Standard-form contracts of railways, public sector undertakings, banks and large private employers long carried a familiar clause: disputes would be decided by an arbitrator appointed by one party — usually a serving or retired officer of that very party — or chosen from a panel curated by it. In Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), 2024 INSC 857, decided on 8 November 2024, a Constitution Bench of the Supreme Court held that such unilateral appointment mechanisms are invalid. The ruling reshapes how every arbitration clause in India is drafted and how appointment disputes under Section 11 of the Arbitration and Conciliation Act, 1996 are argued.
How the question reached five judges
The 2015 amendments to the 1996 Act inserted Section 12(5) and the Seventh Schedule, making employees and certain associates of a party ineligible to act as arbitrators. TRF Ltd. (2017) and Perkins Eastman (2019) extended the logic: a person ineligible to arbitrate cannot appoint the arbitrator either, because an interest in the outcome infects the power of choice. Against that current stood the three-judge decision in CORE (2019), which had upheld the railways' panel-based mechanism where each side had some role. The conflict was referred, and the Constitution Bench headed by the Chief Justice resolved it in 2024.
The holdings
| Issue | What the Court held |
|---|---|
| Sole arbitrator appointed by one party | Invalid. A person with an interest in the dispute cannot chart the course of its resolution by controlling who decides it. |
| Curated panels with compulsory choice | Invalid to the extent of compulsion. Restricting the counterparty to a list drawn up by the interested party confers an unfair advantage. |
| Equality between parties | Section 18 of the 1996 Act — equal treatment of parties — applies at the stage of appointment itself, not merely during the proceedings. |
| Public law dimension | In public-private contracts, unilateral control over appointments by the State entity offends Article 14; such terms can also fail as opposed to public policy under Section 23 of the Contract Act, 1872. |
| Temporal effect | Prospective — the declaration governs appointments made after 8 November 2024. |
Why equality at the appointment stage matters
The Bench treated the constitution of the tribunal as the foundation of the entire arbitral process. Independence and impartiality are not qualities that can be retro-fitted after a one-sided constitution; the perception of even-handedness begins with who selects the decision-maker. Party autonomy remains the grundnorm of arbitration, but the Court held it is exercised within the mandatory framework of the Act — and the equal treatment norm is part of that framework which parties cannot contract out of.
Drafting and litigation consequences
Drafting
Appointment clauses should provide a neutral mechanism: mutual agreement, an appointing institution, or list procedures in which both sides participate on equal terms. Clauses naming an officer of one party, or that party’s panel as the only pool, invite invalidation.
Section 11 petitions
Where the machinery is unilateral, the referral court severs it and appoints an independent arbitrator. The arbitration agreement itself is preserved — objections that the whole clause fails with the machinery have not found favour.
Ongoing references
For tribunals constituted before 8 November 2024, the judgment is not by itself a ground of challenge; ineligibility under Section 12(5), unless waived by an express written agreement after disputes arose, remains the operative test.
Government contracts
PSUs and departments have been revising standard conditions. Counterparties reviewing tender documents should flag surviving unilateral clauses at the pre-bid stage and in the first procedural hearing.
The wider arc
CORE completes a decade-long movement in Indian arbitration law: from tolerance of departmental arbitrators, through the 2015 ineligibility regime, to a categorical rule that no party may dominate the constitution of the tribunal. Together with the seven-judge ruling on stamping and separability, it signals a Supreme Court intent on aligning Indian practice with international standards of neutrality while leaving commercial parties free to design any mechanism that treats both sides alike.
Practice note: Before invoking arbitration under a pre-2024 contract, audit the clause against CORE and Section 12(5). Where the machinery is tainted, a Section 21 notice proposing an independent appointee, followed if necessary by a Section 11 petition, is the clean route to a defensibly constituted tribunal.
Frequently Asked Questions
What exactly did the Constitution Bench strike down?
Two mechanisms: a clause allowing a party interested in the dispute to unilaterally appoint the sole arbitrator, and a clause forcing the opposite party to choose its nominee only from a panel curated by the interested party. Both were held to offend the guarantee of equal treatment of parties and the independence requirements of the 1996 Act.
Are arbitrator panels maintained by PSUs now illegal?
No. Maintaining a panel is permissible. What fails is compulsion — requiring the counterparty to confine its choice to that panel. A panel may be offered as an option, but the other side must remain free to nominate from outside it.
Does the ruling apply to arbitrations already concluded?
The Court applied its declaration prospectively to appointments made after the judgment, precisely to avoid unsettling concluded or ongoing proceedings. Awards already passed are not open to challenge merely because the clause was unilateral, though ineligibility under Section 12(5) read with the Seventh Schedule remains a separate, pre-existing ground.
How does this affect a Section 11 petition in the Delhi High Court?
Where a clause contains a unilateral or panel-restricted mechanism, the referral court can disregard the offending procedure and appoint an independent arbitrator. The existence of the arbitration agreement survives; only the tainted appointment machinery falls.