Supreme Court invalidates arbitration clauses providing for appointment of sole arbitrator by person having an interest in the dispute.

Brief facts

Perkins Eastman Architects (“Applicant”) and HSCC (India) Ltd. (“Respondent”) entered into a contract, which provided for arbitration by a sole arbitrator. The arbitration clause stipulated that the sole arbitrator would be appointed by the Chairman and Managing Director (CMD) of the Respondent and that no person other than a person appointed by such CMD should act as arbitrator. When disputes arose between the parties, the Respondent terminated the contract. The Applicant invoked the arbitration clause, pursuant to which the Respondent’s Chief General Manager (and not the CMD) appointed the sole arbitrator. Challenging this appointment and the arbitration clause, the Applicant filed an application under Section 11(6) read with Section 11(12)(a) (“Application”) of the Arbitration and Conciliation Act, 1996 (“Act”) before the Supreme Court (“Court”).

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