Arbitration

By Hunar [Author is a student at Rajiv Gandhi National University of Law, Punjab] A five-judge bench of the Supreme Court delivered its judgment in Central Organisation for Railway Electrification (CORE) v. M/s ECI-SPIC-SMO-MCML (JV), resolving the longstanding debate on unilateral appointments of sole arbitrators in public-private contracts. The ruling marks a pivotal step toward promoting procedural impartiality and inclusivity in Indian arbitration. While the judgment’s implications extend across public-private contractual frameworks, this article undertakes a nuanced critique of the decision, analysing it through the lens of established case law. It further examines the intricate balance between party autonomy and safeguards against bias, as enshrined in the Arbitration and Conciliation Act, 1996. Introduction On August 28, 2024, a Constitution Bench of the Supreme Court began hearing whether persons ineligible to act as arbitrators can appoint arbitrators to adjudicate a dispute. In Central Organisation for Railway Electrification (CORE) v. M/s ECI-SPIC-SMO-MCML (JV) (CORE I), a three-judge Bench of the Apex Court allowed ex-employees of the Railways to act as arbitrators. As per the General Conditions of Contract, the General Manager was to appoint an arbitrator, despite being ineligible to act as one under Section 12(5) of the Arbitration Act. A three-judge Bench in Union of India v. M/s Tantia Constructions Limited (Tantia) called for a reference to a larger bench following which a five-judge bench was constituted to adjudicate the present matter in Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company (CORE II). The Court had two questions to answer: first, is unilateral appointment process violative of Article 14?; second, can a party with vested interest unilaterally appoint a sole arbitrator or mandate the other party to choose from a curated panel? The Law on Unilateral Appointments In TRF Ltd v. Energo Engg. Projects Ltd (TRF), the Supreme Court dealt with the issue of unilateral appointments in light of the provisions of Section 11(6) of the Arbitration Act. The Managing Director of a party was appointed as the arbitrator despite having an interest in the dispute. The Seventh Schedule of the Arbitration Act consists of relationships which disqualify a person from acting as an arbitrator which includes a Managing Director. The Court regarded any further appointment by a person who is disqualified under Section 12(5) of the Arbitration Act as invalid. Thus, TRF laid down the rule in cases of unilateral appointments. The rules laid down by the Court in TRF were applied and affirmed in Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd (Voestalpine). The Supreme Court instructed that the list of arbitrators to be provided by the DMRC must be ‘broad-based’ to present adequate choice to the other party to choose an arbitrator. Further, in Perkins Eastman Architects DPC v. HSCC (India) Ltd. (Perkins), the Supreme Court held that parties must have equal opportunity to choose arbitrators of their choice to ‘counter-balance’ each other’s interests.  Origins of the Present Matter The present matter originated from the decision in CORE I where the appellant challenged the appointment of a sole arbitrator by the Allahabad High Court as being against the contractual clauses of the agreement. The Court relied on Voestalpine and held that a panel may contain ex-employees as it would not disqualify the person from acting as an arbitrator. The Court did not deem it fit to allow the parties to deviate from the terms of the agreement according to which the appointment of arbitrators was to be done. The arbitration clause required the Purchaser to make a panel of arbitrators comprising eligible engineers who were serving or retired employees of any Government departments or PSUs. The nomination from a list of ex-employees was upheld due to their expertise. Disqualification due to status of employment would render all employees in the government sector as ineligible to act as arbitrators. In CORE I, the names proposed for appointment were Railway Gazetted Officers in a dispute involving the Central Railways of India and not just ‘any’ government employee. Such an appointment could potentially be riddled with unjust bias and opacity in appointment, leaving no choice to the other party.  Following this, the Constitutional Bench delivered its judgment in CORE II on 8 November 2024, thereby clearing the controversy. The Bench held that PSUs may frame a panel of potential arbitrators but cannot coerce the other party from choosing an arbitrator from the curated list. The judgment is a welcome step towards equal treatment of parties and ensuring impartiality and fairness in the arbitration procedure.  