When Autonomy Undermines Fairness: The Section 11 Conflict in Indian Arbitration

Introduction

Over the period of time of time, it has been held by the Supreme Court (“SC”), recently reaffirmed in the case of Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) and Office for Alternative Architecture v Ircon Infrastructure & Services Ltd., that party autonomy, party equality and neutrality form the cornerstone principles of arbitration regime in India. The values have been embodied in the Arbitration and Conciliation Act, 1996 (“Act”) and have been further reinforced by the 2015 and 2019 amendments, which placed significant emphasis on fairness and impartiality in arbitral proceedings.

Section 11 of the Act provides the mechanism of appointment of arbitrators, a provision that has frequently been in light in various matters before the courts. Section 11(6) enshrines the procedure to be followed by the parties in case there is a failure in the arbitrator's appointment from either side, subject to the procedure agreed in the arbitration agreement. However, tension rises when the arbitration agreement, agreed upon by the parties, by its inherent nature is unilateral.

The blog examines the view of unilateral provisions in the light of the conflict that arises in Section 11 of the Act where contractual freedom is employed in the effort to evade the law and the implications of this to fairness and equality ideology of sections 12 and 18 of the Act respectively.

It starts by describing the statutory framework in the Section 11, followed by an analysis of the complications created by the unilateral appointment systems and the major judicial reaction, with the conclusion of a set of possible reforms to create a balance between independence and justice.

Understanding the Legal Scheme

The political institutions have tried to formulate the scheme of the Act cautiously to strike a balance between party autonomy and neutrality and equity in the arbitral proceedings.

Section 11 represents one of the most critical safeguards in the arbitral framework. Section 11(2) provides that “subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators”. It grants the parties wide autonomy to decide their appointment procedure, but expressly makes that freedom “subject to” Section 11(6). Section 11(6) begins with an important qualifier, “where, under an appointment procedure agreed upon by the parties…”. This opening line recognises that parties may design their own mechanism for appointing arbitrators. However, the provision immediately goes on to address what happens when that procedure breaks down. Sub-clauses (a) to (c) of Section 11(6) set out specific contingencies, that when a party fails to act as required under the agreed procedure, when the two nominated arbitrators cannot agree, or when an institution entrusted with the task of appointment does not perform its function. In such cases, the law provides that the aggrieved party may approach the SC or the HC to take necessary measures. The judicial intervention, herein, ensures that arbitration is not frustrated merely because one party refuses to cooperate or an institutional mechanism fails. It has been further stated in  Section 11(6), that court intervention is available “unless the agreement on the appointment procedure provides other means for securing the appointment.” It effectively opens the door for alternative arrangements agreed by the parties to substitute judicial intervention.

The appointment of an arbitrator is mechanised in a time-bound manner under  Section 11(4) and (5).  A period of 30 days for parties to appoint an arbitrator is set by the law, failing to which, the aggrieved party may approach the SC or HC to secure the appointment.

A systematic mechanism is laid under Sections 11(2), 11(6), 11(4), and 11(5), when interpreted in the light of one another. The parties are free to agree on an appointment procedure, if that procedure fails, Section 11(6) allows recourse to the courts and Sections 11(4) and (5) specify a clear thirty-day timeline for approaching the courts, ensuring that arbitration proceedings can continue without undue delay while preserving the balance between party autonomy and judicial oversight.

Challenges in Balancing Party Autonomy with Equality and Neutrality

Consider an arbitration agreement between an employer and contractor, which provides that arbitration shall be conducted by three arbitrators, one to be nominated by the contractor, other by the Employer, and the third Presiding Arbitrator, to be jointly appointed by the two arbitrators.  If either party fails to appoint its arbitrator within 15 days from the receipt of a notice from the other party invoking the Arbitration clause, the arbitrator appointed by the party invoking the arbitration clause shall become the sole arbitrator.

The first part of the above agreement of appointing a three-member arbitral tribunal aligns with the Act. But the clause following it, stands in direct contravention to Section 11(4) and (5), which prescribe a thirty-day period for appointment and provide a mechanism for court intervention in case of default. The above clause vests control in the hands of one party to exclusively appoint a sole arbitrator in case of the other party’s default, without approaching the HC or SC as envisaged under Section 11(4) and (5). The mechanism violates the concept of equality in Section 18 of the Act as it gives one party full control over the appointment process and encourages unilateral appointment.

