Whether appointment of a Sole Arbitrator under "Other Means" provided in the Agreement will be considered as Unilateral Appointment and Illegal?

Sole Arbitrator Appointment always is a contentious issue in arbitration. It is common understanding that a Sole Arbitrator must be selected by both parties with mutual consent. The parties in dispute falls in a confrontation mood cannot reach to an understanding. When there is no specific pre arrangement in the agreement, appointing a Sole Arbitrator by parties themselves is not an easy task. One party has to propose a name or more, and the other party has to accept such a proposal. It is uncommon that the one party easily accept the names proposed by the opposite party. This becomes a crux of the issue. Many times parties approach the court to get appointment of a sole arbitrator.

Many times, one party proposes, and the other party either disposes the same or maintains silence without any response. Each party will feel that the name(s) proposed by the other party may have some leanings with that party and deny to accept those names.

It is a regular practice, the party who send Sec.21 notice to the other party has to wait for 30 days (or if any time specifically preferred in the agreement) for the acceptance of other party. After that, if no other means has been specifically provided in the agreement to secure the appointment of an arbitrator, the initiator of the arbitration can approach the concerned court under Sec.11 of the Act.

Without issuing a s21 notice, a party cannot approach the Court for appointment of a sole arbitrator. Court will reject such applications. A party can knock the doors of court only after invoking s21 notice, and waited up to the designated period. Parties are expected to complete the procedure stated in the agreement or in the Act before invoking Sec.11.

When a party approach the Court under s11 petition, the court will examine the existence of a valid arbitration agreement, verify whether the petitioner is a party to the said agreement, and the disputes raised by him are in live, whether the said party issued Sec.21 notice, and whether the parties fail to reach an agreement expected of them under that procedure (i.e. issuance of notice, and no response from the other party within the agreed period). If all other factors are affirmative, but section 21 notice not served, and validity period not completed, the court will put aside such applications.

More importantly the Court also look after whether the agreement on the appointment procedure provides any other means for securing the appointment, other than approaching the court [Vide Sec.11(6) last para]. A party can request the Court to take the necessary measures to appoint an arbitrator unless the agreement on the appointment procedure provides other means for securing the appointment.

Other Means:

The parties are free to determine the process of appointment of a sole arbitrator, and they can define how to meat specific evetualities. If any other means has been pre-determined by the parties in their agreement, the party who initiated the arbitration by Sec. 21 notice, and failed to get the response from the opposite party should also finish any other means existing in the agreement before invoking s11 petition. The Court also examine whether any such arrangement is there, and the party filed Sec.11 petition exhausted the said (other means of) procedure.

Selection of an Institution:

For example, parties may agree to approach a named institute in case of failure to appoint a sole arbitrator by mutual consideration. One party has initiated arbitration, by proposing some names as sole arbitrator. The other party not responded. Then, the party who has initiated must approach the Named Institute for appointment, but not the court. If the Institute of Engineers (India) has been named, the party has to approach the institution for appointing the Sole Arbitrator. Herein approaching the said institute is the other means. If the named institution fails to appoint the sole arbitrator in the given time, then the said party can approach the concerned court for appointment under Sec.11 of the Act.

The Case of a Typical Agreement:

In an arbitration agreement, the parties have decided a sole arbitrator is to be appointed for dispute resolution. The initiator has to propose 5 names of retired judges so that the opposite party may select one among them. If the said names are not acceptable, the other party must propose 5 retired judges and the party who initiated arbitration can select one. If the other party fails to respond within 30 days, the first party can select one among the proposed names as Sole Arbitrator. This is the gist of the said agreement. It has defined the other means in case the Sec.21 notice fails. Parties cannot reach the court u/s11, without complying the said other means.

The 2nd part of the agreement i.e. the other means comes to operation only if the opposite party fails to select one among the proposed names within 30 days after Sec.21 notice. The Respondent of Sec.21 notice have the choice either select a name from the list, or reject all names and can propose alternate names. Then the party first proposed the names must select one among the same as the Sole Arbitrator. The question is whether he can move to the court to secure appointment of a sole arbitrator, or he has to comply the other means provided in the agreement?

Validity of the Provision:

Whether the selection of a Sole Arbitrator by a party from the list proposed by himself will be construed valid appointment of Sole Arbitrator? What the evolved law is envisaging? Whether such a system can be considered as a valid procedure for securing the appointment? Whether the said other means is a right process and must be exhausted by the initiator of arbitration? Whether a Court can allow a Sec.11 petition by the said party without exhausting the above procedure to secure the appointment of a sole arbitrator? Whether the said other means narrated in the agreement is a restriction to the Court to allow Sec.11 Application?

I have not seen any judgment wherein a court has allowed Sec.11 petition, without the parties exhausting the prefixed appointment procedure in the contract.

However, in the above procedure if followed, a question of Unilateral Appointment of a Sole Arbitrator by a single party may arise. It is not now a res judicata, as many courts have decided that Unilateral appointment of a Sole Arbitrator is invalid in law.

Courts have ruled that appointment of a Sole Arbitrator by one party to the dispute as "appointment of an arbitrator of his choice by a party who has interest in the outcome of the arbitration is against law". It is also stated by appointing a sole arbitrator by a party means "sitting as a judge for his own cause". It is also stated that "appointment of a sole arbitrator by one party, without a chance to the other party is against the fundamental policy of India and against to natural justice". It is also mentioned that a new 20th Entry in Schedule-VII is now emerged as "unilateral appointment of a sole arbitrator by one party" creates a prohibited relation hence declared as against to Sec.12(5) and treated such appointments are illegal.

Is it a Bad Agreement?

