Unilateral Arbitrator Appointment Clauses In Public-Private Contracts Invalid; Can't Compel Selection Of Arbitrators From PSU's Panels : Supreme Court

The Supreme Court on Friday ruled against clauses allowing Public Sector Undertakings to unilaterally appoint arbitrators to decide disputes with private contractors. The Constitution Bench held that while PSUs can maintain a panel of potential arbitrators, they cannot compel the other party to select its arbitrator from the panel.The Constitution Bench comprising Chief Justice. The Constitution Bench comprising Chief Justice of India DY Chandrachud, Justice Hrishikesh Roy, Justice PS Narasimha, Justice JB Pardiwala, and Justice Manoj Misra was considering the validity of an arbitration clause which prescribes that the appointment of the arbitrator will happen from a panel of arbitrators curated by one of the parties, which is mostly a public sector undertaking in majority of the cases. Arguments By The Union Solicitor General Tushar Mehta appearing for the Union mainly contended that arbitration having its roots in a contract between parties, reflects a necessary act of volition ; party autonomy as a concept is ingrained in the entire architecture of the Arbitration and Conciliation Act of 1996 ; the respondent's arguments suggesting a neutral panel is incorrect, the correct issue to be examined is whether there is a restriction which prohibits the panel of arbitrators curated by one party; the panel of arbitrators is 'maintained' by the PSUs/ government party and not 'controlled'- the difference is that in maintaining the panel, the neutrality of the arbitrators in ensured.