Bias, Balance, and Beyond: Revisiting Section 3G(5) through CORE II and Tarsem Singh Judgment- Part II

School of Social Sciences and Inter-Disciplinary Studies RGNUL

Jul 5

7 min read

ISection 3G (5) of NH Act vis-à-vis CORE II- need for amendment?

When considered in the context of the ruling in CORE II, the government's appointment of the arbitrator under section 3G(5) of the NH Act shows some issues. According to section 3G(5), a party may submit an application if they are dissatisfied with the judgment made by the competent body on the amount of compensation. A single arbitrator chosen by the Central Government will then decide the matter between the parties. This clause weakens the impartiality and fairness of arbitration procedures by giving the government an upper hand in the nomination process.

The judgment of CORE II, dealt with the similar issue of unilateral appointment of the arbitrator by the government which is mentioned in public-private contracts. The court held that these clauses are invalid and declared them unconstitutional as they are in violation of Article 14 of the Indian Constitution and provisions of the A & C Act, 1996. The judgment emphasis the objective of the arbitration is to uphold the principles of equality, impartiality and fairness, mentioned in section 18 and 12(5) of the A & C Act. These sections talk about the equal treatment of parties and disqualify arbitrators which have potential conflicts of interest, ensuring a neutral and unbiased process.

Section 3G(5) is in conflict with all these legal principles by granting the government unchecked power to appoint arbitrators. This setup creates an inequality between the parties, as the government not only acts as a party but also has full power in appointment of arbitrator(s). Such a power is antithetical to the principle of nemo judex in causa sua. The Supreme Court directly addresses this issue by saying that unilateral appointments tilt the plank in favor of the appointing authority, denying the other party a fair opportunity to present its case as per section 18 of A & C Act.

This concern was further reinforced in the judgment of Sohan Lal v. Union of India,[1] dated 25th March 2025 where the Punjab and Haryana High Court examined the constitutional validity of the provisions of the NH act relating to the land acquisition and compensation. The court struck down section 3J, which ousted the application of the Land Acquisition Act, holding it to be arbitrary and violative of Article 14. Importantly, in its reasoning, the Court also cast doubt upon the constitutionality of section 3G(5), giving unilateral control to the Central Government to appoint arbitrators without any participation from the affected landowners, which also fails the test of constitutional equality mentioned under Article 14. Although the judgment dealt more directly with section 3J, the reasoning unavoidably extends to section 3G(5), demonstrating that judicial discomfort with these provisions is already taking shape. But, this judgment is stayed by the Supreme Court in the case of Riar Builders, thus limiting its applicability even further.

The judgement of CORE II dealt with similar issues, and it further ought to directly impact on the interpretation of Section 3G(5) of the NH Act, although this judgment talked about the constitutionality of the panel of arbitrators. The Court held that these unilateral appointment clauses are unconstitutional under Article 14 of the Constitution, which ensures equality before law. By allowing the government to appoint the arbitrator without taking suggestions from the opposing party, Section 3G(5) violates the constitutional mandate of equality and impartiality. The judgment explicitly addressed the likeliness of bias and favoritism in the proceedings where one party has an upper hand over the process.

Arbitration clauses that give one side, mainly the government, the authority to appoint arbitrators unilaterally were found to be violative of Section 18 of the A & C Act, which addresses equal treatment for both parties, and Section 12(5), which guarantees impartiality by disqualifying arbitrators with conflicts of interest. The Supreme Court's ruling highlighted the notion that statute provisions should be interpreted in accordance with the principles of equality, impartiality, and justice.

CORE II- Need of Retroactive effective as opposed to prospective effect

In Union of India v. Tarsem Singh,[2] [Tarsem Singh] the Supreme Court by striking down the section 3J of NH Act as unconstitutional held that when a provision is declared unconstitutional, the inequality that resulted from it should be corrected comprehensively. So, the court emphasized that prospective application of this judgment would defeat the purpose as it does not address and rectify the inequality caused by the provision. So, they reaffirmed the retrospective application to the pending litigations to ensure the principle of constitutional equality prevails.

