Law must eliminate bias

Proposed amendments to the Arbitration Act must clearly spell out the procedure for appointing arbitrators, says Dr. P. Madhava Rao

Strengthening arbitration institutions enabling them to appoint the arbitrator as requested by the parties will not only address the issue of unilateral appointment of Arbitrators by some interested parties and institutions but also reduce the burden on courts, and support the Government's endeavours to popularise Alternative Dispute Resolution (ADR) mechanisms in India.

The Supreme Court of India has recently held that unilateral appointment of an arbitrator by one party is unconstitutional, as it may violate the private party's right to a fair and impartial tribunal. On 8 November 2024, the Supreme Court issued a historic decision in Central Organisation for Railway Electrification vs. M/s ECI-SPIC-SMO-MCML (JV) regarding the unilateral appointment of arbitrators.

A five-judge bench considered whether an arbitration clause that allows one party to create a panel of arbitrators from which the other party selects them complies with the principle of impartiality under the Arbitration and Conciliation Act of 1996 (Arbitration Act). This decision has major consequences for party autonomy and equality in arbitration agreements, ultimately emphasising the idea that party autonomy in arbitration is contingent on fairness and impartiality.

Not only the public sector organisations, even some private financial institutions are found to have an arbitration clause in the agreements between them and parties, enabling them to appoint an arbitrator of their choice from among the panel maintained by them. The Arbitration Act does not explicitly permit this, but clearly states that the parties should appoint an arbitrator on their own which was being conveniently used by these entities to appoint an arbitrator from among the panel maintained by them without the express consent of the other party.