Pre-arbitration bouts cause delays

Choice of arbitrators is a thorny issue even after change in the law

When contesting parties move court, they have no choice in selecting judges, though in their hearts they would like to have that power. Forum-shopping and bench-fixing are strict taboo. Parties which resort to them are blackballed by judges. The Maharashtra government had to apologise last month when it tried to keep a particular high court judge out of its case on noise pollution.  But in the celebrated alternative dispute resolution mechanism, or arbitration, parties have such a delightful choice. Each of them can choose their candidate and if three are needed to form a tribunal, the chosen two will nominate the umpire.

 
This sounds simple, but in recent weeks, several judgments had to be written by the Supreme Court and the Delhi High Court on the selection of arbitrators. The Arbitration and Conciliation Act was amended in 2015 to avoid this chronic bitterness accompanying the nomination of arbitrators. This acrimony must be a worldwide phenomenon because the International Bar Association has set out three lists — red, orange and green — to label potential arbitrators. Following the 246th Law Commission Report, the Arbitration Act was amended to introduce two sets of disqualifications for arbitrators.
 
However, statutory definitions and elaborate schedules do not constrain the legal profession, which can still stall the choice of arbitrators and consequently arbitration itself by raising the issue of bias and independence of the nominees of the rival party. Such squabbles are often the prologue to arbitration. In a recent case that travelled from the Delhi High Court to the Supreme Court (HRD Corporation vs GAIL) the US corporation argued that two retired judges in the three-member tribunal were ineligible to act as arbitrators under the amended Act. The allegation against the judges was mainly about their relationship with GAIL. One of them allegedly acted as arbitrator in a case involving GAIL, but the court stated that it could not be called a “business relationship” that disqualifies him from the present arbitration.

 

The other judge had reportedly given legal advice to GAIL on another matter, but that would not disqualify him as he was not giving advice regularly. A “relationship” of an advisor would signify an association that is continuing and would not include obtaining a solitary opinion from an independent practitioner. Taking a legal opinion does not constitute a relationship of an advisor to the party seeking such opinion, the high court explained. The appeal of the US corporation was dismissed by the Supreme Court with an even more elaborate judgment.
 
When it comes to public sector undertakings (PSU), the cynicism is worse confounded. They hand out the most high-priced projects, but do not offer a level playing field to private contractors. The agreements often contain a term in which the disputes are arbitrated by the PSU officials themselves.  Consider what BSNL offered Motorola India: “There will be no objection to any such appointment on the ground that the arbitrator is a government servant or that he has to deal with the matter to which the agreement relates or that in the course of his duties as a government servant he has expressed his views on all or any of the matters in dispute.” The Supreme Court called it unfair.

 
Government servants retire or get transferred (sometimes deliberately) prolonging arbitration for decades. In the latest such case from the Jharkhand High Court (Sahil Projects vs Eastern Railway), three arbitral tribunals consisting of railway officials were constituted but did not conclude the proceedings in a decade. When the aggrieved contractor moved the high court, it appointed its own ex-judge as arbitrator. It remarked that leaving the private firm at the mercy of officials against whom claims were made would add insult to injury and affect the credibility and impartiality of the whole process. Last week, the National Highways Authority of India received a dubious certificate from the Delhi High Court for repeatedly raising untenable objections in arbitration appeals.

 
If the country has to speed up infrastructure projects and get a fair name in the field of arbitration, PSUs must change their mindset and bring contracts in line with the new law. Even after the amendment, bickering over choosing arbitrators has not ended. Courts are struggling to interpret the words in the schedules; there are enough vague phrases to make the judges’ foreheads furrow and lawyers’ jawbones ache.