Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company: The Supreme Court clarifies its position on unilateral appointment of Arbitrators

The foundation of Arbitration primarily rests on three factors namely, impartiality, party autonomy, and equality. This private dispute resolution mechanism has been marketed to businesses and other entities as a cost effective alternative to litigation. Arbitration offers confidentiality, speed, and enforceability of awards, making it especially attractive in cross-border and commercial contracts. However, a critical aspect of Arbitration, particularly in terms of upholding its three essential elements, is the dynamic discussion on appointment of arbitrators. It is settled in law that without neutrality, the credibility of arbitration as a business-friendly dispute mechanism fails.

Over the past decade Indian courts have dealt with a recurring problem in practice, i.e., clauses in public contracts or Public Sector Undertakings’ standard terms wherein one party the exclusive or decisive power to pick the Arbitrator. Such clauses are typical in public contracts and have had a significant impact in the confidence, or lack thereof,  of businesses in choosing Arbitration as an alternate dispute resolution mechanism. This practice has raised an obvious question- Whether the essence of “party autonomy” permits one party to unilaterally choose the Judge in its own cause?

This question has now finally been answered by a Five-Judge Constitutional Bench comprising of Chief Justice of India DY Chandrachud, Justice Hrishikesh Roy, Justice PS Narasimha, Justice JB Pardiwala, and Justice Manoj Misra, with the decision in the case of Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company[1] (hereinafter referred to as the “CORE case”).

STATUTORY BACKGROUND

In its 246th Report[2], the Law Commission of India highlighted that party autonomy in arbitration has limits and cannot override the essential principles of impartiality and independence, particularly during the constitution of the arbitral tribunal. The Commission therefore recommended that individuals who share certain specified relationships with the parties should face automatic disqualification from being appointed as arbitrators. Acting on these recommendations, the Parliament introduced the Arbitration and Conciliation (Amendment) Act, 2015[3], which added Section 12(5)[4]. This provision makes anyone falling within the categories listed in the Seventh Schedule ineligible to serve as an arbitrator. Following this amendment, several parties began filing applications under Section 11(6), challenging appointment mechanisms that gave one party unilateral control over the selection of arbitrators.

JUDICIAL BACKGROUND

A.  VOESTALPINE SCHIENEN GMBH V. DELHI METRO RAIL CORPORATION LTD.[5]

In this 2017 decision, the arbitration clause in question provided that the Delhi Metro Rail Corporation (“DMRC”) would create a panel consisting of serving or retired engineers from government departments or public sector undertakings. The clause specified that disputes valued below INR 1.5 million were to be resolved by a sole arbitrator, while those exceeding that amount would be decided by a tribunal of three arbitrators. For the three-member tribunal, DMRC was to prepare a list of five engineers from its panel. Each party would then select one arbitrator from this list, and the two chosen arbitrators would together appoint the presiding arbitrator from among the same list.

The Supreme Court held that both parties must have an equal opportunity to choose arbitrators from the entire panel, rather than from a restricted list. It further emphasized that in government contracts, where the appointing authority is itself a public body, the panel must be sufficiently “broad-based” to inspire confidence in the counterparty and to uphold the principles of independence and impartiality during the tribunal’s constitution.

B.  TRF LTD. V. ENERGO ENGINEERING PROJECTS LTD[6].

In this case, the respondent’s purchase order issued to the appellant included an arbitration clause stipulating that any disputes arising under the agreement would be referred to the sole arbitration of the Managing Director of the buyer or their nominee. When a disagreement arose concerning the encashment of a bank guarantee, the Managing Director appointed a former judge of the Court as the sole arbitrator, in accordance with the arbitration clause.

The Court raised a question and drew a distinction between situations where both parties appoint their respective arbitrators and cases where a person who is ineligible to serve as an arbitrator, attempts to appoint another arbitrator. Relying on the principle qui facit per alium facit per se i.e, “what one does through another is done by oneself[7]”, the Court held that an individual who is disqualified from acting as an arbitrator cannot validly nominate someone else as an arbitrator. This case answered the question on eligibility of an arbitrator and appointment thereof.

