It is a truth universally acknowledged – the central touchstone of the law of arbitration is party autonomy. But party autonomy often comes into conflict with the other ground norm of arbitration, namely, neutrality. This dichotomy comes to the forefront when courts are confronted with unilateral arbitration clauses i.e., clauses which bestow the right of appointment of arbitrator on one party alone. Though courts have largely held such clauses to be invalid, there exist grey areas in the interpretation, particularly in relation to appointments made by arbitral institutions.

Indian courts have time and again dealt with the question of whether unilateral arbitrator appointment clauses in domestic arbitration proceedings are unconscionable. Though the position with regard to invalidity of unilateral arbitration clauses as well as clauses giving right of appointment to a party having a vested interest in the outcome of the dispute has been settled, courts in India have carved out an exception to the embargo on unilateral appointment – when the arbitrator must be chosen from a broad-based panel maintained by one of the parties.

This raises an interesting question – is the unilateral reference of a dispute by a party to a third-party arbitral institution and appointment of arbitrator by such institution valid under Indian law?

To answer this question, we must come back to the principle of party autonomy, which, as acknowledged by the Apex Court , has been one of the focal points of the changes brought about by the introduction of the Arbitration and Conciliation Act, 1996 (Act). The legislative intent regarding the primacy of party autonomy is reflected in various provisions in the Act which expressly empower parties to “agree” or “consent” to various aspects of the arbitral process and, in particular, the procedure that they wish to be adopted in the resolution of an existing and/or future dispute. Particularly, Section 11(2) of the Act also specifically incorporates this principle and stipulates that “Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators”. The language of the aforesaid provision would suggest that parties are free to agree upon any procedure for appointment of an arbitrator, which procedure would also include a procedure by which only one party to the contract has the power to appoint an arbitrator.

As elaborated above, however, arbitral clauses giving right of appointment of arbitrator to one party alone have been frowned upon in India. However, courts have expressly approved appointment of arbitrator from a panel maintained by one of the parties, which panel must provide a diverse and broad-based choice to parties. Though there is a lack of clarity as to what constitutes a broad-based panel, with the Supreme Court finding a panel of 37 members inadequate on one occasion while approving a panel of 4 members in another, there is no question regarding the validity of an arbitrator’s appointment from a broad-based, diverse panel of arbitrators.

This is similar to the panels maintained by third party arbitral institutions, which do not allow any individual party to appoint an arbitrator, and instead, exercise the ‘right to appoint’ themselves. The validity of an arbitrator’s appointment done by an institution on the request of one party has also been recognized in the Act. Section 11(6) of the Act (as amended in 2019) explicitly recognizes a scenario where upon a failure of the agreed procedure for appointment of an arbitrator, a party may apply to an arbitral institution designated by the Supreme Court or the High Court as the case may be.

In fact, the amendments to the Act in 2019 demonstrate a clear legislative policy at moving towards institutional arbitration. This recognition, albeit in the context of an arbitral institution graded in terms of Section 43-I of the Act, would suggest that the appointment of arbitrator by a third party arbitral institution is not barred in terms of the law laid down in Perkins and in fact is a better alternative to that affirmed in Voestalpine. The government is also taking strides in promoting institutional arbitration, which is evidenced by its announcement of the setting up of an international arbitration centre in GIFT (Gujarat International Fin-Tech) City.

Despite the aforesaid, the Calcutta High Court has, in a recent judgment proceeded to nullify the appointment of arbitrator by an online arbitration platform by holding such an appointment to be akin to unilateral appointment of arbitrator. Though the court based its conclusions on a pre-amendment Section 11 (the insertions/modifications made therein have not yet been notified), it did not take into consideration the Supreme Court’s pronouncement in Voestalpine, which permits unilateral appointment when made from a broad-based panel of arbitrators.

Parties are increasingly opting to arbitrate disputes via arbitral institutions/online arbitration platforms. Accordingly, it is essential for the judiciary to interpret appointments made by arbitral institutions in such a manner as to further the legislative intent of reducing recourse to courts during arbitration process as well as also to assist the government in achieving its goal of making India an arbitration hub.