The landmark decision of the Supreme Court of India in Perkins Eastman Architects DPC & v. HSCC (India) Ltd. has often been praised for putting an end to the rampant practice of unilateral appointments of arbitrators and upholding the principles of impartiality and neutrality in arbitral proceedings (see here and here). The decision was also one of the first instances in Indian arbitration jurisprudence which recognized (albeit, impliedly) that the principle of equality amongst parties apply to the stage of arbitrator appointment. The impact of the Supreme Court’s decision in Perkins Eastman is undeniable, with statistics from legal databases such as ‘Manupatra’ reflecting over 300 cases having relied upon the decision since the time it was passed in November 2019.
Despite the widespread adoption of the Supreme Court’s decision in Perkins Eastman, concerns over inequality inter separties in appointing arbitrators in India-seated arbitrations were far from allayed. Notably, the most evident example of such concerns persisting were the proceedings before a Constitution Bench (5-judges) of the Supreme Court in CORE v. ECI. Here, the Supreme Court has declared invalid those arbitration clauses which prescribe for appointment of arbitrator(s) from a panel of names curated by only of the parties.
One might assume that with the decision of the Supreme Court in CORE v. ECI upholding the right to equality in arbitral proceedings, the law on appointment of arbitrators in India-seated arbitration stands fairly well-settled when it comes to ensuring equality inter se the parties. After all, a significant number of arbitrations in India suffered from the practices of unilateral and panel-based appointments. However, the findings in a recent decision of the Delhi High Court, in Yves Saint Laurent v. Brompton Lifestyle Brands Pvt. Ltd. & another, has seemingly shed light on the lack of clarity on appointment of arbitrators in the context of multi-party arbitration seated in India.
By referring to the decision in YSL v. Brompton as an illustration, this post shall highlight the existing lacunae in the Arbitration & Conciliation Act, 1996 (“A&C Act”) and argue that there is a definite need for clarity on the position of law in cases involving appointment of arbitrators in multi-party arbitrations.
The Decision in YSL v. Brompton
In 2019, Yves Saint-Laurent (“YSL”) entered into a franchise agreement (“FA”) with Beverly Luxury Brands Ltd. (“Beverly”), permitting Beverly to operate a boutique store using YSL’s products and branding. Notably, the FA conferred exclusive jurisdiction on the Commercial Court at Paris and did not contain any arbitration clause. Subsequently, Beverly entered into a sub-franchise agreement (“SFA”) with Brompton Lifestyle Brands Pvt. Ltd. (“Brompton”), which included an arbitration clause for resolving any disputes between Beverly and Brompton.
Disputes arose in 2021 when Beverly terminated the SFA with Brompton upon YSL’s termination of the FA. Challenging the termination of the SFA and seeking damages, Brompton invoked arbitration under the SFA against Beverly and YSL. Towards the end of 2022, the arbitral tribunal comprising of a sole arbitrator (“Tribunal”) passed a set of procedural orders notably recording that: (i) although Beverly had consented to the unilateral appointment of arbitrator by Brompton, YSL had failed to respond on the issue; hence (ii) YSL was to be proceeded against ex-parte.
A subsequent challenge under Section 16 of the A&C Act by YSL was rejected by the Tribunal in April 2023. From excerpts of the order available in the Delhi High Court’ s decision, the Tribunal’s decision reasoned that: (i) the proceedings were ex parte against YSL; and (ii) only a ‘party’ to the arbitration proceedings could move a challenge under Section 16.
Aggrieved by the Tribunal’s decision, YSL approached the Delhi High Court seeking termination of the Tribunal’s mandate under Section 14 of the A&C Act on the basis that the unilateral appointment of the Tribunal by Brompton rendered it de jure incapable of performing its functions. The Delhi High Court identified two points that were to be decided in YSL’s petition:
- Whether the Tribunal was appointed unilaterally; and
- Whether the Tribunal was rendered de jure incapable of performing its functions.
Deciding both questions against YSL, the Delhi High Court held that the procedural orders passed by the Tribunal record that both Brompton and Beverly had consented to the Tribunal’s jurisdiction and therefore, the appointment was not ‘unilateral’. YSL’s consent is not required for appointment of the Tribunal since it is not a ‘party’ to the arbitration as defined in Section 2. Since YSL’s consent was not required, the lack of consent on its behalf cannot be a ground to render the Tribunal de jure incapable to act.
