Navigating Bias Claims and Unilateral Appointments: Lessons from PrePerkins arbitrations

Case Title: VRDakshin Private Limited vs Prime Store and Others
Court: Madras High Court
Date of Judgment: November 26, 2024

The case concerns an intra-court appeal filed againstthe order of a learned Single Judge of the Madras High Court under Section 34of the Arbitration and Conciliation Act, 1996 (“Act”). The appeals arisefrom the setting aside of an arbitral award on the grounds of the arbitrator'sappointment purportedly violating Section 12(5) read with the Seventh Scheduleof the Act. This judgment addresses whether the appointment of the arbitratorwas valid and distinguishes it from the Supreme Court's decisions in PerkinsEastman Architects DPC v. HSCC (India) Ltd. and CORE v. ECI SPIC SMOMCML (JV).

Central Issue: Appointment of Arbitrator

In this case, the lessor, unilaterally appointed thesole arbitrator, as per the arbitration clause in the lease deed. Therespondents participated fully in the arbitration proceedings without raisingany objections to the appointment. They also filed a joint memo extending thearbitrator’s mandate, demonstrating explicit consent. However, after an adversearbitral award, the respondents challenged the arbitrator's appointment underSection 34, claiming it violated the Seventh Schedule and the Supreme Court'sprecedent in Perkins Eastman and CORE v. ECI SPIC SMO MCML (JV)

The DivisionBench held that:

1. No Objection     During Arbitration: The respondents     failed to object to the appointment of the arbitrator at any stage during     the arbitral proceedings, thereby waiving their right to raise such     objections later under Section 4 of the Act.
2. No Violation of     Section 12(5): The arbitrator     did not fall within any of the ineligibilities under the Seventh Schedule     of the Act. Consequently, the proviso to Section 12(5), requiring express     written waiver, was not applicable.
3. Party Autonomy: The appointment of the arbitrator was in     accordance with the agreed arbitration clause. The court emphasized that     arbitration is a process rooted in party autonomy and minimal judicial     interference, as mandated by Section 5 of the Act. Further, the     sole arbitrator in this case was appointed in January 2019, prior to the     Supreme Court's judgment in Perkins Eastman,     which was delivered in November 2019. Despite the legal clarification     provided by the Perkins Eastman decision regarding unilateral appointments of arbitrators, the     respondents raised no objections during the ongoing arbitration     proceedings or immediately thereafter. Instead, they participated fully.     The Division Bench noted that this inaction     further underscored the respondents’ waiver of their right to object.

Distinction from Supreme Court’s Perkins Eastman and COREdecisions

1. Perkins Eastman     Decision: In Perkins     Eastman Architects DPC v. HSCC (India) Ltd., the Supreme Court held     that an entity with a vested interest in the outcome of the dispute cannot     unilaterally appoint an arbitrator. However, in the present case, there     was no allegation of bias or partiality against the arbitrator. Moreover,     the respondents consented to the appointment in writing after the     arbitration commenced, differentiating this case from Perkins Eastman.
2. CORE Decision: In CORE v. ECI SPIC SMO MCML (JV), the     Supreme Court held that unilateral arbitrators are illegal and party autonomy     is fundamental. The Division Bench in this case observed that the     arbitrator did not have any conflicted relationship and rejected the     applicability of CORE as there were no allegations of impartiality     or bias made by the parties either before the arbitrator or before the     High Court.

Conclusion

The Division Bench of the High Court allowed theappeals and set aside the Single Judge's order. This emphasises that raisingobjections post-award, could constitute abuse of process based on thecircumstances at hand.

The Division Bench of the High Court emphasized theimportance of adhering to the principles of party autonomy and minimal judicialinterference in arbitration, underscoring the need for clear procedures toavoid challenges based on perceived bias. By distinguishing the present casefrom Perkins Eastman and CORE, the Court promoted the structuredand impartial mechanisms inherent in institutional arbitration frameworks.

Access the complete judgement here: https://bi.ly/4120v2N

About Webnyay

Webnyayhas been acting as an independent and neutral third-party institutionfacilitating arbitration, mediation and conciliation services and providing asecure technology platform.

Webnyayis recognised by the Government of India and trusted by over 150+ businesses,including major financial institutions like IndusInd, ICICI, UCO Bank,Bajaj Finserv, Shriram Finance, Muthoot Finance, Hero Fincorp, PoonawalaFinance, Manappuram Finance, DMI Finance, Cred, Axio,  FACE and others. In thesecurities markets, we conduct online conciliations and arbitrations for NSEand NSDL. We also work with global tech giants like Netflix,Disney Star, Apple TV and Amazon Prime. We are also empanelled asan ODR Institution by the High Court of Bombay, Bombay Chamber ofCommerce, ONDC, Sahamati and are the sole licensed and authorizedprovider of Online Dispute Resolution and grievance redressal solutionsby IFSCA in GIFT City. 

‍