Can One Party Appoint the Sole Arbitrator?

The story starts with a government hospital project. HSCC (India) Ltd, an executing agency of the Ministry of Health and Family Welfare, invited proposals for architectural planning and design for the proposed All India Institute of Medical Sciences at Guntur, Andhra Pradesh. Perkins Eastman Architects DPC, registered in New York, teamed up with Edifice Consultants Private Limited of Mumbai. The consortium named Perkins Eastman as lead member, won a Rs.15.63 crore award, and signed the contract on 22 May 2017.

Trouble came quickly. On 26 May 2017, six days after signing, HSCC alleged failure by the architects. A stop-work notice followed on 3 November 2017. The architects say HSCC officials were stalling and refusing cooperation from the start. HSCC disagreed. It issued a termination notice on 11 January 2019 and a termination letter on 20 February 2019. The architects denied the allegations.

On 11 April 2019, the architects’ lawyer invoked Clause 24 and claimed Rs.20.95 crore. Clause 24 created a long ladder: first a written objection to the CGM, then an appeal to the Director Engineering, then a demand on the Chairman and Managing Director for a sole arbitrator. The architects say the CGM decision was missing and the Director Engineering never discharged the Clause 24 obligations. They therefore wrote to the CMD on 28 June 2019 demanding appointment of a sole arbitrator.

The 30-day window expired on 28 July 2019. The next day was a working day, but the appointment letter came on Tuesday, 30 July 2019. It named Major General K.T. Gajria. The architects objected on three grounds: the appointing officer was the wrong official, the appointment was beyond the period prescribed, and the process could not guarantee an independent and impartial arbitrator.

HSCC’s defence was equally specific. It said the appointment was in line with Clause 24, the delay was only to the first available working day, and the actual appointing authority was the CMD even if the CGM conveyed the letter. It also argued this was not an international commercial arbitration, so the Supreme Court should not hear the Section 11 petition. There was no trial court or high court ruling below; this was an original appointment application under Section 11.

The legal knot was whether a company like HSCC could keep the contractual power to choose the only arbitrator in a dispute it was fighting. Clause 24 said no one other than a person appointed by the CMD would act as arbitrator. That made the CMD the entire appointing authority for a sole arbitrator. Under Sections 11(6) and 11(12)(a) of the Arbitration and Conciliation Act, 1996, a court can appoint an arbitrator when a party fails to act under the agreed procedure or when the agreed appointing authority fails to perform its function.

The older TRF Limited decision had already held that an ineligible managing director who was himself named as sole arbitrator could not then nominate a substitute. The question here was one step broader: what if the managing director is not named as arbitrator but is the only person with power to appoint one? The Court answered by reading TRF with the 2015 amendment’s neutrality principle. Where only one party controls the appointment, that party’s interest in the outcome infects the process. The exception is the ordinary two-nomination model, where each side appoints one arbitrator and those two choose the chair; there, the parties’ advantages are counterbalanced.

The Court also had to decide whether it could act after an appointment had already been made. Relying on Walter Bau and TRF, it said an invalid appointment cannot become a fait accompli. If the appointment does not satisfy Section 11 or the agreed procedure, the court may still entertain the application and appoint someone neutral.

The Bench then stated the rule in terms that now control unilateral appointment of sole arbitrator disputes:

That passage closes two loopholes at once. First, it stops a party from hiding behind its own contractual designation of an interested officer as the sole appointing authority. Second, it makes neutrality a condition of the appointment process itself, not merely an afterthought once the arbitrator is in place.

• The Court refused to treat party autonomy as a licence to negate impartial adjudication. It relied on Law Commission Report No. 246: even if the parties agreed earlier, the law cannot permit an arbitrator who is himself a party or employed by, or similarly dependent on, one side.
• The Court also said the real defect was not the one-working-day delay. HSCC’s letter of 30 July 2019 came after the 28 July 2019 expiry, but that technical lateness alone would not justify Section 11 intervention. The disqualifying feature was that an interested unilateral appointing power had been used.

For anyone searching for the latest judgment on appointment of arbitrator, this is the authority to cite: a sole arbitrator appointed through an interested party’s exclusive pen is not the end of the matter; the court can annul it and appoint a neutral tribunal.

The line to remember is this: check who holds the appointing pen, not just whether a date was missed. If one side holds the pen and has an interest in the result, the appointment is vulnerable even if the letter looks formal and even if the arbitrator is personally respectable.

• Gather the contract and Clause 24 in full, the RFP and award documents, the consortium or lead-member declaration, and every notice that invoked the dispute-resolution ladder. In this case, the Rs.20.95 crore claim list and the 28 June 2019 demand letter were the trigger documents.
• Keep proof that the agreed appointing authority failed to act within the contractual time or that the appointment came from the wrong official. The architects used the expiry on 28 July 2019 and the 30 July 2019 letter to show both the delay and the unilateral process.
• If the agreed procedure fails, file an application under Section 11(6) read with Section 11(12)(a) and the Appointment of Arbitrators by the Chief Justice of India Scheme, 1996; here that was Arbitration Application No. 32 of 2019. The Supreme Court entertained it because the arbitration was an international commercial arbitration under Section 2(1)(f).
• Avoid the biggest mistake: do not wait for the unilaterally appointed arbitrator to start the case and then argue bias. Perkins Eastman shows the court can annul a bad appointment before the arbitration gains momentum. The arbitrator finally appointed must also make the mandatory Section 12 declaration on independence, impartiality, and ability to devote time under Section 29A.