Power Grid refused to nominate an arbitrator. It still lost the challenge.

When Power Grid Refused to Play: A Sole Arbitrator, a Default Clause, and the Court That Let the Arbitration Run

Power Grid Corporation of India Ltd had a problem. It had signed three contracts with a joint venture around 2010. Disputes festered. In 2024, the JV partner—now called Mirador Commercial Pvt Ltd—sent a notice invoking arbitration under all three contracts. Power Grid refused to nominate its own arbitrator. The contract said that if one party defaulted, the other party's nominee would become the sole arbitrator. So Mirador's nominee, a retired Chief Justice, accepted the appointment and fixed a hearing for 31 August 2024.

Power Grid then rushed to the Delhi High Court. It wanted the arbitrator's mandate terminated. It argued the appointment was unilateral, hit by the Supreme Court's Perkins Eastman line of decisions. It also raised a barrage of other objections: composite arbitration across three contracts was impermissible, the joint venture was not impleaded, claims were time-barred, and a pre-arbitral protocol under Clause 38 had not been followed.

Justice C. Hari Shankar heard the petitions on 6 September 2024. He dismissed the stay applications. He issued notice—but only on the narrow question of whether Clause 39.2 of the General Conditions of Contract violated the Perkins principle. Everything else, he said, was for the arbitrator to decide under Section 16 of the Arbitration and Conciliation Act, 1996. The arbitration would continue. The petitions would be heard on 23 October 2024.

The stakes were high. If the Court had stayed the arbitration, it would have halted proceedings that had already begun. If it had terminated the mandate, it would have unseated a sole arbitrator mid-stream. Instead, the Court did something more surgical: it let the arbitration run while reserving judgment on the one question that could unravel the entire appointment.

The Three Contracts and the Default Clause

Power Grid Corporation of India Ltd entered into three contracts with a joint venture of SPIC-SMO and Aster Teleservices Ltd around 2010. The contracts were governed by the General Conditions of Contract (GCC). Disputes arose. In 2016, Mirador—which had stepped into the shoes of the JV partner—sent a notice regarding one contract. In 2024, it sent a fresh notice covering all three contracts, seeking amicable resolution under Clause 38.

When that failed, Mirador invoked arbitration. It nominated Justice Iqbal Ahmed Ansari (retd.), a former Chief Justice of the Patna High Court, as its arbitrator. It called upon Power Grid to nominate its own arbitrator within 30 days. Power Grid did not respond. Under Clause 39.2 of the GCC, if one party fails to nominate its arbitrator, the other party's nominee becomes the sole arbitrator. Justice Ansari accepted the appointment and fixed the first hearing for 31 August 2024.

Power Grid then filed three petitions under Section 14(2) read with Section 14(1) of the 1996 Act, seeking termination of the arbitrator's mandate on the ground that he was de jure unable to perform his functions.

What Power Grid Argued

Power Grid raised five objections. First, composite arbitration across three separate contracts was impermissible. Second, the joint venture—which was the original contracting party—was not impleaded as a necessary party. Third, the claims were time-barred. Fourth, the pre-arbitral protocol under Clause 38 had not been followed. Fifth, and most importantly, the arbitrator's appointment was unilateral and violated the principles laid down in Perkins Eastman Architects DPC v. HSCC (India) Ltd, Bharat Broadband Network Ltd v. United Telecoms Ltd, and Haryana Space Application Centre (HARSAC) v. Pan India Consultants Pvt Ltd.

On the unilateral appointment point, Power Grid argued that Clause 39.2 gave Mirador the power to appoint a sole arbitrator when Power Grid defaulted. This, it said, was structurally identical to the clauses struck down in Perkins and its progeny. The arbitrator, having been appointed by one party alone, was ineligible to act under Section 12(5) of the Act.

What Mirador Argued

Mirador countered that the clause was fundamentally different. Under Clause 39.2, either party had the right to nominate an arbitrator. The other party was required to respond with its own nominee. Only if the other party defaulted did the first party's nominee become the sole arbitrator. This, Mirador argued, was not a unilateral appointment clause. It was a default clause—a mechanism to prevent one party from frustrating the arbitration by simply refusing to nominate.

Mirador also argued that Power Grid's other objections—composite arbitration, limitation, non-impleadment, and non-compliance with Clause 38—were all matters for the arbitral tribunal to decide under Section 16. The Court, exercising jurisdiction under Section 14, could not entertain them.

The Court's First Move: Section 16 Takes the Wheel

Justice C. Hari Shankar began by examining the scope of a Section 14 petition. He noted that Section 14(1)(a) allows termination of an arbitrator's mandate if the arbitrator becomes de jure or de facto unable to perform his functions. But the Court cannot use this provision to decide every objection that a party raises against the arbitration.