C. PERKINS EASTMAN ARCHITECTS DPC V. HSCC (INDIA) LTD.[8]

In this case, the arbitration clause specified that any disputes under the contract “shall be referred to arbitration by a sole arbitrator appointed by the CMD of HSCC within 30 days of receiving a request from the Design Consultant.” The two-judge Bench held that the likelihood of bias must be assessed in light of the appointing party’s interest in the dispute’s outcome. The Court emphasized that anyone with a vested interest in the dispute “cannot and should not play any role in determining the course of dispute resolution by exercising the power to appoint an arbitrator.[9]”

D. CENTRAL ORGANISATION FOR RAILWAY ELECTRIFICATION V. ECI-SPIC-SMOMCML (JV) A JOINT VENTURE COMPANY[10]

In this 2019 case, on challenging the validity of the Arbitration clause detailed in the General Conditions of Contract between the parties, the three-judge Bench examined whether the appointment of retired railway officers as arbitrators was permissible under Section 12(5), of the Arbitration & Conciliation Act, 1996, and Arbitration & Conciliation (Amendment) Act, 2015, read with the Seventh Schedule. Relying on the Supreme Court’s decision in Voestalpine (supra), the Hon’ble Court noted that Section 12(5) of the Act does not prohibit the appointment of former employees of the parties as arbitrators.

The Bench then considered whether the General Manager had the authority to appoint arbitrators, as was detailed in the Arbitration clause in the General Conditions of Contract between the Parties. It held that the principles established in the cases of TRF (supra) and Perkins Eastman (supra) were not applicable here because the General Manager’s power was balanced by the counterparty’s ability to select any two arbitrators from a list of four, with the General Manager appointing at least one of them as the contractor’s nominee. Consequently, the Hon’ble Court upheld the arbitration clause and directed that the arbitral tribunal be constituted according to the terms of the agreement.

E.  UNION OF INDIA V. TANTIA CONSTRUCTIONS LIMITED[11]

In this case, a three-Judge Bench prima facie disagreed with aforementioned CORE case observing that “once the appointing authority itself is incapacitated from referring the matter to arbitration, it does not then follow that notwithstanding this, yet appointments may be valid depending on the facts of the case[12].” Accordingly, the three-Judge Bench referred the point of law to a larger Bench seeking clarification on the correctness of the CORE judgement on 2019.

Hence, the present case has been taken up for adjudication and clarification by the five-Judge Bench.

ISSUES BEFORE THE HON’BLE COURT

• The primary issue before the Hon’ble Supreme Court was whether an appointment procedure that grants one party with a vested interest in the dispute, the power to unilaterally appoint a sole arbitrator, or to curate a panel of arbitrators and require the counterparty to choose from that panel, is legally valid under Indian law;

  
  

• Whether the principle of equality between parties extends to the process of appointing arbitrators; and

  
  

• Whether, in a public-private contract, an arbitral clause granting a government authority the exclusive power to appoint a sole arbitrator or the majority of arbitrators on the tribunal is violative of Article 14 of the Constitution of India.

THE HON’BLE COURT’S OBSERVATIONS

The Constitution Bench observed that the mechanism of Arbitration is founded on the principles of independence, impartiality, and equality of the parties, and these principles are particularly critical across all stages of Arbitration including that of constituting the arbitral tribunal. While the Arbitration and Conciliation Act, 1996[13], allows parties to an arbitration to agree on the procedure for appointing arbitrators, the Hon’ble Court emphasized that party autonomy is not absolute and is subject to certain mandatory safeguards. The Hon’ble court further highlighted that “In case of a conflict, mandatory provisions of the Arbitration Act prevail over the arbitration agreement between the parties.”

The Hon’ble Court held that an appointment process where a party with a vested interest in the dispute has decisive control over the selection of arbitrators creates an inherent risk of bias, which undermines the very foundation of arbitration. In situations where one party prepares a panel of arbitrators and mandates the other party to select from that limited panel, the other party is not truly free to choose an arbitrator, and such a procedure violates the principle of equality enshrined in Section 18 of the Arbitration Act[14]. Section 18 provides that the parties “shall be treated with equality and each party shall be given a full opportunity to present his case.”[15] Section 18 of the Arbitration and Conciliation Act embodies two core principles: equal treatment of parties and the right to a fair hearing. Often described as the “due process clause of arbitration,” this provision places a clear duty on arbitral tribunals to safeguard fairness throughout the proceedings.

The Court further noted that when an arbitration involves a government-owned or government-controlled company, public interest is inevitably at stake. Even so, the Arbitration Act does not draw a line between public–private arbitrations and purely private arbitrations. The Act requires every arbitration to be guided by two fundamental principles: equality of parties and independence and impartiality of the process. Evidently, no special privilege is carved out for the State.

