Unilateral Appointment Of Sole Arbitrator Not Violative Of Party Autonomy Where Contractually Agreed

Summary:

[1]The Delhi High Court dismissed petitions under Sections 14(1) and 14(2) of the Arbitration and Conciliation Act, 1996 filed by Power Grid Corporation challenging the appointment of a sole arbitrator by the Respondent. The Petitioner alleged unilateral appointment in violation of principles of neutrality and party autonomy. The Court, however, held that Clause 39.2 of the contract permitted such appointment in case of default by one party and that failure to appoint within 60 days triggered the clause. The arbitrator’s mandate was upheld.

Facts:

• The dispute arose from three separate supply and service contracts between Power Grid and a JV comprising Mirador and Aster. Disputes pertaining to tower construction and rectification of faulty work led Mirador to issue a notice invoking arbitration and nominate a sole arbitrator under Clause 39 of the General Conditions of Contract (GCC).
• Power Grid objected to the arbitration on multiple grounds including non-compliance with the pre-arbitral conciliation step, composite reference across three contracts, and the unilateral appointment of the arbitrator. It argued that the clause allowing the claimant’s nominee to become sole arbitrator upon default by the other party was contrary to settled law.

Issues:

• Whether Clause 39.2 of the GCC permitted unilateral appointment of a sole arbitrator in the event of failure by the other party to nominate its arbitrator?
• Whether such an appointment violated principles of party autonomy and neutrality under the 1996 Act?

Held:

The Hon’ble Court held:

• The language of Clause 39.2 was unambiguous: if one party fails to appoint its arbitrator within 60 days, the nominee of the other party becomes the sole arbitrator.
• Raising objections in response to the arbitration notice does not amount to appointment of an arbitrator. The Petitioner did not appoint its nominee within the stipulated period.
• The clause was part of a negotiated agreement and cannot be invalidated merely because the appointment becomes unilateral after default.
• The principle of party autonomy permits parties to contractually agree to consequences in case of non-response, and this does not per se violate the scheme of the Act or rulings like Perkins Eastman and CORE.
• Composite reference and other objections (e.g., non-impleadment of JV partner Aster, claim limitation) were issues to be determined by the arbitral tribunal under Section 16 and not grounds for termination under Section 14.

Accordingly, the Court upheld the arbitrator’s mandate and dismissed all petitions.

Analysis:

This judgment provides critical clarity on the permissibility of “default clauses” in arbitration agreements. Where parties mutually agree that failure to appoint an arbitrator within a certain timeframe results in the other’s nominee becoming sole arbitrator, such clauses are valid and enforceable. The ruling balances the ideals of neutrality with the practical need to avoid deadlock. Importantly, it reiterates that procedural challenges, including composite reference or arbitrability, must be dealt with by the arbitral tribunal and not under Section 14.

[1] BEFORE THE HON’BLE HIGH COURT OF DELHI

POWER GRID CORPORATION OF INDIA LTD. vs. MIRADOR COMMERICAL PVT. LTD.

O.M.P (T) (COMM) 88/2024, 89/2024, 90/2024

Judgment Date: July 09, 2025