One of the major issues faced by the Arbitration community of the World is the neutrality of the arbitrators. The most important point of issue of neutrality starts from the appointment procedure itself. Due to inequal bargaining powers at the time of finalizing the Contract terms, one party may agree to an arbitration agreement, which may be either fully one sided or at-least not giving equal powers to both the parties to choose the Arbitral tribunal. This issue has been dealt with different courts differently at different time periods.

The original view of the Supreme Court of India was that the party keeping its eyes open after entering into a contract, cannot be allowed to Riggle out of it later. This view can be rated as a “orthodox view” by which “the supremacy of party autonomy to enter into a contract” was given the maximum importance. At that point of time, contentions of contractors demanding neutral tribunals were not given any importance, because at this point of time most of the employers were mostly the Governments or PSUs and Claimants were contractors.

Later, in the year 2015, the Government of India came out with a path breaking “Arbitration and Conciliation (Amendment) Act,2015” making many changes to the scheme of arbitration including various measures to ensure independence and impartiality of arbitrators including, “mandatory declaration of the relationship of arbitrators with the parties and lawyers”, “Schedule VII declaring certain relationships as ineligibility to get appointed as Arbitrator”, “Schedule V declaring certain relationships as points for declaration” etc., But still the rulings of the Courts did not much improve relating to the ensuring neutrality of Arbitrators till 2024.

In some cases, where there was a three-member tribunal to be formed, the parties were mandated to select their nominees from an employer curated panel. The Second category was that where two out of the three arbitrators were appointed by the employer. In the third category cases, where there was a Sole arbitrator to be appointed, one party was authorized to make the appointment.

All these issues came before a five-judge bench of the Supreme Court of India in the matter of Central Organization for Railways electrification case1, the said Five Judge Bench of the Supreme Court of India settled the law relating to appointment of Arbitrators, in India, as follows:

Equality between the Parties in the Appointment of Arbitrators: This is one of the very important aspect of the judgment because many a times the arbitration clauses incorporated in the contracts prescribe an appointment procedure which will not ensure equal rights to the parties to choose the arbitrator or the arbitral tribunal. This has brough the Indian arbitration system at par with any developed arbitration system.

Parties cannot be compelled to choose the arbitrators from the Panel Curated by one of the PSUs & Government: The old practice was that the PSUs and Government departments used to curate a panel of arbitrators, and the arbitration clause will mandate that both the parties to select their nominee arbitrators from the same panel. The panel will have only about 30-40 retired officers, and both the parties have to choose all the arbitrators from this said panel. This has been objected by the contractors because they said panel was not neutral in nature and to retain their position in the panel many of the arbitrators mostly supported the case of the employer who curated the said panel. Moreover the set panel was not selected by a transparent selection method and it was fully under the discretion of some of the officers. The present judgement put an end to the mandate provided in the arbitration clauses mandating the parties to choose the arbitrators from the panel curated by one of the parties.

A Clause allowing one of the Parties to appoint the Sole Arbitrator is not sustainable in law: Many employers and finance companies were following one type of arbitration clauses by which the employer or the Finance Company can appoint the sole arbitrator. So finance companies were appointing retired lower judiciary judges on a low fee basis and entrusted with each of them hundreds of cases. In such arbitration most of the awards were exparte awards in favour of the company. Now because of the above cited judgment, these companies have to approach the arbitral Institutions seeking to appoint arbitrators, if not the parties will challenge the appointment.

The Arbitration Clauses which do not ensure equality in appointing three-member Panel is not valid in law: When there is an arbitration clause providing for a three member arbitration tribunal, both the parties will nominate one arbitrator each and both the arbitrators shall jointly select the presiding arbitrator. In some Clauses one of the parties will have larger rights (E.g: two of the three arbitrators are appointed by one party). As per the above cited judgment, those clauses providing for three-member arbitral tribunals if the provide unequal powers to the parties, those clauses are not enforceable in law.

The law laid down by this Judgment shall be prospective in nature: The above said law laid by the Supreme Court of India will be applicable prospectively. Hence, this law is appliable if appointment is under challenge or to be done in future and not for the cases where appointment is already complete.