Perkins Eastman Architects DPC v. HSCC (India) Ltd.

Supreme Court of India · 26 November 2019 · 2 judges

A party, or its official, interested in the outcome of a dispute cannot unilaterally appoint a sole arbitrator; the Court annulled the respondent's appointment and itself appointed a sole arbitrator under Section 11(6).

Facts

HSCC (India) Ltd., an executing agency of the Ministry of Health and Family Welfare, awarded architectural design work for the proposed AIIMS at Guntur to a consortium of Perkins Eastman Architects DPC (New York) and Edifice Consultants Private Limited (Mumbai). Clause 24 of the contract dated 22.05.2017 provided for arbitration by a sole arbitrator appointed by the Chairman and Managing Director of HSCC, and said no other person could act as arbitrator. After HSCC terminated the contract, the applicants invoked arbitration on 28.06.2019. On 30.07.2019, after the thirty days had run, a letter from HSCC's Chief General Manager named a sole arbitrator. The applicants moved the Supreme Court under Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996, seeking an independent arbitrator. Two connected applications concerned AIIMS projects at Kalyani and Nagpur on identical facts.

Questions before the Court

Whether the arbitration was an international commercial arbitration under Section 2(1)(f) of the Act, so that the Supreme Court could hear the Section 11(6) application.
Whether a party's Chairman and Managing Director, who is not himself the arbitrator, can alone appoint a sole arbitrator after the 2015 amendments.
Whether the Court can exercise power under Section 11 when the respondent has already made an appointment.

What the Court held

Applicant No. 1, an architectural firm registered in New York, was accepted as the lead member of the consortium even though both members were jointly and severally liable. Relying on Larsen and Toubro, the Court held that Section 2(1)(f) was satisfied and the arbitration was an international commercial arbitration.
The appointment was made one working day late. That delay was technical and was not by itself enough to call for the Court's intervention under Section 11.
There are two kinds of clauses: one where the Managing Director is named arbitrator with power to nominate (as in TRF), and one where he only appoints. The invalidity in TRF arises from his interest in the outcome, which exists in both. So a person interested in the outcome must not have the power to appoint a sole arbitrator.
Where both parties nominate their own arbitrators, the advantage of one is balanced by the equal power of the other. Where only one party appoints a sole arbitrator, its choice has an element of exclusivity, and that is what the 2015 amendments guard against.
An appointment already made does not bar the Section 11(6) jurisdiction unless it is ex facie valid, following Walter Bau AG as approved in TRF. The Court annulled the appointment and appointed a former Judge of the Court as sole arbitrator, subject to the Section 12 declaration.

Why it matters

The judgment extends the reasoning of TRF Ltd. v. Energo Engineering Projects Ltd. from a Managing Director who is himself the named arbitrator to one who is only the appointing authority. It holds that a party interested in the outcome cannot unilaterally appoint a sole arbitrator, treating this as the essence of the 2015 amendments. It also holds that a consortium whose lead member is a foreign entity can give rise to an international commercial arbitration.

In the Court's words

Copied from the official judgment; each passage links to its page.

“If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases.”

Uday Umesh Lalit, J.Page 22 of the judgment

“course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016)”

Uday Umesh Lalit, J.Page 24 of the judgment

“Relying on said decision we conclude that the lead member of the Consortium company i.e. Applicant No.1 being an Architectural Firm having its registered office in New York, requirements of Section 2(1)(f) of the Act are satisfied and the arbitration in the present case would be an “International Commercial Arbitration”.”

Uday Umesh Lalit, J.Page 15 of the judgment

“Technically, the appointment was not within the time stipulated but such delay on part of the respondent could not be said to be an infraction of such magnitude that exercise of power by the Court under Section 11 of the Act merely on that ground is called for.”

Uday Umesh Lalit, J.Page 16 of the judgment

Provisions interpreted

Related judgments

Follows TRF Ltd. v. Energo Engineering Projects Ltd. (2017)“But, in our view that has to be the logical deduction from TRF” (page 23)
Followed in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) (2024)

Case and bench

Parties: Perkins Eastman Architects DPC v. HSCC (India) Ltd.
Case: Arbitration Application No. 32 of 2019
Decided: 26 November 2019
Bench: Uday Umesh Lalit, Indu Malhotra
Opinions: Unanimous. Judgment of the Court delivered by Uday Umesh Lalit, J. for himself and Indu Malhotra, J.