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Person Interested in Outcome of the Dispute Must Not Have Power to Appoint Sole Arbitrator: SC

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A person who has an interest in the decision of the dispute must not have the power to appoint a sole arbitrator; the Supreme Court of India finally settled the issue regarding the appointment of Arbitrators in a case of Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd..

Two issues were raised before the Court.

(i) Whether the arbitration would be an International Commercial Arbitration or not.

(ii) Whether a person not eligible to act as an Arbitrator can appoint anyone else as an Arbitrator?

The Bench of Justices Uday Umesh Lalit and Indu Malhotra noted the decision in TRF Limited v Energo Engineering Projects Limited and observed as under:

“But, in our view that has to be the logical deduction from TRF Limited 4 Paragraph 50 of the decision shows that this Court was concerned with the issue, “whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator” The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next 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 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited.

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