL" 179 In re Pinochet (supra) [Lord Browne-Wilkinson held: "My Lords, in my judgment, although the cases have all dealt with automatic disqualification on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Helow v. Secretary of State, [2008] UKHL 62. [Lord Hope of Craighead observed: "2. The observer who is fair-minded is the sort of person who always reserves judgment on every point until she has seen and fully understood both sides of the argument. She is not unduly sensitive or suspicious, as Kirby J observed in Johnson v Johnson (2000) 201 CLR 488, 509, para 53. Her approach must not be confused with that of the person who has brought the complaint. The "real possibility" test ensures that there is this measure of detachment. The assumptions that the complainer makes are not to be attributed to the observer unless they can be justified objectively. But she is not complacent either. She knows that fairness requires that a judge must be, and must be seen to be, unbiased. She knows that judges, like anybody else, have their weaknesses. She will not shrink from the conclusion, if it can be justified objectively, that things that they have said or done or associations that they have formed may make it difficult for them to judge the case before them impartially. 3. Then there is the attribute that the observer is "informed". It makes the point that, before she takes a balanced a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in a particular area of activity. Any duty of independence might involve defining a required level of independence, which in turn would be impossible, or it might involve defining independence in terms of impartiality after all, which we note is the approach of some foreign legislation."] 197 "ECtHR" 198 Nicholas v. Cyprus, Application No. 63246/10 [49] 199 Morice v. France, Application No. 29369/10 200 Micallef v. Malta, Application No. 17056/06; Morice (supra) [77]; 201 See William Wade and Christopher Forsyth, Administrative Law (12 th edn, Oxford University Press) 371 202 BEG S.P.A. v. Italy, Application No. 5312/11 (20 May 2021) 203 Rattan Lal Sharma v. Managing Committee, Dr. Hari Ram (Co-Education) Higher Secondary School, (1993) 4 SCC 10 [11] 204 1957 SCC OnLine SC 10 [4] 205 (1974) 3 SCC 459 [14] 206 S Parthasarathi (supra) [16]. [It was observed: "16. The tests of "real likelihood" and "reasonable suspicion" are really inconsistent with each other. We think that the reviewing authority must make a determination on the basis of the whole evidence before it, whether a reasonable man would in the circumstances infer that there is real likelihood of bias. The Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a relationship other than an employee, consultant or an advisor. The word "other" cannot be used to widen the scope of the entry to include past/former employees."] 215 IBA Guidelines on Conflicts of Interest in International Arbitration (25 May 2024) available at: https://www.ibanet.org/document?id=Guidelines-on-Conflicts-of-Interest-in-International-Arbitration-2024 216 Koulis v. Cyprus, Application No. 48781/12. ["63. Given the importance of appearances, however, when such a situation (which can give rise to a suggestion or appearance of bias) arises, that situation should be disclosed at the outset of the proceedings and an assessment should be made, taking into account the various factors involved in order to determine whether disqualification is actually necessitated in the case. This is an important procedural safeguard which is necessary in order to provide adequate guarantees in respect of both objective and subjective impartiality."] 217 Jivraj v. Hashwani, [2011] UKSC 40 [45] 218 Redfern and Hunter (supra) 226 219 Article 3, IBA Rules of Ethics for International Arbitrator 1987 220 Peter Binder (supra) 117 221 Gary Born (supra) 1911, 1912. [Gary Born suggests th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator."] 238 Redfern and Hunter (supra) 211 239 Gary Born (supra) 1952 240 Ibid, 211 241 Ibid. 242 Gary Born (supra) 1794 243 Ibid, at 1796. 244 Perkins (supra) [16] 245 (2023) 8 SCC 226 [20] 246 (2024) 4 SCC 341 [85] 247 See Cox and Kings [63]. 248 Section 2(d) defines consideration as follows: ["(d) When, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;"] 249 Section 16, Contract Act. [It reads: "16. "Undue Influence" defined - (1) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. (2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another - (a) where he hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of unequal bargaining power has no application in case of commercial contracts."] 261 Mahabir Auto Stores v. Indian Oil Corporation, (1990) 3 SCC 752 [12]; Directorate of Education v. Educomp Datamatics Ltd., (2004) 4 SCC 19 [9] 262 Tata Cellular v. Union of India, (1994) 6 SCC 651 [70]; Air India Ltd. v. Cochin International Airport Ltd.,(2000) 2 SCC 617 [7] 263 (1993) 1 SCC 71 [7] 264 Kamdhenu Cattle Feed Industries (supra) [7] 265 (1994) 6 SCC 651 [94] 266 ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd., (2004) 3 SCC 553 [23] 267 ABL International (supra) [53]. ["53. From the above, it is clear that when an instrumentality of the State acts contrary to public good and public interest, unfairly, unjustly and unreasonably, in its contractual, constitutional or statutory obligations, it really acts contrary to the constitutional guarantee found in Article 14 of the Constitution."] 