Whether the appointment of a Sole Arbitrator by one party is bad on all occasions? Whether the above arbitral agreement with a other means of provision is unfit in law? Up to this date, all the judgments denied unilateral appointment of a sole arbitrator considered the following key points:

1. The agreement itself is allowing a party to appoint the sole arbitrator of his choice without giving an opportunity to the other party.
2. The agreement is allowing a party to propose few names of persons related to their organization only, and ask the other party select one. [Railway, CPWD].
3. The agreement enabling the drafter of the contract to appoint a named arbitrator of his choice while signing the contract itself.
4. The MD/Chairman of the Employer will be named as appointing authority of Sole Arbitrator.

Courts have rejects such appointments considering the same will attract Schedule-VII reading with Sec.12(5). Courts have rejected all such unilateral appointments prior award stage, or even set aside the awards where awards issued by an arbitrator appointed unilaterally.

However, in the given example above, the first party has to propose 5 names of retired judges. Choice is given to the other party – either to select one among them; or deny all names and propose 5 such names by himself.

It is agreed by one and all that the Respondent who has received the Sec.21 notice has to prove his commitment to arbitration (which is the contractual obligation of that party) by actively participating the arbitral process as per the agreement. He must cooperate to resolve the disputes through arbitration and expected to act as per the agreement to commence the arbitration. If he kept silent in order to avoid the arbitration, the same will be construed as relinquishment of his known right under Sec. 4 of the Act. The arbitration initiator has the right to take next step for appointment of the tribunal.

As such, the initiator will get the right/obligation to fulfil the other means provided in the agreement to secure the appointment of a sole arbitrator. Whether such appointment of a sole arbitrator will be construed as UNILATERAL APPOINTMENT, or it is an ALERNATE APPOINTMENT?

What is meant by unilateral?

Unilateral means, not bi-lateral but one-sided without the mutual consent. Often describes action by one of multiple parties, without the agreement or participation of others by virtue of an unconscionable clause in the contract, which allowing one party to take actions as per his whims and fancies.

On the other hand when an arbitration agreement is providing mutual action for appointment of a sole arbitrator, and if one-party refuses to act with the intention to avoid or evade the arbitration, or for any other reason, it will be considered as a voluntary waiver by choice, and considered that the said party has decided to face whatever may be the legal implications of such action/inaction.

It is common in arbitral matters that a party acts with reluctance and decides not to join arbitration for the obvious reasons. However, such party is bound to abide by the legal action taken by the other party, when a court appoint a sole arbitrator under Sec.11(6). Similarly, when the agreement is having another means of getting appointment of an arbitrator also, as per Sec.11(6)(c) he has to obey the same.

Like in any other arbitration, the Respondent can challenge the arbitration itself, or appointment of the arbitrator u/s 12, 13, 14, 16, and u/s 34, if he has a valid case. A sole arbitrator’s mandate can be challenged in appropriate time under the above sections, even such arbitrator appointed with mutual arrangement also, or appointed by a court, or by an agency, or by a named person.

However, in the given case, as the Sole Arbitrator is to be appointed by a single party, in terms of the other means provided in the Agreement read with s11 (6) (c) whether such appointment of the arbitrator will be considered as Unilateral Appointment, and whether such appointment will be void ab initio?

In my view it is not a unilateral appointment. It is appointment of a sloe arbitrator by one party that has been made valid by the other party at his option, and by voluntary relinquishment of his known right. Unlike other arbitration agreements where courts rejected appointment of sole arbitrator by a party as unilateral appointments, in this case the opposite party agreed that if he fails to appoint a sole arbitrator, the first party can appoint an arbitrator from the proposed names. It is deemed as the VOLUNATARY CHOICE taken by the Respondent to allow the initiator to appoint his choicest arbitrator from the list proposed.

The non-response of the opposite party will be considered as a deemed consent given to the first party to proceed with the other means stated in the agreement. The Respondent has two choices, either he can select one of the proposed names; or deny the said names and proposed his own names. The first part is his right, and the second part his obligation. When he is not ready to utilise the options before him, and kept silent without stating any reason, he has the second choice to allow the first party to follow the rule of other means. As such will lose the chance to challenge the appointment of a sole arbitrator by the other party stating that the said appointment is an unilateral appointment.

It is pertinent to note that the 2nd part of arbitration agreement i.e. the other means to secure the appointment of a sole arbitrator, will become operative only when the opposit party relinquish his right. However, he can challenge the appointment of the Sole Arbitrator by any other means available in the Act, such as lack of required qualification, and not having necessary capability, or regarding his bias, or questioning his independence and impartiality etc. except on unilateral appointment ground.

The alternative appointment method of appointing a sole arbitrator granted by the Respondent by his action or inaction cannot be construed as unilateral appointment. As such, the mandate of the arbitrator cannot be considered as a de facto or de jure incapability and not challengeable under Section 14.

Further, the opposing party can invoke Sec.14 against such an arbitrator appointed under the other means provided in the contract, only by joining the arbitration before the said arbitrator, as a party out side to the arbitration cannot challenge an arbitrator's appointment. When the party opposing the sole arbitrator being a Respondent in the arbitration, cannot file a Sec.14 case directly without first exhausting the other means provided in the Act, such as Sec.12, Sec.13 and Sec.16.

Further, a party who has not utilised his known rights at right time to appoint the arbitrator cannot challenge the appointed arbitrator under the grounds of Unilateral Appointment.

Note:

If the arbitral fraternity having any objections on my views above, and having any alternative opinions on this post, I am grateful, if they respond and showcase lapses and lacunas in my averments or suggest any improvements.

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