Arbitration In IndiaCounter Balancing and Party Autonomy: Important Aspects for Appointment of Arbitrators

The Delhi High Court, in Taleda Square Private Limited v. Rail Land Development Authority, [ARB.P. 637/2023 decided on 10.10.2023] held that any Arbitration Clause violating the principle of counter balancing and restrictive panel for appointment of Arbitrator is not valid.

FACTS

Taleda Square Private Limited, (hereinafter referred to as “the Petitioner”) and Rail Land Development Authority, (hereinafter referred to as “the Respondent”) entered into a lease agreement dated 31.03.2015 (hereinafter referred to as the “Agreement”). The arbitration clause of the agreement stipulated that any disputes or differences arising out of or in connection with the Agreement would be settled through arbitration.

In accordance with the Arbitration Clause envisaged in the Agreement, a three member Arbitral Tribunal was to be commenced to adjudicate disputes between the parties. One member of the Arbitral Tribunal was to be nominated by the Petitioner and another member was to be nominated by the Respondent. Further, the two nominated members would appoint the presiding Arbitrator.

The Petitioner invoked the Arbitration Clause and nominated an Arbitrator, who was rejected by the Respondent. Instead, the Respondent suggested names of five persons who were on the panel of the Respondent and directed the Petitioner to nominate one from the names suggested as Arbitrator.

Hence, the Petitioner has filed the present Petition under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”) for appointment of an Arbitral Tribunal.

CONTENTION OF THE PARTIES

The Petitioner contended that the Respondent’s offer to nominate  the Petitioner’s Arbitrator amongst  the preselected panel of the Respondent is unacceptable because the panel presented is not at all diverse and ‘broad-based’ and does not align with the plethora of decisions of the Supreme Court.

The Respondent relied upon Union Territory of Ladakh v. Jammu & Kashmir National Conference, [2023 SCC OnLine SC 1140] argued that once the Arbitration Clause envisages a condition precedent, the Petitioner was bound by the condition and hence, an Arbitrator had to be nominated from the panel of the Respondent.

ISSUES BEFORE THE HIGH COURT

1. Whether the Respondent’s refusal to accept the Petitioner’s nominee arbitrator is justified under the established principle of “counter-balancing” in arbitration?
2. Whether the Petitioner is bound by the condition to select its nominee Arbitrator from the panel maintained by the Respondent?

DECISION AND FINDINGS

The Delhi High Court examined the Arbitration Clause in the Agreement and observed that the Petitioner had to nominate one Arbitrator from the panel of the Respondent. Furthermore, the Respondent was empowered to select the other two Arbitrators.

The Delhi High Court relied on Voestalpine Schienen Gmbh v. Delhi Metro Rail Corporation Limited, [(2017) 4 SCC 665] and held that such approach for appointment of Arbitrator was restrictive.

The High Court further relied on Margo Networks Pvt. Ltd. & Anr. v. Railtel Corporation of India Ltd. [2023 SCC Online Del 3906] and held that such an approach of appointment of Arbitrator would be meeting the test of “counter balancing” and was not sufficiently broad based.

The Delhi High Court allowed the petition and appointed the nominee Arbitrators and directed the nominee Arbitrators to appoint presiding Arbitrator within 30 days of the order.

AMLEGALS REMARKS

The Delhi High Court has upheld two  significant principles of arbitration. The principle of “counter-balancing” means when both the parties can nominate their Arbitrators, any advantage gained by one party through the nomination of its preferred Arbitrator should be offset by the other party’s ability to ‘counterbalance’ that advantage with an equal power.

Further,  independence and impartiality of the Arbitrator are the hallmarks of any arbitration proceedings and thus it becomes imperative to have a much broad-based panel of arbitrators to ensure the integrity of the process.

-Team AMLEGALS, assisted by Ms. Vidushi Tanya (Intern)

For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or himanshi.patwa@amlegals.com