Nullification of Unilateral Appointments On the issue whether the appointment process allowing a party with an interest in the dispute to unilaterally appoint an arbitrator, Justice Chandrachud analysed the scope of unilateral appointment clauses and deduced that such clauses in public-private contracts run the risk of introducing justifiable grounds of doubt and impartiality, against the principles of natural justice. Justice Chandrachud holds that a unilateral clause is exclusive and violative of Article 14 of the Constitution as it hinders equal treatment of parties. While adducing all unilateral appointments as automatically nullified, the Court oversteps its bounds and expands the restriction under Section 12 of the Arbitration Act. Section 12 provides a mechanism to address issues of bias by requiring arbitrators to furnish any circumstances that may affect their impartiality. Disclosure requirements are mentioned in the Sixth Schedule of the Act. If the Legislature had intended a wider interpretation of nullifying unilateral appointment clauses, the proviso to Section 12 that allows parties to waive disclosure requirements would not exist. Section 12, as well as the Fifth and Seventh Schedules read together, bar an arbitrator who has a relationship with the parties. Other safeguards include Section 14 which terminates the mandate of an arbitrator when he is unable to perform his functions or fails to act without undue delay. Post appointment as well, an arbitrator’s mandate can be challenged under Section 13(2) of the Arbitration Act.  Justice Hrishikesh Roy, in his partial dissent, upholds principles of party autonomy. Justice Roy

By Rishika Sharma and Shambhavi [Authors are final year students at Chanakya National Law University] ABSTRACT With India’s growth as a global commercial hub, inviting businesses and corporations, it is natural that there are expectations for smooth arbitration proceedings. Third-party funding emerges as a win-win situation, where claimants can access financial support to pursue their claims, and funders can find an investment outlet . Absence of regulations is creating a risk prone environment for TPF, and the situation appears to be dawdling. In order to create an avenue for TPF, arbitral institutions in India need to step in. Through procedural rules on TPF compliant with best practices, arbitral institutions can help funders navigate Indian arbitration landscape. INTRODUCTION Another Asian, predominantly common-law jurisdiction has embraced third-party funding [“TPF”] within its arbitration laws. The recently passed Arbitration (Amendment) Bill 2024 will introduce significant changes to the Arbitration Act 2005 in Malaysia. Out with the old rules on maintenance and champerty and in with the new provisions regulating TPF. TPF is basically a financial arrangement wherein a third party provides financial support to one of the parties in the dispute in exchange for a share of the monetary award accrued. The third party is generally not entitled to reimbursement if the funded party loses. TPF enables financial access to justice, for parties who might not have the financial means to set the wheels of justice in motion. Currently, the TPF industry is witnessing exponential growth and litigation is no longer a luxury for the rich. The last decade saw countries adopting TPF in arbitration with great fervour, revoking doctrines of maintenance and champerty. Maintenance refers to an act by an unrelated party of encouraging or maintaining a litigation proceeding, through financial funding. Champerty refers to financing a suit, in return for a part of the sums accrued. Both were prohibited under criminal and tort laws. TPF in India has seen significant growth, marked by the rise of various funding organisations. However, without legislative direction, stakeholders have to depend on underdeveloped self-regulatory standards and existing judicial precedents, which creates of a non-conducive environment for arbitration. The authors have therefore suggested that in the dearth of legislation, TPF in India can be regulated by arbitral institutions themselves through their rules. The article begins by examining the TPF regime in other jurisdictions, and moves on to describing the TPF landscape in India. Finally, the authors analyse how arbitral institutions can set the stage for TPF. TPF REGULATIONS IN INTERNATIONAL ARBITRATION HUBS While TPF is gaining traction, the legal regime varies from country to country. In order to evolve a TPF regime in India it is important to examine how other jurisdictions have already embraced TPF through legislation. Singapore: Singapore saw a tectonic shift in the TPF framework on 1st March 2017, when the Civil Law (Amendment) Act, 2017 was passed abolishing these torts, thus paving the way for TPF in international arbitration. Up until 2021, TPF was limited to international arbitration proceedings. Accordingly, the Singapore International Arbitration Centre [“SIAC”] vide Practice Note dated 31st March 2017, captured the obligations of the arbitrator with respect to external funding. Hong Kong: The Arbitration Ordinance of 2017 came into force in February 2019. Thus, making TPF legal in instances wherein the place of arbitration is in, or outside Hong Kong. Similar to SIAC, the Hong Kong International Arbitration Centre [“HKIAC”] vide 2018 HKIAC Administered Arbitration Rules also developed provisions related to TPF with respect to disclosures and costs. Australia: The origins of TPF are owed to this country, which began by allowing insolvency practitioners to engage in TPF in the 1990s.  