Delhi High Court Sets Aside Arbitral Award Where Arbitrator Was Appointed by One Party: PTC Techno v Samsung

The Delhi High Court has set aside a 2018 arbitral award in the dispute between PTC Techno Pvt. Ltd. and Samsung India Electronics Pvt. Ltd., holding that the appointment of the arbitrator by an official of Samsung was legally impermissible. The ruling reinforces the principle, now well-established through a series of Supreme Court judgments, that unilateral appointment of an arbitrator by one party to the dispute undermines the fundamental requirement of arbitrator independence and impartiality.

The Constitutional Framework Against Unilateral Appointments

The law on unilateral arbitrator appointments has evolved significantly through landmark Supreme Court decisions. In TRF Limited v. Energo Engineering Projects Ltd. (2017), the Court held that a person who is ineligible to be an arbitrator cannot nominate another person as arbitrator. In Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2020), the Court extended this principle to hold that even where the appointing authority is not a party to the arbitration but has an interest in the outcome, the appointment is impermissible. The Arbitration and Conciliation (Amendment) Act, 2015, introduced the Seventh Schedule (modelled on the IBA Guidelines on Conflicts of Interest), which lists grounds for automatic disqualification of arbitrators.

What Happened in the PTC Techno v Samsung Case

The contract between PTC Techno and Samsung contained an arbitration clause that empowered an official of Samsung to appoint the sole arbitrator. When disputes arose, Samsung's designated official appointed the arbitrator, who proceeded to hear the matter and deliver an award in 2018. PTC Techno challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the entire arbitral proceeding was vitiated because the arbitrator had been unilaterally appointed by one of the parties to the dispute.

The Delhi High Court's Ruling

The Delhi High Court held that the appointment of the arbitrator by Samsung's official was legally impermissible. Applying the principles laid down by the Supreme Court, the Court found that a party to the dispute or its employee cannot exercise the power to appoint an arbitrator, as this creates a reasonable apprehension of bias and violates the fundamental requirement of neutrality in dispute resolution. The Court set aside the arbitral award and remitted the matter for fresh arbitration before an independently appointed arbitrator.

Practical Implications for Commercial Contracts

This ruling serves as a reminder to all commercial entities in India to review their arbitration clauses. Clauses that empower one party or its nominee to appoint the sole arbitrator are now clearly unenforceable. Companies should adopt neutral appointment mechanisms, such as institutional arbitration through bodies like the Delhi International Arbitration Centre (DIAC), the Mumbai Centre for International Arbitration (MCIA), or appointment by the High Court under Section 11. Continuing to use unilateral appointment clauses exposes the resulting award to challenge and reversal, wasting time and costs for both parties.