Perkins Eastman Architects DPC v HSCC (India) Ltd.
Rule established
Unilateral appointment clauses where one party alone appoints the sole arbitrator are invalid; violates equality between parties in arbitral process
Facts
- Perkins Eastman (US architectural firm) entered into a consultancy contract with HSCC (Indian PSU)
- The arbitration clause provided: "In case of dispute, the CMD of HSCC shall appoint a sole arbitrator"
- This gave HSCC (one party) the exclusive, unilateral power to choose the sole arbitrator
- Perkins Eastman challenged this clause as violating party equality
- HSCC argued the clause was contractually agreed and should be given effect
Issue
- Whether an arbitration clause giving one party (the employer/PSU) the exclusive power to unilaterally appoint the sole arbitrator is valid under the Arbitration and Conciliation Act, 1996.
Held
- Party equality is fundamental: S.18 mandates equal treatment of parties. The appointment mechanism must reflect this equality.
- Unilateral appointment invalid: Where one party alone has the power to appoint the sole arbitrator, the other party has no say in the selection. This creates an inherent imbalance violating S.18.
- Extends TRF principle: If the CMD is ineligible (employee of party per Seventh Schedule) and cannot be the arbitrator or nominate one, there is no mechanism left in the clause. The clause fails.
- Court appoints: When the contractual appointment mechanism fails, the court/designated institution appoints an independent arbitrator under S.11(6).
Ratio Decidendi
Equality of parties in the constitution of the arbitral tribunal is a non-derogable principle. A clause giving one party exclusive unilateral power to appoint the sole arbitrator violates this principle and is inoperative. The arbitration agreement itself survives (separability doctrine) but the appointment mechanism is severed.
How to use it in an exam
- Part A: State: unilateral appointment clauses (one party appoints sole arbitrator) are invalid per Perkins Eastman. Violates S.18 (party equality). Court appoints under S.11(6).
- Part B: Combine with TRF Ltd. for a comprehensive answer on independence in PSU/government contract arbitration. Discuss how Indian courts have progressively strengthened independence requirements.
- Key line: "Once it is held that party equality is violated by one party having exclusive right to appoint the sole arbitrator, the arbitration clause becomes inoperative and the court steps in under S.11(6)."
Source
Source: Supreme Court judgment
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.
Cited in study notes
ADRAppointment of ArbitratorValidity of appointment clauses: unilateral clauses invalid; equality required