Article 14[16] of the Constitution reinforces this by mandating equality before the law. Its essence is that laws must apply uniformly to all persons in similar circumstances. Arbitration, being adversarial in nature, depends on both sides presenting facts and evidence before a neutral tribunal. For such a system to work, formal equality is essential; it levels the playing field and helps ensure just outcomes. The 2015 amendments to the Arbitration Act introduced stronger safeguards for impartiality, including clear standards for independence of arbitrators. A key aspect of impartiality is procedural fairness, which means that the rules governing the process must not tilt in favour of one side or place the other at a disadvantage. If an arbitrator is already biased, a party’s right to participate becomes illusory. True equality requires that both parties have an equal role in constituting the tribunal, so that the arbitral process is genuinely fair and independent. Thus, the principle of equal treatment is not confined to hearings alone but applies right from the appointment stage through to the final award. The Hon’ble Court highlighted that the Arbitration Act does not prohibit Public Sector Undertakings from empanelling potential arbitrators. However, an arbitration clause cannot mandate the other party to select its arbitrator from the panel curated by Public Sector Undertaking.

When an arbitration clause permits a government entity to either appoint a sole arbitrator on its own or exercise control over the majority of the tribunal, the risk of bias becomes significant. Such unilateral appointment mechanisms undermine the very idea of arbitration as a genuine alternative to court proceedings. By excluding the other party from meaningful participation, these clauses breach the principle of equal treatment and disregard procedural fairness. In public–private contracts, they also fail to meet the minimum standard of integrity expected from bodies entrusted with quasi-judicial functions like arbitral tribunals. Consequently, unilateral appointment provisions are incompatible with the central objective of arbitration — impartial and independent adjudication. They are not only inconsistent with the equality requirement under the Arbitration Act but also violate Article 14 of the Constitution by being arbitrary and one-sided.

DECISION OF THE HON’BLE COURT

The Hon’ble Court finally decided that the principle of equal treatment of parties operates throughout arbitration, including at the very stage of constituting the tribunal. While the Arbitration Act does not prevent public sector undertakings from preparing panels of arbitrators, the law does not permit a contractual clause that restricts the opposite party to choosing its nominee only from such a panel. Similarly, a clause that authorises one party to unilaterally appoint a sole arbitrator creates justifiable doubts about independence and impartiality and undermines the other party’s equal role in the process. In the case of a three-member tribunal, compelling a party to pick its nominee from a pre-curated list curated by the counterparty disturbs the balance and results in an unequal and biased process, as was evident in CORE where the system disproportionately favoured the Railways. The Court further ruled that unilateral appointment clauses in public-private contracts run afoul of Article 14 of the Constitution, as they deny fairness and equality. It also recognised that the proviso to Section 12(5) of the Act, which allows for express waiver, applies even where parties wish to waive objections of bias against an arbitrator appointed unilaterally, but such waiver can only be made after disputes have arisen. Finally, the Bench directed that the principles laid down in this case would apply prospectively, governing appointments made after the date of the Judgment and clarified that this would also extend to the constitution of three-member tribunals.

DISSENTING OPINIONS

HON’BLE JUSTICE HRISHIKESH ROY

Justice Hrishikesh Roy, in his dissent, took a different view on the applicability of constitutional principles within arbitration law. He disagreed with the majority’s stance that constitutional doctrines, particularly those concerning equality, should be imported into arbitration. Aligning with Justice Narasimha’s earlier dissent, he emphasized that concepts developed in constitutional and administrative law ought not to be automatically transposed into the arbitral framework.

Justice Roy pointed out that the 2015 Amendment to the Arbitration and Conciliation Act had already introduced safeguards to address concerns of fairness, independence, and impartiality, including those highlighted in the International Bar Association Guidelines[17]. In his reasoning, as long as an arbitrator is not disqualified under the Seventh Schedule, unilateral appointments should not be invalidated per se, as statutory checks already exist to maintain neutrality. He stressed that courts should not override the parties’ express agreements by imposing additional requirements beyond the scheme of the Act.

Importantly, Justice Roy underlined the role of Section 12(5) of the Act, which explicitly provides for waiver through written consent given after disputes arise. In his view, such waiver provisions reflect the legislative intent to balance autonomy and fairness, thereby curing potential doubts about bias in cases of unilateral appointments. He cautioned against a blanket declaration that all unilateral appointments are void, noting that this would go against the statutory framework, which already ensures a level playing field.

