Independence And Impartiality Required Of All Arbitrators, Not Just Presiding One: Madhya Pradesh High Court

The Madhya Pradesh High Court on 31 March held that every arbitrator in a tribunal, including party-appointed arbitrators, must remain independent and impartial under the Seventh Schedule and Section 12(5) of the Arbitration and Conciliation Act, 1996.

Justice Vivek Jain appointed Justice K.K. Lahoti as the sole arbitrator to adjudicate the dispute between Hewlett Packard Enterprise India Private Limited (HP/petitioner) and Bhopal Smart City Development Corporation Limited (BSCC/respondent), after the latter nominated the Commissioner, Urban Administration and Development Department, Madhya Pradesh (UADD).

The Bench held:

“The respondents could have appointed some other independent and impartial person as their arbitrator because independence and impartiality is not required only of third arbitrator in a three members arbitral tribunal, but each and every arbitrator needs to be independent and impartial.”

HP had entered into a Master Service Agreement (MSA) with BSCC to provide IT services for Smart City projects in Madhya Pradesh. The MSA followed an Inter-City Agreement (ICA) executed between five Smart City corporations and two municipal corporations in the State. Under the ICA, BSCC acted as the designated authority to select a single private agency to provide IT services for the Smart Cities.

Disputes later arose between HP and BSCC. HP issued a notice invoking arbitration. BSCC responded by appointing the Commissioner, UADD as its nominee arbitrator for a three-member tribunal.

HP challenged the appointment and filed a petition under Section 11 of the Arbitration and Conciliation Act, arguing that the Commissioner, UADD was a party to the ICA and therefore had a direct interest in the dispute. HP contended that the appointment violated the Seventh Schedule read with Section 12(5), which requires all arbitrators to be independent and impartial.

BSCC opposed the petition. It argued that Clause 24.7 of the MSA explicitly named the Commissioner, UADD as its nominee, making the appointment contractual. It also contended that HP should challenge the arbitrator's eligibility before the tribunal under Section 13, rather than seek relief under Section 11. HP, it said, had approached the Court prematurely without nominating its own arbitrator.

The Court found a clear link between the ICA and the MSA. Although HP was not a party to the ICA, the MSA arose from it, and BSCC acted as the designated authority under that framework.

Justice Jain noted that the Commissioner, UADD was a Madhya Pradesh Government official and a party to the ICA, giving him a direct interest in the MSA-related dispute. Therefore, his appointment violated the Seventh Schedule and Section 12(5).

Rejecting BSCC's argument that HP should proceed under Section 13, the Court said such a step would only delay arbitration. It also relied on Central Organization for Railway Electrification v ECI SPIC SMO MCML (JV), 2024 SCC OnLine SC 3219,to rule that the appointment could not stand.

Exercising its powers under Section 11(6), the Court appointed Justice K.K. Lahoti, former Acting Chief Justice of the Madhya Pradesh High Court, as sole arbitrator to adjudicate the dispute.

Accordingly, the High Court disposed of the petition.