The death of the closed panel: Independence in arbitrator appointments after Glock Asia-Pacific

"Exploring the Shift to Independent Arbitrator Appointments After Glock Asia-Pacific: A Discussion on the End of Closed Panels"

Background

In Glock Asia-Pacific Ltd. v. Union of India, (2023) 8 SCC 226, the Supreme Court addressed a common feature of government contracts in India: the arbitration clause that vests one party, typically the State or a public authority, with the exclusive right to nominate the arbitrator. The Ministry of Home Affairs had contracted with Glock Asia-Pacific Ltd. for supply of pistols. Clause 28 of the tender conditions provided that all disputes would be referred to the sole arbitration of an officer of the Ministry of Law, appointed by the Secretary, Ministry of Home Affairs.

When a dispute arose over invocation of the performance bank guarantee nearly nine years after contract completion, the petitioner challenged this arrangement and filed an application under Section 11(6) for appointment of an independent arbitrator.

What the Supreme Court Held

The Court allowed the application and appointed a former Supreme Court judge as the sole arbitrator. It held that the arbitration clause in question fell squarely within the prohibition under Section 12(5) of the Arbitration Act, read with Entry 1 of the Seventh Schedule. Section 12(5) declares, notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator.

Entry 1 of the Seventh Schedule covers a person who is an employee, consultant, advisor, or has any other past or present business relationship with a party. The proposed arbitrator, being a serving officer of the Government of India, and being nominated by another serving officer of the Government of India which was itself a party to the contract, met this description. The Court rejected the Union's contention that contracts entered into in the name of the President of India enjoy any immunity from this statutory prohibition. Article 299, the Court held, addresses only the formality required to bind the government in contract and does not carve out a zone of exemption from general laws including the Arbitration Act.

The Court also distinguished the precedent in Central Organisation for Railway Electrifications MANU/SC/1758/2019, where the panel comprised retired officers with no continuing employment relationship with the contracting party.

Why This Matters for Commercial Dispute Resolution

The judgment extends and consolidates the principle that a party with a direct interest in the outcome of a dispute cannot appoint, or have a close associate appoint, a sole arbitrator. The ineligibility under Section 12(5) cannot be waived by a prior agreement, only by an express written agreement entered into after the dispute has already arisen.

The practical implication is significant. Contracts that contain unilateral arbitrator appointment clauses, whether in government procurement, public sector lending, or commercial arrangements between unequal parties, carry a structural vulnerability. Any award made pursuant to such a clause is liable to be challenged at the outset on jurisdictional grounds, regardless of how the proceedings themselves were conducted.

Citation: Glock Asia-Pacific Ltd. v. Union of India, Arbitration Petition No. 51 of 2022, decided on 19.05.2023, reported at (2023) 8 SCC 226.