The same reasoning would apply to the judgment in CORE II, where court held that ruling would be applicable on the arbitrator appointments made after this judgment, raises concerns, especially for cases where arbitrators were unilaterally appointed under arbitration clauses shortly before the judgment or where the arbitral awards given by arbitrators who are unilaterally appointed are already under challenge on the ground of bias or procedural integrity. While the judgment rightly recognizes the constitutional and statutory flaws in unilateral appointment clauses, its prospective application fails to address the injustice suffered by parties who were subject to arbitration by such arbitrators who are unilaterally appointed. This calls for a critical examination of the decision’s limited scope and a strong augment in favor of its retroactive application.[3] Retroactive application, as held in Tarsem Singh judgment, ensures that constitutional violations are cured not only prospectively but also for ongoing disputes.

Unilateral appointments of arbitrator, whether arising from the public- private contracts or provisions like section 3G(5) of the NH Act, they inherently violate the principles of natural justice and constitutional equality. They violated the Article 14 of the Constitution, and are in contravention of section 12(5) and 18 of A & C Act, 1996 which ensure fairness and equal treatment in arbitration. By allowing these flawed appointment of arbitrators to stand for past cases, the prospective ruling continues the very injustice the judgment seeks to eliminate, which is contrary to the reasoning adopted in Tarsem Singh judgment, where the Court refused to allow the unconstitutional equality to continue merely because it had arisen before the judgment.

For disputes where arbitrators were appointed just before the judgment, parties are left without any remedy to challenge the unilateral appointment of the arbitrators. These parties continue to suffer under this arbitration clause that the court has declared unconstitutional, leaving them to bear the consequences of biased proceedings. Similarly, where arbitral awards are under challenge, the prospective ruling fails to provide relief for awards rendered through fundamentally flawed processes. Such outcomes, unlike the remedial approach adopted in Tarsem judgment, take away confidence in arbitration as an impartial and equitable mechanism for dispute resolution.

The prospective ruling is based on the principle of judicial stability, so that there is no chaos and there is no effect on the already decided matters. However, this reasoning cannot be sustained when there is a question of natural justice and fundamental rights. Retrospective effect has been given to certain judgments involving the cases of constitutional violation or procedural violations, so as to ensure justice and fairness. Thus, by restricting this judgment of CORE II to future cases, a great injustice will be caused to the parties in matters where already unilateral appointment of arbitrators has been done, without consulting the other party, hence questioning the fairness of the arbitral award.

Thus, because the ruling has no retroactive effect, a great injustice would be caused to the parties, especially the private parties, as they have no say in the appointment of arbitrators. This raises the question of bias, as held by various other Supreme Court rulings and runs contrary to the remedial approach laid down in Tarsem Singh case. The retroactive application of the judgment when we apply it to Section 3G(5) would ensure that arbitral awards and ongoing disputes get subjected to the same standards of fairness and impartiality as mandated by the Court, and there would be no injustice.

While the prospective ruling aims to prevent chaos in the arbitration process, the issue can be mitigated through a nuanced approach. Courts could grant retroactive applications selectively, focusing on cases where arbitral awards are under challenge or where the appointment was made just before the judgment. This would strike a balance between safeguarding judicial stability and fairness. Most importantly, this approach aligns with the principle laid down in Tarsem Singh Judgment i.e., provision is declared unconstitutional, the inequality that resulted from it should be corrected comprehensively.

Conclusion

Section 3G(5) of the NH Act violates the objective of A & C Act, i.e., fundamental principles of impartiality and justice. The Central Government was given power to unilaterally appoint the arbitrator which contradicts the principles of natural justice and equality mentioned in Article 14 and also contravenes with the provisions i.e., section 12(5) and 18 of A & C Act, 1996. These sections' objective is to ensure an impartial and balanced arbitration approach, fostering the trust in the arbitration process as a neutral dispute resolution mechanism. The power given to the government compromises the integrity of the Arbitration Act, by favoring one party, particularly the government, depriving the opposite party fair opportunity to present his case.

This concern is not merely theoretical as some courts started underlining the imbalance and violation of Article 14 in section 3G of NH Act. In Sohan Lal v. Union of India, the court questioned the validity of section 3G(5), although the case was not directly centered on this question. This shows that critique of this section is already finding recognition in the courts, thereby strengthening the call for its invalidation.

If Section 3G(5) of NH Act would become unconstitutional by applying the reasoning of CORE II and Sohan Lal v. Union of India judgment which basically applies to a panel of arbitrators, it should not have prospective application. By applying the prospective application solely, it would cause serious injustice in cases where an arbitrator was chosen just before the judgment. So striking down the section 3G(5) of NH Act retroactively would help to foster trust in arbitration as a just and equitable mechanism for dispute resolution.