Alternative Dispute Resolution

Aravali Power Company Pvt. Ltd. v. Era Infra Engineering Ltd.

(2017) 15 SCC 32

Citation: (2017) 15 SCC 32
Court: Supreme Court of India
Date: 12 September 2017
Bench: R.K. Agrawal and Abhay Manohar Sapre, JJ.

Facts

Aravali Power Company awarded construction work to Era Infra Engineering.
The contract contained an arbitration clause providing for appointment through a mechanism controlled by the employer.
Disputes arose concerning execution and payment.
Era Infra invoked arbitration.
The contractual authority nominated an arbitrator who was connected with the public-sector or employer-side establishment.
Era Infra objected and sought an independent appointment.
The High Court appointed an arbitrator outside the contractual mechanism.
Aravali Power appealed.
A major question was whether the 2015 amendments introducing Section 12(5) applied to:
the arbitration agreement;
the date of invocation;
the appointment; and
the pending proceedings.
The relevant invocation and appointment process had begun before the amended neutrality provisions took effect.

Issue

Whether the post-2015 disqualification regime applied retrospectively.
Whether the High Court could disregard the contractual appointment clause under the earlier law.
Whether an employee or panel-connected arbitrator was automatically invalid before Section 12(5).

Rule

The 2015 amendment generally applies prospectively according to the statutory transitional provision and the date on which arbitral proceedings commenced.
Before Section 12(5):
employee status or connection with one party did not automatically produce ineligibility;
specific circumstances establishing reasonable apprehension of bias were required.
Courts were expected to follow the agreed appointment mechanism unless it:
failed;
became impossible;
violated then-existing law; or
involved a person directly connected with the disputed decisions.
The current position is materially different after:
Section 12(5);
the Seventh Schedule;
TRF;
Perkins Eastman;
CORE; and
Bhadra International.

Application

The Court determined that the appointment process was governed by the legal regime existing before the 2015 amendments.
It therefore declined to apply Section 12(5) retrospectively.
Under the earlier framework, the mere fact that the proposed arbitrator:
was an employee;
had public-sector experience; or
appeared on an employer-connected panel did not automatically terminate their eligibility.
Era Infra had to demonstrate a concrete ground of bias or incapacity.
No sufficient material showed that the appointee:
participated in the termination or disputed certification;
possessed a financial interest;
had expressed a concluded view; or
was otherwise legally incapable.
The High Court had replaced the agreed process largely because it preferred an independent retired judge.
The Supreme Court held that this was insufficient under the then-applicable law.
Party autonomy required the contractual mechanism to be respected.
The judgment is historically important but cannot be applied mechanically to modern appointments.
Today, even a professionally independent nominee may be invalid if:
the appointing party has exclusive unilateral control over a sole arbitrator;
the appointing authority is itself interested in the outcome;
the panel is structurally unequal; or
the proposed arbitrator falls within the Seventh Schedule.
CORE also applies equality at the appointment stage, while Bhadra confirms that mere participation does not cure a unilateral appointment without express post-dispute written waiver.
Consequently, Aravali Power chiefly explains:
the transitional position;
why old appointments were judged under old law; and
the pre-amendment rule of contractual deference.

Conclusion

The Supreme Court set aside the High Court’s independent appointment.
It held that the pre-2015 contractual mechanism governed and that employee or panel connection alone did not then create automatic disqualification.
The case’s appointment principle is limited for post-2015 arbitrations.
Use this case for: the pre-amendment appointment regime and the prospective operation of the stricter Section 12(5) neutrality rules.