Delhi High Court, in Isar Engineers Private Ltd v NTPC-SAIL Power Company Ltd (2025), addresses the issue of independence of arbitrators, concluding that it is a complex matter. In this case, Isar Engineers was awarded a project for civil works on an ash dyke, but delays and disputes led to contract termination. The arbitration clause said that the general manager and business unit head of NTPC-SAIL would be the sole arbitrator. Isar, citing potential bias, requested an independent arbitrator, which was denied.
Conflict of interest
The award was challenged on the assertion that the unit head had an inherent conflict of interest due to direct involvement in the project and the subsequent decision to terminate the contract, compromising impartiality. The procedural validity of the successive unit head automatically assuming the role of arbitrator was also challenged.
While considering Isar’s challenge to ex parte arbitral award, the court examined the validity of the arbitrator’s appointment, in light of the pre-2015 amendment to arbitration law, which did not per se disqualify an employee of a party from acting as an arbitrator. However, the court did acknowledge Isar’s right to demonstrate justifiable apprehension regarding the arbitrator’s independence and impartiality.
The court found merit in the objection to the unit head acting as the arbitrator, where no objection could be raised even if the arbitrator was an employee of the company, and the automatic succession of employees acting as arbitrators.
Court on impartiality
The court, relying on and reiterating the case of Central Organisation for Railway Electrification v ECI SPIC SMO MCML (JV) A Joint Venture Co, which dealt with unilateral appointments of arbitrators, concluded that the award should be set aside. The court held that both the apprehension of impartiality and the procedure for appointing arbitrators violated the agreement. It emphasised that the arbitrator is a creature of the contract and must function within its terms. If the appointment mechanism is contemplated, the same must be followed in its true letter, spirit and intent, or the arbitrator is without jurisdiction, and the appointment is rendered void.
The decision highlights the balance between party autonomy (the freedom to agree on the terms of dispute resolution) and the principles of fairness. While parties can agree to appoint an employee as an arbitrator, the issue arises when that relationship compromises impartiality.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.