Despite being contrary to the provisions of Section 11(4) and (5), the language and interpretation of Sections 11(2) and 11(6) of the Act preserves the validity of such a unilateral agreement. Section 11(2) recognises the freedom of the parties to decide their own appointment mechanism, and Section 11(6) provides that court intervention applies “unless the agreement on the appointment procedure provides other means for securing the appointment.” The unilateral appointment clause remains valid under the agreed mechanism sanctioned by Sections 11(2) and 11(6) even after conflict with Sections 11(4) and 11(5) and the principle of equality under Section 18, The appointment of an arbitrator by a party having interest in the dispute was held to be one that undermines the independence and impartiality of the arbitral process by the SC in the case of Perkins Eastman Architects DPC and Anr v. HSSC (India) Ltd. Herein, the unilateral appointment clause, though preserved under Sections 11(2) and 11(6), opens the window for justifiable doubts as to the impartiality and neutrality of the arbitrator enshrined under Section 12 of the Act, given that the sole arbitrator is appointed by one party with a direct interest in the dispute.

Although the statutory framework under Sections 11(2) and 11(6) validates party autonomy, the critical conflict between contractual freedom and mandatory safeguards of equality and neutrality is exposed by the unilateral appointment clause, requiring meticulous evaluation in application.

Resolving the Autonomy–Equality Conflict: The Path Ahead

To find a resolution to the issue of autonomy-equality, a reform system that does not simply forbid unilateral provisions but actively constructs structural neutrality into the appointment system is needed. Central Arbitral Appointment Repository (“CAAR”), an independent regulatory body should develop a digital, transparent and neutral appointment platform.

First, CAAR must have the capability to automatically appoint arbitrators in a nationwide panel approved by CAAR. This must be founded on factors such as their adequacy in the area of their practice, their residence, experience in their industry, and their present workload. This would ensure that there is fairness in the process without delays. Second, as a means of preserving the autonomy of parties, the parties would be offered the possibility to state the qualifications, technical sphere or level of experience that they desire, whereas the actual appointment would occur through the CAAR algorithm. This will maintain party autonomy in a neutralised system and strike a balance between autonomy and fairness. Moreover, with the help of CAAR, all the arbitral appointments would be electronically registered and trackable, allowing the parties to trace the trends, possible concentration of appointments as well as the presence of conflict of interest. Finally, the Act may be changed to require that any ad hoc appointments will be processed by CAAR, other than those made by established arbitral institutions. Such statutory convergence would render the CAAR framework the default appointment mechanism which would provide uniformity and neutrality in arbitration practices in India.

Critics might point out that CAAR takes away the autonomy of the parties by reducing the freedom of choice, but CAAR reformulates autonomy to mean choice in terms of fairness, where the preferences of the parties are expressed but final choice is made without regard to party affiliation. In the alleviation of the issue of bureaucratic complexity, digital automation and algorithmic efficiency will prepare. CAAR will also improve the general credibility and consistency within the Indian arbitration system because it will be a system that is integrative in nature and allows institutions to access the platform to make verified and neutral appointments.

Conclusion

To begin with, the phase 1 of the reform will be devoted to the Statutory and Institutional Setup where a statutory change in the Act, the introduction of a separate chapter outlining its structure, mandate and control, would be presented. The executive branch will be neutralized by establishing an independent Arbitral Appointments Council of India (“AACI”), consisting of judiciary, arbitral institutions, and independent experts.

The second stage will be on the Accreditation, Integration and Digital Infrastructure. The institutional rosters would be linked to one national database and arbitrators would be panelled by an open Merit based accreditation process based on qualifications, ethics, and performance. A digital platform with blockchain technology would be created that would guarantee secure and impeccable appointment history.

Finally, the last stage will work with the pilot implementation and gradual expansion. This is the phase where the system will be piloted in various sectors, which include the public sector. According to the feedback and assessment, the scope of CAAR could be extended to include the private commercial disputes. Ongoing oversight by AACI would guarantee that the processes are refined, the codes of algorithms are made more fair, and a gradual shift towards a completely digitized, open, and unbiased system of appointing arbitrators nationwide is made.

The CAAR framework, in its essence, is a progressive change that incorporates objectivity, openness and efficiency into the process of appointing the arbitrator. Its balance between autonomy and fairness will make India have its arbitration regime become more credible and balanced and globally competitive.

Author: Trisha Shankar, Co-Author:- Aaransha Shankar, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.