Central government should inspire confidence of private investors in arbitration: Supreme Court

The Supreme Court on Thursday highlighted the importance of private investment in a country's progress and the role that arbitration plays in promoting such progress [Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company]..A Constitution Bench of Chief Justice of India (CJI) DY Chandrachud and Justices Hrishikesh Roy, PS Narasimha, JB Pardiwala, and Manoj Misra said that the process of arbitration has to be fair to inspire the confidence of private investors."Private investment is crucial for the economic advancement and for the government as a nation-state, it is vital that the process of arbitration is fair. Government representing the nation has to ensure that the faith of the private sector, including foreign and domestic investors, is intact in the process of arbitration" the CJI said in response to arguments by Solicitor General Tushar Mehta..The Bench was hearing a batch of petitions dealing with the following questions of law:Whether a person being himself ineligible to be an arbitrator can appoint an arbitrator?Whether in an application under Section 11 of the Arbitration Act, courts can deviate from the agreed procedure of appointing arbitrators?Whether retired employees are rendered ineligible to act as the arbitrators in cases involving their former employers?.The Supreme Court in February referred to a larger bench the question of whether courts can modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.The Central government in July last year formed a committee to legislatively review the issue of whether courts, in an application under Section 11 of the Act, can deviate from the procedure agreed between parties for the appointment of arbitrators..Senior Advocates Gourab Banerji and Neeraj Kishan Kaul appeared for the petitioners.Solicitor General Tushar Mehta appeared for the Union government.Senior Advocates Arvind Kamath, Madhavi Divan and Guru Krishna Kumar appeared for the intervenors..Previous tests for judicial interference in arbitration not in line with modern principles: Supreme Court.Yesterday's hearing saw arguments being made on the importance of party autonomy when it comes to the appointment of arbitrators. The SG argued that party autonomy is ingrained throughout the architecture of the Arbitration Act.The CJI then shared an anecdote relating to tribunal appointments, to point out how the process of appointing arbitrators may still be fraught with difficulties. "I have been chairing selection committees to appoint the chairman of many tribunals. The moment we circulate an advertisement for the post, the senior ones do not apply. That is why we call it a search cum selection committee. There is an element of good faith also when the CJI or a senior judge is on board. Now if railways is constituting a panel, it is headed by a GM - then how would selection be made? The devil lies in the fine print. There are very good arbitrators but there is another end of the spectrum also. So will the Government of India undertake the exercise of having panels for each ministry? See how complex it will become," the CJI observed. .Kamath, appearing for the Bengaluru Metro Rail Corporation Limited, argued that the contractual conferment of a right to form an arbitration panel is a commercial bargain. "It falls within party autonomy under Section 11(2) of the Arbitration Act. Parties are free to bargain their rights as long as it is not contrary to public policy or law. Adding names to a panel is not conferment of any right or giving any remuneration. Perception-based challenges to the appointment procedure are not sustainable in law. The statute lays down a four-tiered structure for safeguards of the appointments, including mandatory disclosure that is akin to a conscientious oath by a judge, appointments can be challenged. Formation of the panel should be divested from the way it operates," he said.Kumar argued that the statute does not bar the unilateral appointment of arbitrators.Divan represented Mahindra & Mahindra Financial Services Limited (a non-banking financial company) and argued in favour of unilateral appointments of arbitrators by such companies..The CJI noted that poor defaulters sometimes face the brunt if arbitration proceedings end up being held ex parte. "Ms Divan, the point is only about the unilateral arbitration clause by virtue of which you say 'look, I will appoint a lawyer as an arbitrator, as a finance company', and the matter will proceed ex parte and the poor taxi or truck driver will be dispossessed. That is the reality - that then the drivers will be thrown out in the middle of the night by goons who will take the truck away. That is happening. This is turning arbitration on its head and giving it a bad name. I have dealt with n number of cases at the Bombay High Court where the less said, the better. Speaking from my experience even in Division Benches, I have seen how defaulters are dealt with under unilateral arbitration. Harshly against poor drivers, (it) has perverted the system," CJI Chandrachud observed..The hearing will continue at 2 PM today when it is likely to be reserved for judgment.