Court has to ensure neutrality, impartiality and independence of the third arbitrator
The present matter pertaining to international arbitration was in relation to appointment of third arbitrator, as chairman, to be appointed by the two arbitrators nominated by respective parties. Upon the failure of both the arbitrators to appoint the third, Petition was moved before the Court for appointment under Section 11(6) of the Arbitration and Conciliation Act, 1996 (Arbitration Act).
The major point of divergence of views was in regard to the interpretation of two articles of the Production Sharing Contract (PSC). One view indicated the importance of neutrality of the arbitrators and therefore, pressing that the chairman has to be of a nationality other than India. The other view indicated that there was no requirement in the later article for appointment of a foreign arbitrator, identical or similar to the provision in former Article and the absence of such a requirement was deliberate and signifying clearly for an Indian National who could be appointed as the third arbitrator.
The Court however held that both views were partially correct adopting extreme positions, though adopted the common view that the request for appointment had to go the Chief Justice of India (CJI) for appointment of an arbitrator from amongst persons who were not nationals of the country of any of the parties to the arbitration proceedings.
The Court opined that international arbitration problems have to be given practical approach and the CJI while exercising jurisdiction under Section 11(6) of the Arbitration Act is to be guided by the provisions contained in the Arbitration Act, 1996 and generally accepted practices in the other international jurisdictions. Further, the CJI needs to ensure that no doubts are cast on the neutrality, impartially and independence of the Arbitral Tribunal. In international arbitration, the surest method of ensuring atleast the appearance of neutrality would be to appoint the sole or the third arbitrator from nationality other than the parties to the arbitration. Section 11 of the Arbitration Act, 1996 uses similar phraseology as Article 11 of the UNCITRAL Model Law. Section 11(1) of the Arbitration Act, 1996 provides that a person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
In the instant case there was no agreement between the parties to the effect that the third arbitrator must necessarily be an Indian national. Section 11(9) of the Arbitration Act, 1996 specifically empowers the CJI to appoint an arbitrator of a nationality other than the nationality of the parties involved in the litigation. Merely because the two arbitrators nominated by the parties are Indian would not draw a conclusion that the parties had ruled out the appointment of the third arbitrator from a neutral nationality. Since there was a conflict over the appointment of third arbitrator, Section 11(9) of the Arbitration Act, 1996 would become relevant. Further, merely because, the seat of arbitration was in India and the applicable law was of India, it does not become incumbent on the Court to appoint the third arbitrator of Indian nationality.
Court has to ensure neutrality, impartiality and independence of the third arbitrator and in this situation choice of the parties has little to do with the choice that of the CJI or his nominee in appointing the third arbitrator, who though can informally enquire about the preference of the parties, is empowered to accept any of the preferences or to appoint the third arbitrator not mentioned by any of the parties. This gets support by the relevant provisions contained in the Arbitration Act, UNCITRAL Model Laws and the UNCITRAL Rules, where the parties have included the applicability of the UNCITRAL Model Laws/UNCITRAL Rules by choice.
[Reliance Industries Ltd. & Ors. vs. Union of India]