268 (2019) 4 SCC 401 269 ICOMM Tele (supra) [23] 270 ICOMM Tele (supra) [27] ["27. Deterring a party to an arbitration from invoking this alternative dispute resolution process by a pre-deposit of 10 per cent would discourage arbitration, contrary to the object of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddams, 'Unconscionability in Contracts' (1976) 39(4) Modern Law Review 369, 369. 279 John A Spanogle, 'Analyzing Unconscionability Problems' (1969) 117(7) University of Pennsylvania Law Review 931, 932. 280 Arthur Allen Leff, 'Unconscionability and the Code-Emperor's New Clause' (1967) 115(4) University of Pennsylvania Law Review 485, 487. 281 Board of Education of Berkely County v. W Harley Miller Inc, 236 S.E.2d 439 (1977) 282 Ditto v. Remax Preferred Props, 861 P.2d 1000, 1004; Harold Allen's Mobile Home Factory Outlet Inc v. Butler, 825 So.2d 779, 783 (Ala 2002) 283 Graham v. Scissor Tail Inc, 28 Cal 3d 807 284 Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith Inc, 995 F.Supp 190, 208 (D. Mass 1998) 285 173 F.3d 933 286 Hooters of Am Inc (supra) 939 287 355 F.3d 485, 493 288 Cox and Kings (supra) [95] 289 Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 [35]; A Ayyasamy v. A Paramasivam, (2016) 10 SCC 386 [38]; Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 [76] 290 Booz Allen & Hamilton Inc. (supra) [36]. [36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give ris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike a private individual, deal with any person it pleases, but its action must be in conformity with standard or norms which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largesse including award of jobs, contracts, quotas, licences, etc. must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory.] 301 LIC v. Consumer Education & Research Centre, (1995) 5 SCC 482 [23] 302 2023 INSC 1066 303 In re Interplay between Arbitration Agreements under Arbitration and Conciliation Act 1996 and Stamp Act 1899 (supra) [196] 304 Somaiya Organics (India) Ltd. v. State of UP, (2001) 5 SCC 519 [46] 305 Belsund Sugar Co. Ltd. v. State of Bihar, (1999) 9 SCC 620 [112] 306 Sarwan Kumar v. Madan Lal Aggarwal, (2003) 4 SCC 147 [15] 307 2024 SCC OnLine SC 1974 308 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). 22 Section 24(1). 23 Section 25. 24 Section 26. 25 Section 28. 26 Section 29. 27 Section 29A(2). 28 Section 29B. 29 Section 31(7)(a). 30 Section 33(4). 31 Section 34. 32 Sections 35 and 36. 33 Section 37. 34 Sections 38 to 43. 35 Section 10 of the Contract Act 36 Section 14 of the Contract Act. 37 Section 15 of the Contract Act 38 Section 16 of the Contract Act 39 Section 17 of the Contract Act 40 Section 18 of the Contract Act 41 Section 23 of the Contract Act. 42 Section 23 of the Contract Act. 43 Indian Financial Association of Seventh Day Adventists v. M.A. Unneerikutty, (2006) 6 SCC 351, para 17. 44 Gherulal Parekh v. Mahadeodas Maiya, (1959) Supp 2 SCR 406, para 23; Central Inland Water Transport Corpn Ltd v. Brojo Nath Ganguly, (1986) 3 SCC 156, para 92; Rattan Chand Hira Chand v. Askar Nawaz Jung, (1991) 3 SCC 67, para 17; Indian Financial Association of Seventh Day Adventists (supra), para 19; Assistant General Manager v. Radhey Shyam Pandey, (2020) 6 SCCC 438, para 72. 45 Pollock and Mulla, The Indian Contract and Specific Relief Acts, vol 1 (14th edn, Lexis Nexis 2013), 524. 46 ibid, 524-566; P. Rathinam v. Union of India, (1994) 3 SCC 394, pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Energo Engineering Projects Limited, (2017) 8 SCC 377. 70 ibid, paras 50, 53. 71 ibid, paras 50-54. 72 Perkins Eastman Architects DPC v. HSCC (India) Limited, (2020) 20 SCC 760. 73 ibid, para 20. 74 ibid, para 21. 75 ibid. 76 Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), (2020) 14 SCC 712. Hereinafter referred to as "CORE". 77 ibid, para 22. The Court relied on Union of India v. Parmar Construction Company, (2019) 15 SCC 682 and Union of India v. Pradeep Vinod Construction Co, (2020) 2 SCC 464. 78 ibid, para 26. The Court relied on Voestalpine (supra) and Govt. of Haryana PWD Haryana (B and R) Branch v. G.F. Toll Road (P) Ltd, (2019) 3 SCC 505. 79 ibid, paras 37-38. 80 (2023) 8 SCC 226. 81 (2024) 4 SCC 341, see paras 85-91. 82 HRD v. GAIL (supra), para 20. 83 ibid. 84 ibid. 85 (2021) 17 SCC 248. 86 (2022) 3 SCC 1. 87 Jaipur Zila Dugdh (supra), para 14. 88 ibid, paras 16-17. 89 Chennai Metro Rail (supra), para 41. 90 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958. 91 Section 5, Federal Arbitration Act. It reads as: Section 5. Appointment of arbitrators or umpire If in the agreement provision be m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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