Ultimately, he concluded that questions of fairness and equality in arbitration should be addressed primarily within the four corners of the Arbitration Act. He further noted that Judicial intervention under Section 11 [18]should remain a limited remedy, invoked only in cases of complete deadlock or absence of consensus between the parties. According to him, this preserved both party autonomy and the legislative balance embedded in the Act.

HON’BLE JUSTICE PAMIDIGHANTAM SRI NARASIMHA

Justice Narasimha, in his dissenting opinion, opined that when it comes to arbitration, the core issue is not merely the presence of bias but rather the imbalance created by granting one party unilateral power to constitute the arbitral tribunal. While party autonomy is a key feature of arbitration, this autonomy is not absolute, and the Courts retain a duty to ensure that arbitral procedures foster an independent and impartial tribunal. Such scrutiny, however, arises specifically at the stage of an application under Section 11 of the Arbitration Act.

He observed that issuing a blanket declaration that all clauses allowing unilateral appointments are invalid would create practical difficulties, particularly in industries dealing with high volumes of small-value disputes. Not all unilaterally constituted panels lack credibility; in fact, such panels may often consist of professionals whose impartiality cannot reasonably be questioned. Instead of rendering such clauses void across the board, the more balanced approach lies in strengthening remedial mechanisms under the Act, ensuring that Courts intervene when necessary while still respecting party choice.

He further clarified that a mere institutional or professional connection with the appointing authority does not automatically compromise objectivity. The goal must therefore be to strike a balance between vigilance against conflicts of interest and maintaining confidence in independent decision-making, recognizing that the strength of arbitration lies in combining party autonomy with judicial oversight on a case-by-case basis.

Justice Narasimha held that while contractual freedom permits parties to decide arbitral procedures and even maintain panels of arbitrators, this autonomy cannot extend to clauses that allow one party to unilaterally control the tribunal’s composition, since such arrangements undermine public policy under Sections 23 of the Contract Act[19] and Section 12 of the Arbitration Act. He clarified that Courts are not to strike down all unilateral appointment clauses in advance but must instead assess each agreement in its specific context when approached under Sections 11, 14 or 34, of the Arbitration Act. The duty of judicial scrutiny is itself embedded in the Contract and Arbitration Acts, eliminating the need to rely on constitutional law principles.

CONCLUSION

The CORE case marks a decisive step in strengthening India’s arbitration framework by reaffirming that fairness in the appointment of arbitrators is a quintessential aspect of fairness in proceedings. By striking down unilateral appointment clauses, the Supreme Court has sought to instil confidence among private players who often enter into contracts with Public Sector Undertakings or government entities. While the dissenting opinions affirm that blanket invalidations could pose practical difficulties, the majority’s stance better aligns with the long-term goal of positioning India as a pro-arbitration jurisdiction.

In my view, this decision offers much-needed clarity to contracting parties that party autonomy must always operate within the boundaries of impartiality and equality. Businesses could now be aware that any such unilateral arbitration clauses could be vulnerable to challenge in light of this ruling.

[1] Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company 2024 INSC 857

[2] Law Commission of India, Amendments to the Arbitration and Conciliation Act 1996, Report No. 246 (August 2014)

[3] Arbitration & Conciliation (Amendment) Act, 2015

[4] Arbitration & Conciliation (Amendment) Act, 2015, Section 12(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.”

[5] [2017] 1 SCR 798

[6] [2017] 7 SCR 409

[7] Pratapchand Nopaji v. Kotrike Venkata Setty, (1975) 2 SCC 208 [9]

[8] [2019] 17 SCR 275

[9] Perkins (supra)

[10] [2019] 16 SCR 1234 [“CORE”]

[11] 2021 SCC OnLine SC 271

[12] Union of India v. Tantia Constructions Limited (supra)

[13] Arbitration and Conciliation Act, 1996

[14] Section 18, Arbitration and Conciliation Act, 1996

[15] Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company 2024 INSC 857 (supra)

[16] Article 14, Constitution of India, 1950

[17] IBA Guidelines on Conflicts of Interest in International Arbitration (25 May 2024) available at: https://www.ibanet.org/document?id=Guidelines-on-Conflicts-of-Interest-in-International-Arbitration-2024

[18] Section 11, Arbitration and Conciliation Act, 1996

[19] Section 23, Indian Contract Act, 1872