Steelman Telecom Limited vs. Power Grid Corporation Of INDIA Limited

Facts

The petitioner, Steelman Telecom Limited, filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996, seeking the appointment of a sole arbitrator. The dispute arose from a tender floated by the respondent, Power Grid Corporation of India Limited (POWERGRID), for AMC of OFC Network and LMC in Odisha. A purchase order dated 12.10.2018, which incorporated an arbitration agreement, was issued. The petitioner alleged that POWERGRID breached its obligations by failing to release payments totaling Rs. 39,98,202/- (inclusive of GST) for work done between October 2018 and July 2019, and wrongfully terminated the contract. The petitioner invoked arbitration, but disputes arose regarding the appointment of the arbitrator as per Clause 14 of the purchase order and Clause 3.37 of the Request for Proposal (RFP).

Held

The Court held that the arbitration agreement itself is not invalid. However, the procedure for appointing the arbitrator, as outlined in Clause 14 of the purchase order and Clause 3.37 of the RFP, is flawed. The Court found that while the panel of arbitrators maintained by the respondent was broad-based, the process of the respondent confirming the contractor's choice of arbitrator introduced an element of bias. This 'confirmation' right, even if subtle, tipped the scales in favour of the respondent, thereby undermining the principle of counterbalancing required in arbitration appointment procedures. The Court relied on precedents where similar appointment mechanisms were disapproved for giving one party an undue advantage. Consequently, the Court found it incumbent upon itself to appoint an independent Sole Arbitrator. Mr. Justice (Retd.) Najmi Waziri, Former Judge of Delhi High Court, was appointed as the Sole Arbitrator. The respondent was permitted to raise preliminary objections regarding arbitrability and maintainability before the arbitrator. The arbitrator was directed to furnish disclosures under Section 12 of the A&C Act. The costs of arbitration were to be shared equally.

Key Issues

1. Whether the arbitration agreement contained in Clause 14 of the purchase order, which is an integral part of the contract, is valid and enforceable, considering the provisions of the Arbitration and Conciliation Act, 1996, as amended? 2. Whether the procedure for appointing a sole arbitrator, as stipulated in Clause 14 of the purchase order and Clause 3.37 of the RFP, is vitiated by bias or lacks the necessary counterbalancing, thereby rendering it non-arbitrable? Petitioner's arguments: The petitioner contended that the arbitration clause is one-sided and does not provide for a fair and balanced appointment process. They argued that the respondent's ability to maintain a panel of arbitrators and subsequently confirm the contractor's choice of arbitrator tilts the scales in favour of the respondent, violating the principles of impartiality and neutrality required for arbitration. They relied on judgments that have disapproved of such one-sided appointment mechanisms. Respondent's arguments: The respondent argued that the arbitration clause is valid and that the appointment procedure is fair. They contended that the panel maintained by them is broad-based, comprising retired judges and senior executives from various PSUs, fulfilling the requirements laid down by the Supreme Court. They also argued that the 'confirmation' by the respondent is a mere formality and does not disturb the equilibrium in the appointment process. They relied on judgments that uphold panel-based appointment procedures.