Can High Courts Step In to Appoint Arbitrators When Unilateral Clauses Violate Equality Principles?

The Supreme Court of India, on January 20, 2025, agreed to relook on an important legal question: whether a High Court can appoint a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, despite the arbitration clause between the parties stipulating a unilateral appointment mechanism—one that conflicts with the principles established in the Apex Court's judgment in CORE v. M/S ECI SPIC SMO MCML.

The matter arose in a Special Leave Petition (SLP) challenging an order of the Patna High Court, which had refused to appoint an arbitrator under Section 11(6) of the Arbitration Act in a tender-related dispute. The petitioner, a private contractor, had entered into a work contract with the Building Construction Department of the Government of Bihar. Clause 25 of the agreement contained an arbitration clause that allowed the unilateral appointment of an arbitrator by the Engineer-in-Chief or administrative head of the department, failing which the dispute would not be referred to arbitration at all. The High Court, referring to this clause, held that it violated the equality principle enshrined in Article 14 of the Constitution, as per the recent Supreme Court jurisprudence deeming unilateral appointments in public-private contracts invalid. Consequently, it declined to appoint a sole arbitrator.

The Petitioner’s Contentions

Before the Supreme Court, the petitioner argued that the High Court had erred in its interpretation of Clause 25 by focusing solely on the manner and mode of the arbitrator’s appointment while disregarding the broader framework of the arbitration agreement, which otherwise complied with Section 7 of the Arbitration Act, 1996. Section 7 delineates the essential elements of a valid arbitration agreement, and the petitioner maintained that Clause 25 met these statutory requirements despite its unilateral appointment mechanism.

The petitioner emphasized that even if the method of appointment outlined in the arbitration clause is deemed illegal, it does not preclude the High Court from exercising its jurisdiction under Section 11(6) to appoint a sole arbitrator. According to the petitioner, the decision of the High Court had effectively rendered the arbitration agreement void, contrary to the settled legal principle that the jurisdiction of the court under Section 11(6) remains intact as long as there is an arbitration agreement in writing.

It was further contended that the unilateral appointment mechanism’s invalidity does not extinguish the parties’ substantive right to arbitration. The petitioner argued that it is the duty of the High Court to ensure that arbitration proceedings are facilitated in the interest of justice, especially when the arbitration clause remains fundamentally valid, barring its appointment mechanism.

High Court's Observations

The Patna High Court had observed that the arbitration clause, specifically the stipulation empowering the Engineer-in-Chief or administrative head to unilaterally appoint an arbitrator, violated principles of neutrality and fairness. This clause was found to be inconsistent with the Supreme Court’s decision, which held unilateral appointments as violative of the equality principle under Article 14. The High Court had further noted that, according to the terms of the agreement, in the absence of such an appointment, the disputes would not be arbitrable, thereby foreclosing arbitration entirely.

The Supreme Court’s Consideration

The Supreme Court bench, comprising Chief Justice of India Sanjiv Khanna and Justice Sanjay Kumar, issued notice in the matter. The Apex Court is now tasked with addressing a critical question of law—whether the invalidity of a unilateral appointment mechanism automatically nullifies an arbitration agreement or whether the High Court, exercising its power under Section 11(6), can intervene to appoint a neutral arbitrator to uphold the parties’ substantive right to arbitration.

This issue carries significant implications for the enforceability of arbitration clauses in public-private contracts, particularly where unilateral appointment mechanisms are concerned. The decision will also provide much-needed clarity on the scope of judicial intervention under Section 11(6) in cases where the arbitration clause is partially inconsistent with settled principles of law.

Broader Implications

The case underscores the delicate balance between contractual autonomy and the principles of fairness and neutrality in arbitration agreements. While party autonomy is a cornerstone of arbitration, the courts have consistently emphasized that it cannot operate in derogation of the equality principle or the need for impartial adjudication. The Supreme Court’s judgment in this matter will likely set a precedent on how courts should navigate conflicts between contractual terms and overarching principles of fairness, particularly in public-private partnerships.

Case Details: M/S R.S. Construction v. Building Construction Department | SLP(C) No. 000979/2025