In a recent judgment in M/s Laxmi Continental Construction Co. v. State of U.P. and Anr. the Hon'ble Supreme Court of India held that the mandate of a sole arbitrator who was appointed by designation could not be terminated solely on ground of their retirement. In this case, we navigate through the facts and findings of the Hon'ble Supreme Court in the aforesaid judgment.
Brief facts
A contract for certain works was entered into between the appellant and the respondents vide an agreement dated 6 February 1988 (Agreement). During the contract work, various disputes arose amongst the parties. The Agreement in its arbitration clause provided that the disputes shall be resolved by the government officers of the rank of superintending engineer or higher, who were not connected with the work under the Agreement. Accordingly, a sole arbitrator was appointed who was the Chief Engineer at the relevant point in time. The claimant filed its claim while the respondents filed their objections to claimant's claim before the sole arbitrator.
During the intervening period, the sole arbitrator retired from the post of Chief Engineer on 30 November 1995. In the arbitral proceedings, the time for making and publishing the award was getting extended from time to time due to the respondents. The respondents on 9 August 1996 were refused further extension of arbitration particularly when the arbitration was about to close and the same could not be completed on account of respondent's lapses, default, and frequent requests seeking adjournments.
The appellant eventually filed an arbitration suit under Section 28 of the Arbitration Act, 1940 (Arbitration Act) praying for extension of time for making the award and for hearing and conducting the arbitration. The respondents took their objections that the sole arbitrator had retired from his services as a department official during the conduct of the arbitration proceedings. The respondents accordingly filed a miscellaneous suit with a prayer for declaring the reference sent to the sole arbitrator as inoperative and illegal. Both the suits were heard together by the learned civil judge (senior division), Roorkee. By a common order dated 11 December 1997, the learned civil judge extended the period of arbitration for 30 days and directed the sole arbitrator to decide the matter within the extended timeline.
The sole arbitrator declared the award on 8 January 1998 and ordered the respondents to pay a total sum of INR 10,97,024 (Rupees one million ninety seven thousand and twenty four) with interest from 1 October 1990 to 7 January 1998. The respondents filed their objections under Section 30, and 33 of the Arbitration Act. The matter eventually reached the Hon'ble Supreme Court after a series of litigation. Before the Hon'ble Supreme Court, the original claimant preferred an appeal challenging the setting aside of the award by the High Court of Uttaranchal.
Held
The moot questions before the Hon'ble Supreme Court were as follows:
- Whether the mandate of a department officer acting as an arbitrator comes to an end on his retirement?
- Whether continuance of the arbitral proceedings by the arbitrator post his retirement could be said to be a misconduct of a sole arbitrator?
Upon examining the arbitration clause in the Agreement, the Apex Court held that the only qualification for appointment as a sole arbitrator was that he should be the officer of the rank of the superintending engineer or higher. Once such an officer was appointed as the sole arbitrator, he continued to be an arbitrator until the proceedings were completed unless he incurred any disqualification under the provisions of the Arbitration Act.
The Apex Court relied on a similarly situated case in Himalayan Construction Co. v. Executive Engineer Irrigation Division, J&K and Anr.1 where it had overruled the objection that the sole arbitrator appointed by designation could not continue arbitral proceedings and pass an award upon his retirement. The Hon'ble Supreme Court then turned to the arbitration clause in the Agreement. The Apex Court observed that it could not be said that the mandate of the sole arbitrator would come to an end upon his retirement. Moreover, the Apex Court took note that the respondents had raised the very same objections before the learned civil judge. The learned civil judge had overruled such an objection and granted one month's extension to the sole arbitrator to complete the proceedings. The said order of the learned civil judge had attained finality. Therefore, it was not open for the respondents to again raise the same objection.
The Apex Court then referred to the respondents' allegations that the sole arbitrator had misconducted himself by continuing the arbitral proceedings post his retirement. The Hon'ble Supreme Court noted that the sole arbitrator passed an arbitral award within the extended period of time granted by learned civil judge. Therefore, it could not be said that he had misconducted himself.
In view of the above, the Hon'ble Supreme Court passed an order quashing and setting aside the impugned judgment of the High Court. Accordingly, the instant appeal was allowed.
Comments
Party autonomy is the fountain head of arbitration jurisprudence in India. In the instant matter, the parties had nowhere in their arbitration clause specified that the mandate of the sole arbitrator appointed by designation would terminate upon his retirement from the department. In such circumstances, the Apex Court rightly recognized the significance of party autonomy in arbitral process and held that there was no reason to deviate from terms and procedure of appointment of the sole arbitrator agreed upon by the parties.
Footnote
1. Himalayan Construction Co. v. Executive Engineer Irrigation Division, J&K and Anr., (2001) 9 SCC 359.
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