The petitioner and the respondent in the present case had entered into a distribution agreement which provided for the resolution of disputes by way of arbitration. Several disputes arose between the parties, concerning the amount that the petitioner was to receive under the Agreement. The petitioner submitted that its efforts to resolve the dispute amicably failed and therefore, the petitioner invoked the arbitration clause of the Agreement.

When the petitioner nominated an arbitrator, the respondent did not agree with such nomination, relying on the Agreement to assert its right to unilaterally appoint an arbitrator. Therefore, the respondent's arbitrator was appointed, and the proceedings were commenced. As the proceedings were underway, the Apex Court on 26th November 2019 delivered the judgment in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd., wherein it was held that the parties interested in the dispute, including the arbitrating parties, are incompetent to appoint the arbitrator unilaterally.

The petitioner contended that the facts of the present case were squarely covered by the facts of the Perkins dictum. Therefore, the petitioner requested the arbitrator to not proceed with the arbitral proceedings, since the mandate of the arbitrator stood terminated de jure. The arbitrator in response to the petitioner's request stated that she would continue the arbitral proceedings unless a judicial order to terminate the same was granted. Thus, this petition was filed by the petitioner under section 14 and section 15 of the Arbitration Act, seeking a declaration that the mandate of the arbitrator appointed by the respondent stands terminated and another arbitrator is appointed.

Issue

The issue in the present case was regarding the eligibility and mandate of the arbitrator appointed.

Judgment

The Court found merit in the petitioner's argument and reiterated that the Apex Court, in the Perkins dictum, had stated that there could be two categories of cases, one where the managing director himself is made an arbitrator and second where the managing director unilaterally elects the arbitrator. The Apex Court, while delivering the Perkins dictum relied upon the rationale laid in TRF Ltd. v. Energo Engg. Projects Ltd., wherein it was held that the managing director was ineligible to be an arbitrator because he would be interested in the result of the case. Therefore, going by the same logic, the Apex Court held that all such parties who would be interested in the result of the case would be deemed incompetent for unilaterally appointing the arbitrator. Relying on this principle, the Court proceeded to hold that unilateral appointment of an arbitrator by an authority that is interested in the consequence of the decision is impermissible in law.

On whether the decision in the Perkins case applied onto on-going arbitrations, the Court answered in the affirmative. The Court held that the Apex Court in Bharat Broadband Limited v. United Telecoms Limited has already settled the position in this respect. Once the Supreme Court has laid the law under section12(5) of the Arbitration Act, the mandate of the arbitrator is terminated de jure under section 14 of the Arbitration Act. Therefore, the decision in the Perkins case will apply to on-going matters as well.