Surprisingly, till date, no centralised regulations are overlooking the arrangements of TPF in the country. However, keeping pace with the growing market of TPF, the government introduced the Corporations Amendment (Litigation Funding) Regulations 2020 requiring litigation funders to register themselves under the Australian Financial Service License. Following this, the Australian Centre for International Commercial Arbitration [“ACICA”] introduced the revised 2021 ACICA Arbitration Rules, mandating disclosure of TPF arrangements. TPF LANDSCAPE IN INDIA In India, maintenance and champerty did not face prohibition and TPF in litigation has been acknowledged. The Code of Civil Procedure, 1908 has been amended by some states to accommodate these provisions as in Uttar Pradesh, Tamil Nadu, and Orissa. The Privy Council in Ram Coomar Coondoo v. Chander Canto Mookerjee, held that the English doctrines of champerty and maintenance are not applicable in India, and TPF agreements that are not violative of public policy and can be treated at par with other contracts. An exception arises when the funder happens to be a legal practitioner, as held in cases of Re:‘G’ A Senior Advocate of the Supreme Court, a more recent judgement of Bar Council of India v. AK Balaji. The Arbitration and Conciliation Act 1996 (“the ACA”) does not address TPF in arbitration. Nonetheless, the fifth schedule to the ACA prohibits an arbitrator having significant financial interest in either of the parties or outcome of the case from participating in the proceedings. Section 42A was incorporated via 2019 Amendment, mandating confidentiality of information in arbitration proceedings, which can include TPF contracts. The Report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, recommended developing supporting legislation enabling third-party funding for arbitration and associated proceedings. The committee acknowledged that legislation on third-party funding in arbitration shall impact the world’s perception of India as an arbitral seat, simultaneously enhancing the growth of arbitral institutions in the country. The recent ruling by a Division Bench of the Delhi High Court in Tomorrow Sales Agency Private Limited v. SBS Holdings, Inc. & Ors (“Tomorrow Sales”), set aside the decision of the Single Bench, to hold that a third-party funder, who was neither a signatory to the arbitration agreement, nor a party to the arbitration proceedings, cannot be held liable to pay adverse costs or be bombarded with enforcement actions. CAN ARBITRAL INSTITUTIONS LEAD THE WAY FORWARD? When it comes to TPF in arbitration,

By Soumyajit Haldar [The author is a fourth-year student at the West Bengal National University of Juridical Sciences.] Introduction The Industrial Disputes Act (hereinafter referred to as the ‘ID Act’) is a beneficial enactment introduced primarily for the welfare and protection of employees. In order to address the presence of significant imbalances in the bargaining power that often exists between two or more parties in the event of an ‘industrial dispute’, a provision had been made for specialized Labour Courts under the ID Act for the resolution of such kind of disputes. The ID Act also has a provision for the ‘voluntary reference of disputes to arbitration’ by way of a written agreement. This essentially provides the workers with a quicker medium to resolve disputes with their employers and reach an out-of-court settlement. Therefore, in order to avail this option if the need arose, employers and employees often include arbitration clauses in the employment contracts. However, in recent times, employers have begun to mandatorily include arbitration clauses while entering into employment contracts. Mandatory arbitration clauses basically require employees to agree that any future dispute or differences between such employee and the company(employer) will compulsorily have to be resolved through arbitration and the aggrieved employee cannot go to court. Such clauses in an employment agreement are suppressive in nature and in violation of labour rights. Employers seek to avoid long-drawn court proceedings and therefore, bind their employees to arbitration since the inception of their employment. Such mandatory clauses suppress collective bargaining and labour rights and go against the very intent of the ID Act. Although arbitration as resolution process has gained significant popularity in India, the question of arbitrability of labour disputes still remains undecided. Although some protection has been provided to “workmen” by the courts, there are no measures taken to safeguard the interests of those employees who fall outside the definition of “workman” under the Act. Against this backdrop, the paper shall attempt to argue how the negative aspects of the inclusion mandatory arbitration clauses in employment contracts and address the issue of lack of protection given to “non-workmen” employees. In Part-II of the paper, I shall discuss the limited jurisprudence in India with regard to arbitrability of labour disputes. Subsequently, in Part III of the paper, I shall discuss and also critically examine the grounds on which such mandatory arbitrary clauses can be held to be unconscionable. Part IV concludes the discussion of the paper. Indian Jurisprudence on the Arbitrability of Labour Disputes There are a few cases which have deliberated on the issue of arbitration related to labour disputes in India. The question of whether labour disputes are arbitrable or not first arose in the case of Kingfisher Airlines v. Captain Malhotra and Others. In this particular case, the Bombay High Court decided that labour disputes cannot be resolved by way of arbitration under the Arbitration and Conciliation Act, 1996 (A&C Act). The Bombay High Court cited the Booz Allen and Hamilton v. SBI Home Finance in order to formulate the two-prong test to decide upon the arbitrability of labour disputes. Firstly, the validity of an arbitration claim depends on whether the rights being violated are in-personam or in-rem. Disputes involving rights-in-rem are not arbitrable and must be decided in a court of law (as was held in the Booz Allen case). Secondly, the Bombay High Court also stated that it must also go beyond the first prong and evaluate if any dispute must be decided by any court for public policy reasons. This essentially means that the even disputes involving rights-in-personam can be reserved exclusively for adjudication by public forms such as specialized courts for public policy reasons. A similar issue was also raised in the case of Rajesh Korat v. Innoviti wherein the Karnataka High Court stated that labour disputes cannot be resolved by means of arbitration under the A&C Act and such disputes can only be taken for arbitration under the ID Act. The Court also reiterated the point of paramount importance of public policy considerations which make it necessary to reserve exclusive jurisdiction of competent courts and tribunals for the resolution of these disputes. The judgements given by the High Courts in the Kingfisher and Rajeev Korat cases align with arguments made and address the pertinent concerns that have been raised in the paper. These two cases take cognizance of the severe public policy ramifications that may arise if resolution of all disputes is restricted only to arbitration. However, this protection under Section 10A of the ID Act has been extended only to those employees who fall within the definition of “workmen” under the Section 2(s) of the ID Act. In several cases, the courts have devised different tests such as the ‘nature of work’ test in order to determine whether employees fall within the ambit of “workman” or not. Employees of an organization/company who fall within the category of non-workmen are not provided any immunity from such mandatory arbitration clauses. There is no specific court ruling which provides protection to such “non-workman” employees. Mandatory arbitration: An unconscionable clause? Mandatory arbitration clauses in employment contracts are unilaterally developed and are forced by employers on their employees. Employers are aware of the fact that they are in a relatively stronger bargaining position as compared to the employees and use this situation to their advantage to exploit the employees and curb their rights. Further, this issue is also aggravated for employees belonging to socio-economically weaker sections as there is a higher degree of inequality between the employer and employee thereby allowing the employer to include a multitude of conditions which the employees are compelled to agree too. There also arises the question of financial accessibility for such employees who are mandated to resolve disputes by arbitration. Such employees are usually a part of labour unions and rely on collective bargaining to negotiate with such influential employers. Research has also found that it is highly unlikely for employees to win arbitration cases and they also

The article explores the re-evaluation of arbitration terms in unstamped agreements, emphasizing the tension between the administration of justice and procedural maneuvers employed to stall legal proceedings. It outlines the historical context, legislative amendments, and judicial interpretations surrounding arbitration agreements, notably discussing the recent Supreme Court ruling in N.N. Global-2. It highlights the divergent opinions within the bench and proposes strategies to streamline arbitrator appointments and harmonize laws to favour arbitration. Ultimately, it argues for legislative action to eliminate procedural obstacles and strengthen India’s position as a preferred destination for commercial arbitration.