Articles, Arbitration & ADR
Few developments in Indian arbitration law have had more immediate practical impact than the Supreme Court’s ruling in Perkins Eastman Architects DPC vs HSCC (India) Ltd (2019) 20 SCC 760. Decided in November 2019, the judgment extended the principle of arbitral impartiality to prevent not just interested persons from acting as arbitrators, but interested parties from appointing arbitrators, even when the appointee themselves has no personal interest in the dispute. The Perkins Eastman arbitration unilateral appointment India Section 12 ruling affects every contract with a standard “MD/CEO/senior official shall appoint the arbitrator” clause, a formula common in government contracts, PSU agreements, and many private contracts. Understanding this ruling and its implications is now essential for contract drafting and dispute management in India.
Background: The Dispute and the Arbitration Clause
Perkins Eastman Architects DPC (a US architectural firm) entered into an agreement with HSCC (India) Ltd, a central government PSU and hospital infrastructure company, for consultancy services. Disputes arose relating to the services rendered and fees payable.
The arbitration clause in the contract provided that the sole arbitrator would be appointed by HSCC’s Chairman and Managing Director (CMD). HSCC, asserting its contractual right, unilaterally appointed a sole arbitrator pursuant to this clause.
Perkins Eastman challenged this appointment before the Supreme Court under Section 11 of the Arbitration and Conciliation Act 1996, arguing that the unilateral appointment was invalid because HSCC, as a party with a direct interest in the dispute’s outcome, could not be trusted to appoint an impartial arbitrator.
The Fifth Schedule and Seventh Schedule: The Statutory Framework
Before examining the judgment, it is important to understand the relevant statutory provisions:
Section 12(1) of the Arbitration and Conciliation Act 1996 (as amended in 2015) requires prospective arbitrators to disclose circumstances that might give rise to justifiable doubts about their independence and impartiality. These circumstances are listed in the Fifth Schedule.
Section 12(5) provides that an arbitrator who falls under any category in the Seventh Schedule is ineligible to be appointed, and this ineligibility cannot be waived by any prior agreement. The only way to waive Section 12(5) disqualification is by written agreement of both parties after the dispute has arisen.
The Seventh Schedule contains various categories of relationships that create per se ineligibility, including situations where the arbitrator is an employee, consultant, or advisor of one of the parties, or where there is a financial or personal relationship that creates a conflict of interest.
The TRF Ltd vs Energo Engineering: The Precursor
The direct precursor to Perkins Eastman was the Supreme Court’s ruling in TRF Ltd vs Energo Engineering Projects Ltd (2017) 8 SCC 377.
In TRF, the arbitration clause empowered the Managing Director (MD) of one party to appoint an arbitrator, but the MD themselves was held ineligible under Section 12(5) because the MD was an employee/representative of a party to the dispute and thus fell under the Seventh Schedule.
The Supreme Court in TRF Ltd held: if the MD is personally ineligible to be the arbitrator, the MD is also ineligible to appoint an arbitrator on behalf of their company. The right to appoint is forfeited along with the right to be.
The Perkins Eastman Extension: The Party’s Appointment Right
Perkins Eastman went one critical step further than TRF Ltd.
In TRF, the MD was personally ineligible, the Seventh Schedule applied to the MD as an individual. In Perkins Eastman, the question was different: HSCC (the party itself, not a specific individual officer) was seeking to appoint a sole arbitrator. The person HSCC sought to appoint was not an HSCC employee or officer, they had no personal connection to HSCC that would make them individually ineligible under the Seventh Schedule.
The Supreme Court’s Holding:
The Court held that:
“A person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That interest need not be that of the arbitrator, but can be the interest of the appointing party.”
In other words:
- HSCC, as a party with a direct financial interest in the outcome of the dispute with Perkins Eastman, cannot unilaterally appoint the sole arbitrator, even if the appointed person is otherwise neutral
- Allowing an interested party to choose who decides the dispute fundamentally compromises the appearance of impartiality
- The Section 12(5) ineligibility of HSCC as an interested party extends to its power to unilaterally appoint
This reasoning flows from the principle that party equality in arbitrator appointment is fundamental, if one party appoints the sole arbitrator, the other party has no role in the choice of decision-maker.
Section 12(5) and the Waiver Provision
Section 12(5) of the Arbitration and Conciliation Act 1996 states that notwithstanding any prior agreement, a person falling within the categories of the Seventh Schedule shall be ineligible to be appointed as an arbitrator. By extension (per TRF Ltd and Perkins Eastman), a party that is effectively disqualified under Section 12(5) also loses the right to appoint.
The only exception: Parties can waive this ineligibility by an express written agreement made after the dispute has arisen. A pre-dispute clause in the contract purporting to waive Section 12(5) is ineffective.
This is significant: the waiver must be:
- In writing (not oral)
- Made by both parties (not unilaterally)
- Executed after the specific dispute has arisen (not in advance in the original contract)
In Perkins Eastman, no such written waiver existed, the parties had not agreed in writing after the dispute arose to accept HSCC’s unilateral appointment. Therefore, the appointment was void ab initio.
Practical Implications for Contracts with PSUs and Corporates
The Perkins Eastman ruling has significant practical consequences for all contracts, particularly those with government entities, PSUs, and large corporations, that contain “MD shall appoint” clauses:
1. All Existing “MD Appoints” Clauses Are Suspect
Any contract where one party (especially a party with greater bargaining power) retains the unilateral right to appoint the sole arbitrator should be reviewed. Such clauses are now vulnerable to challenge under Section 11.
2. Government Contracts Require Immediate Redrafting
Government departments and PSUs that have standard arbitration clauses giving their senior officer (Chief Engineer, CMD, etc.) the power to appoint an arbitrator, without giving the other party a meaningful voice, need to revise these clauses.
3. Institutional Appointment as the Solution
The cleanest solution to the Perkins Eastman problem is institutional arbitration, where the arbitral institution appoints the arbitrator. Since the institution (DIAC, SIAC, ICC, etc.) has no interest in the dispute, its appointment mechanism is impartial by design.
Alternatively, parties may agree on:
- Each party appointing one arbitrator and the two appointed arbitrators selecting the presiding arbitrator (three-member panel)
- Appointment by mutual agreement with court appointment under Section 11 as backstop if parties cannot agree
4. Distinction for Three-Member Panels
In Perkins Eastman, the Court clarified that the principle applies specifically to the appointment of a sole arbitrator. For a three-member tribunal where each party appoints one arbitrator (and the two appointees select the third), the party equality concern is addressed, the fact that one party appoints does not compromise impartiality in the same way. This distinction is important for drafting multi-arbitrator clauses.
Key Takeaways
- The Perkins Eastman arbitration unilateral appointment India ruling holds that a party with an interest in the dispute’s outcome cannot unilaterally appoint the sole arbitrator, extending TRF Ltd (2017) from individual officer ineligibility to party-level ineligibility.
- Any pre-dispute contractual provision attempting to give one party the right to appoint the sole arbitrator is rendered void by Section 12(5); the only remedy is institutional appointment or a mutual appointment process.
- A Section 12(5) disqualification may only be waived by express written agreement of both parties after the dispute arises, not by a blanket waiver in the original contract.
This article is for informational purposes only and does not constitute legal advice. Readers should seek appropriate professional counsel for their specific circumstances.
META TITLE: Perkins Eastman Principle: Unilateral Arbitrator Appointment India
META DESCRIPTION: Analysis of Perkins Eastman Architects vs HSCC (2019), the Supreme Court ruling prohibiting unilateral arbitrator appointments by interested parties.