Arbitration is a process for adjudication and settlement of disputes inter se the parties, where the appointment of arbitrators, the rules governing the arbitration, seat of arbitration etc. are based on party autonomy. The arbitrators, as against judges in a judicial structure, are hence, likely to be more susceptible to scrutiny as they are appointed by the parties themselves. The concept of conduct of judges and arbitrators is based upon the well-known principle that "justice should not only be done but seen to be done".
Recently in the landmark judgment of M/s Laxmi Continental Construction Co. v. State of U.P. and Anr.1 the hon'ble Supreme Court of India has clarified that continuance of the arbitral proceedings by the arbitrator post his retirement could not be said to be a misconduct of a sole arbitrator.
The bench comprising of Justice MR Shah and Justice AS Bopanna was considering an appeal against the impugned judgment and order dated 19.06.2007 passed by the High Court of Uttaranchal at Nainital passed in A.O. No. 1489 of 2001 by which the High Court, setting aside the award dated 08.01.1998 passed by the learned arbitrator and the order dated 20.04.2001 passed by the learned Civil Judge (Senior Division), Roorkee, allowed the said appeal.
FACTUAL MATRIX
The parties, Laxmi Continental Construction Co. (Appellants) and the State of U.P. and Ors. (Respondent), entered into a contract dated 06/02/1988 regarding earthwork, under which several disputes arose during the course of work. Clause 52 of the said agreement provided for the settlement of all the disputes through arbitration. The disputes were to be referred to a sole arbitrator, who was to be a government officer of the rank of Superintending Engineer or higher, not connected with the work under the Agreement, appointed in the manner prescribed under the said arbitration clause. The arbitration was to be conducted in accordance with the provisions of the Indian Arbitration Act, 1940, or any statutory modifications made thereof.
The appointed Sole Arbitrator, a Chief Engineer, entered into the Reference on 19th November 1992 and the arbitration proceedings were initiated. The Respondent, on various occasions, defaulted and sought for adjournments delaying the entire process. During the pendency of the proceedings, the Sole Arbitrator completed his superannuation age and retired from the post of a Chief Engineer.
The Appellant ultimately filed a suit under the Arbitration Act2 (hereinafter referred to as the Act) praying for extension of time for passing the arbitration award and for hearing and conducting the entire proceeding. The Respondents objected contending that the sole arbitrator had retired from his designation as a department official during the conduct of the arbitration proceedings. Following that, a miscellaneous suit was filed by the Respondent, praying for declaration of the reference sent to the sole arbitrator as inoperative and illegal. The learned civil judge (senior division), Roorkee, heard both the cases together and by a common order dated 11th December 1997, increased the arbitration for an additional period of 30 days and instructed the learned sole arbitrator to decide the case and pass an award within the extended timeline. Subsequently, the learned sole arbitrator passed an award on 8th January 1998, whereby the Respondents were directed to pay a total sum of INR 1,097,024 (Rupees one million ninety-seven thousand and twenty-four) along with interest accruing from 1st October 1990, till 7th January 1998. The Respondents thereafter, filed an objection under Section 30, and 33 of the Act, before the Civil Judge, Roorkee. The said objections were dismissed by the learned Civil Judge, leading to a further challenge by the Respondent before the High Court of Uttaranchal. The High Court vide its impugned order set aside the order of the Civil Judge primarily on the ground of retirement of the sole arbitrator from his post and held the continuation of the arbitration proceedings by the Sole Arbitrator to be a misconduct on his part. The impugned order of the High Court was challenged by the Appellant before the hon'ble Supreme Court.
ISSUES BEFORE THE COURT
The Supreme Court narrowed down the debate to two issues. The first issue to be decided by the court was when the Arbitration clause causes an officer of the department to be appointed as a sole arbitrator, will their retirement from the aforesaid department end their mandate as an arbitrator as well?
Secondly, the court deliberated upon whether an arbitrator can be said to be "misconducting" if they continue the arbitration proceeding after the retirement?
DECISION OF THE COURT
Taking note of Clause 52 of the arbitration agreement, the bench noted that the only criteria for appointment of the Sole Arbitrator was that they should be an officer of the rank of Superintending Engineer or higher. The clause did not lay down retirement as a criterion for disqualification of the said arbitrator. Clause 52 further provided that after the appointment of the said arbitrator, the arbitration proceedings shall be governed by the Indian Arbitration Act, 1940, and only the disqualifications laid down in the Act shall end his mandate.
The court discussed a mirror situation from the case of Himalayan Construction Co. v. Executive Engineer, Irrigation Division, J&K and Anr3, where the appointment of the arbitrator took place by virtue of his designation followed by his retirement in the midst of the arbitration proceedings. The arbitrator prayed for extension of time which was granted and no objection was raised at that time. Thereafter, the arbitration proceedings were completed, and an award was passed by the learned arbitrator which was made the Rule of the Court by the learned Single Judge of High Court. The award was later challenged on the ground that the arbitrator had retired and ceased to hold office when the award was passed, hence the award was liable to be set aside. However, the challenge was overruled by the hon'ble Supreme Court. Placing reliance on the aforesaid decision, the court ruled in the present case that the Respondents did not have a ground to raise the same objection again once learned Civil Judge (Senior Division), Roorkee, had already overruled it on the same ground and granted further one month's extension to the Sole Arbitrator instead.
The court also rejected the reliance placed on amendment to Section 4 of the Indian Arbitration Act, 1940, as applicable to the State of U.P., which envisaged a situation where the arbitrator had become incapable to act in his position. The bench held that the said provision shall not be applicable at all as retirement of the Sole Arbitrator cannot be termed as "incapability". Future events cannot invalidate the appointment of the Sole Arbitrator, if not agreed by the contracting parties.
Tending to the second issue, the bench noted that the learned Civil Judge (Senior Division), Roorkee, granted an extension to the Sole Arbitrator after specifically overruling the objection of the Respondents pertaining to his retirement. Following the directions of the court, the Sole Arbitrator passed the award within the extended period of time. Hence, the arbitrator cannot be said to be "misconducting" himself.
CONCLUDING REMARKS
One of the most hallowed foundational principles of arbitration is the principle of party autonomy which ought to be taken into account by the judges while dealing with the arbitration appeal cases. The concerned Arbitration Clause provided a detailed procedure to be followed for the appointment of the Sole Arbitrator. As per the same, designation as a criterion, was relevant only at the time of the aforesaid appointment. If the parties envisaged retirement as a criterion for disqualification of arbitrators, the arbitration agreement would have stated the same. Following the Literal Rule of Interpretation4, since this procedure nowhere accounts for "retirement" as a disqualification, it was in the interest of justice and equity that the hon'ble apex court, allowing the appeal, rightly interpreted what was agreed between the parties in the arbitration clause and upheld the principle of party autonomy.
Footnotes
1. Laxmi Continental Construction Co. vs. State of U.P. and Ors, Civil Appeal No. 6797 of 2008, decided on 20.09.2021.
2. Section 28, the Arbitration Act, 1940.
3. (2001) 1 SCC 289.
4. Tirath Singh v. Bachittar Singh, AIR 1955 SC 850
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