Analysis
Basis the decision in YSL v. Brompton, the following questions emerge for consideration:
- Whether a non-signatory has a right to participate in the appointment of the arbitral tribunal?
- Whether there is any recourse available under the A&C Act for appointment of arbitrators in multi-party arbitrations?
Whether a non-signatory has a right to participate in the appointment of the arbitral tribunal?
In so far as the first question is concerned, the Delhi High Court held that a non-signatory does not have the right to participate in the appointment of the arbitral tribunal since such right is vested with only “parties” as defined under Section 2, which defines a “party” to mean ‘a party to the arbitration agreement.’ However, it is argued that such a finding is in direct conflict with the Supreme Court’s decision in Cox & Kings which clearly held that the definition of “parties” under Section 2 (read with Section 7) includes both signatory and non-signatory parties. Since the position of law that rules the field is that of the Supreme Court’s decision in Cox & Kings, the second question may be dealt with accordingly.
Whether there is any recourse available under the A&C Act for appointment of arbitrators in multi-party arbitrations?
At the outset, it may be noted that the following analysis is premised on the assumption that a non-signatory entity is also a “party” under the A&C Act, and thus entitled to participate in the appointment of the arbitral tribunal.
Appointment of arbitrators in multi-party arbitrations involving two or more claimants and/ or respondents are by no means a novel issue. Most institutional rules (for e.g., ICC, SIAC, LCIA, MCIA etc.) provide that in the absence of a joint nomination by either side in the arbitration, the institution shall appoint the entire tribunal. However, a significant number of arbitrations in India, including in the case of YSL v. Brompton, are ad hoc in nature and thus, do not have the benefit of clear rules for appointment in multi-party arbitration. For such ad hoc arbitrations, the only governing (and applicable) rules to guide the parties are those found in the A&C Act, particularly Section 11.
Dealing with Section 11, the base reasoning of the Supreme Court in Perkins Eastman was that unilateral appointment of a sole arbitrator without the consent of the other party violates party equality. In that context, it is highly likely that the decision in YSL v. Brompton may have resulted in a different outcome had the Delhi High Court considered the Supreme Court’s decision in Cox & Kings. In cases involving a three-member tribunal, the Supreme Court in Perkins Eastman specifically found that the right of a claimant to appoint an arbitrator was counterbalanced by the right of the respondent to appoint its own arbitrator. It may be noted that the decision did not consider cases of multi-party arbitration with three or more parties.
Surprisingly, the A&C Act does not provide any guidance on how arbitrations with more than two parties may be conducted. Section 11(3) of the A&C Act, which provides for the default appointment procedure to be followed in the absence of any party agreement, states:
“Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.”
Evidently, the A&C Act does not consider the possibility that there may be more than one party on either side. One might argue that the answer to solving the issue lies in Section 11(4), wherein the Court is empowered to appoint an arbitrator for that side where parties fail to agree. However, such a compromise does not consider that it is not necessary that the interests of two or more claimants and/ or respondents are aligned. In this respect, it is arguable that requiring a joint nomination by two parties on one side or, failing their agreement, a court-appointed arbitrator, is not an equal influence on the composition of the tribunal in comparison to the other side being free to appoint an arbitrator without any restraints. In such a situation, the most equitable solution would be for the Court to step in and appoint the entire tribunal, an outcome that remains unrecognized in the A&C Act today. Although the Supreme Court had the occasion to provide judicial guidance on this issue a few years ago, the parties therein settled the matter before arguments were taken up in the case. Interestingly, neither the recent Report published by the ‘Expert Committee on Arbitration Law’ on suggested amendments to the A&C Act nor the Draft Arbitration & Conciliation Act (Amendment) Bill, 2024 take up the issue.
Going forward, it would be prudent for the legislature to incorporate suitable amendments to the A&C Act to expressly deal with issues arising in multi-party arbitrations, specifically dealing with the procedure for appointment of the arbitral tribunal. Guidance may be taken from foreign laws and institutional rules that address these issues (for instance, India may consider the recently amended Section 9B of Singapore’s International Arbitration Act). Owing to the increase in complexity of modern commercial transactions and the Supreme Court’s decision in Cox & Kings, the participation of non-signatories in India-seated arbitrations is only likely to increase. With a significant number of India-seated arbitrations being ad hoc, it is hoped that appropriate amendments to the A&C Act to suitably govern multi-party arbitrations are carried out.
-Umang Bhat Nair