The Court relied heavily on the Supreme Court's recent decision in SBI General Insurance Co Ltd v. Krish Spinning (2024 SCC OnLine SC 1754). In that case, the Supreme Court held that when a court exercises jurisdiction under Section 11(6) for appointment of an arbitrator, it should examine only two things: (1) whether an arbitration agreement exists, and (2) whether the petition has been filed within three years of the Section 21 notice. All other issues—including limitation, arbitrability, accord and satisfaction, and the validity of the claims—must be relegated to the arbitral tribunal under Section 16.

Justice C. Hari Shankar applied this principle to the Section 14 context. He held that objections relating to limitation, composite arbitration across multiple contracts, non-impleadment of necessary parties, and non-compliance with pre-arbitral protocol all fall within the competence of the arbitral tribunal under Section 16. They cannot form the basis for terminating an arbitrator's mandate under Section 14.

THE PLAY: If you are a party facing a Section 14 petition, argue that every objection that goes to the tribunal's jurisdiction—limitation, composite arbitration, non-impleadment, pre-arbitral protocol—must be decided by the tribunal under Section 16, not by the court under Section 14. The court's role under Section 14 is limited to whether the arbitrator is de jure or de facto unable to act.

The Court noted that the Krish Spinning principle was not limited to Section 11(6) petitions. It was a statement of the kompetenz-kompetenz principle that runs through the entire Act. Section 16 gives the arbitral tribunal the power to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. The court cannot usurp that power by entertaining such objections in a Section 14 petition.

The One Question That Survived: Was the Appointment Unilateral?

That left the fifth objection: the unilateral appointment argument. Here, the Court found the issue debatable. It examined the text of Clause 39.2, which was reproduced in paragraph 11 of the judgment. The clause provided that if a dispute arose, either party could nominate an arbitrator. The other party was required to respond with its own nominee within 30 days. If the other party failed to do so, the first party's nominee would become the sole arbitrator.

The Court noted that this was structurally different from the clauses considered in Perkins Eastman, Bharat Broadband, and HARSAC. In those cases, the clause gave one party the exclusive right to appoint the sole arbitrator, without any reciprocal right to the other party. Here, both parties had the right to nominate. The default mechanism only kicked in if one party failed to exercise that right.

The Court observed that by deliberately refusing to nominate its arbitrator, Power Grid could be said to have impliedly acquiesced to Mirador's nominee functioning as sole arbitrator. This was an obiter observation, but it hinted at a potential doctrine of implied waiver that could limit Perkins challenges in default scenarios.

However, the Court did not decide the issue. It found the question debatable and worthy of full adjudication. It issued notice on the petitions, limited to whether Clause 39.2 was hit by the Perkins line of decisions.

No Stay of Arbitration

Perhaps the most significant part of the order was the Court's refusal to stay the arbitral proceedings. Power Grid had filed stay applications (IA 38681/2024, IA 38680/2024, IA 38682/2024) seeking to halt the arbitration pending the outcome of the petitions. The Court dismissed all three stay applications.

The Court held that even where a debatable question exists regarding the validity of an arbitrator's appointment under Perkins principles, it does not automatically warrant a stay of ongoing arbitral proceedings. The proceedings would continue, subject to the outcome of the petition. This was a pragmatic decision: if the Court stayed the arbitration every time a Perkins challenge was raised, parties could use such challenges to delay proceedings indefinitely.

What This Means for Practitioners

This judgment is a masterclass in the limits of Section 14 jurisdiction. It tells us three things.

First, Section 14 is not a backdoor for jurisdictional objections. If you have an objection about limitation, composite arbitration, non-impleadment, or pre-arbitral protocol, take it to the arbitrator under Section 16. The court will not entertain it in a Section 14 petition. The Krish Spinning principle applies with full force.

Second, default clauses may survive Perkins. If your arbitration clause gives both parties the right to nominate, and the default mechanism only kicks in when one party fails to respond, you may have a strong argument that it is not a unilateral appointment clause. The Delhi High Court has left this question open, but the obiter observation about implied acquiescence is worth noting.

Third, do not expect a stay of arbitration just because you have raised a Perkins challenge. The Court will let the arbitration run while it decides the question. This is a significant tactical point: if you are the party seeking to stop the arbitration, you need more than a debatable question. You need a clear case that the appointment was invalid.

The Bottom Line

If you are a party to an arbitration and the other side has defaulted in nominating its arbitrator, the default clause in your contract may well be enforceable—but the court will let the arbitration proceed while it decides that question, and every other objection you raise will be sent to the arbitrator under Section 16.