M/S. LAXMI CONTINENTAL CONSTRUCTION CO. Vs. STATE OF UTTAR PRADESH & ANR. [CIVIL APPEAL NO. 6797 OF 2008]

M.R. SHAH, J. & A.S. BOPANNA J.

Date : SEPTEMBER 20, 2021.

LAW POINT- Once an officer is appointed as an Arbitrator, he continues to be the sole Arbitrator, even after retirement of the arbitrator, till the arbitration proceedings are concluded, unless he incurs the disqualification under the provisions of the Indian Arbitration Act, 1940.

FACTS

A contract was entered into by the appellant and respondent on 06.02.1988. Various dispute and conflicts arose between the parties during the course of business. In pursuance of a contractual clause, the dispute was referred to arbitration. A chief engineer was appointed as arbitrator during the year 1992. Both parties initially participated in the arbitral proceeding. During the course of the proceedings, the arbitrator attained superannuation age and retired. The appellant filed another suit for extension of the proceedings for hearing and award. The respondent contended that the arbitrator had retired and prayed that the extension should not be granted. The civil judge, by an order, extended the period for 30 days and directed that the order should be passed within the 30 days. The arbitrator declared an award to the appellant by directing the respondent to pay compensation with interest. The Respondent appealed before the civil judge for setting aside the order under Section 33 of the Act which was dismissed. Feeling aggrieved, the respondent appealed before the High Court. The High Court, by an order, quashed the order of civil judge and set aside the arbitral award. The High Court held that after the retirement, the arbitrator is in misconduct of proceeding with the arbitration proceedings. Feeling aggrieved, the present was preferred by the appellant.

CONTENTIONS

The counsel for appellant argued that parties to the arbitration are bound by the agreement and the arbitral award passed by the arbitrator.

The counsel for the respondents contended that once the tenure of the arbitrator is over, he cannot continue with proceedings, rather another arbitrator should be appointed in place of him. The counsel, also brought notice to Section 4 of the Act where a state amendment was made. It provided that once an arbitrator refuses to act or becomes incapable to act, another arbitrator shall be appointed.

ISSUE

Whether once an officer of the department is appointed as an Arbitrator, whether his decision to continue the arbitration proceedings on his retirement is invalid? Whether carrying on the arbitration proceedings by such an Arbitrator after his retirement amounts to committing a misconduct?

LAW POINT– Once an officer is appointed as an Arbitrator, he continues to be the sole Arbitrator till the arbitration proceedings are concluded unless he incurs the disqualification under the provisions of the Indian Arbitration Act, 1940.

LEGAL PROVISIONS

Section 28 of the Arbitration Act, 1940 – Power of  courts  only  to  enlarge  time  for making award.

Section 30 of the Arbitration Act, 1940 – Grounds for setting aside an arbitral award.

Section 33 of the Arbitration Act, 1940 – Arbitration agreement or award to be contested by application.

OBSERVATIONS OF HON’BLE SUPREME COURT

In order to understand the issue, it is important to note the key highlights of the Arbitration Clause i.e. Clause 52 of the Agreement:

  • on the receipt of the notice from the contractor of his intention to refer the dispute to the arbitration the Chief Engineer shall send to the contractor a list of three officers of the rank of Superintending Engineer or higher, who have not been connected with the work under the contract.
  • the contractor shall within fifteen days of receipt of the list select and communicate to the Chief Engineer the name of one officer from the list, who shall then be appointed as the Sole Arbitrator.
  • if a contractor is failed to communicate his selection of name,  within  the stipulated period, the Chief Engineer shall without delay select one officer from the list and appoint him as the Sole Arbitrator.
  • if the Chief Engineer fails to send such a list within 30 days, as stipulated, the contractor shall send a similar list to the Chief Engineer within fifteen days and the Chief Engineer shall then select an officer from the list and appoint him as the Sole Arbitrator within fifteen days.
  • the arbitration shall be conducted in accordance with the provisions of the Indian Arbitration Act, 1940.

The Court, hence, noticed that the only qualification for appointment as an arbitrator is that he should be the officer of the rank of the Superintending Engineer or higher. Once such an officer is appointed as an Arbitrator, he continues to be the Sole Arbitrator till the arbitration proceedings are concluded unless he incurs the disqualification under the provisions of the Indian Arbitration Act, 1940.

Even after his retirement, the arbitration proceedings have to be continued by the same Arbitrator. Clause 52 of the agreement does not provide at all that on the retirement of such an officer, who is appointed as a Sole Arbitrator, he shall not continue as a Sole Arbitrator and/or the mandate to continue with the arbitration proceedings will come to an end.

In the present case, the Civil Judge  (Senior Division), Roorkee extended the time to the Sole Arbitrator to complete the arbitration proceedings and granted further period of 30 days which was after his retirement and after specifically overruling/rejecting the objections raised by the respondents that after retirement, he cannot continue with the arbitration proceedings. Therefore, once the Sole Arbitrator  continued with the arbitration proceedings and passed the award within the extended period of time, it cannot be said that he has misconducted himself  as  he continued with the arbitration proceedings.

Considering the relevant law and the provisions under the Arbitration clause, the Court held that the Sole Arbitrator, who at the relevant time was the Chief Engineer and was qualified to become the Sole Arbitrator was even nominated and/or appointed by the Chief Engineer as per clause 52. Therefore, considering the clause 52 of the agreement, it cannot be said that his mandate to continue with the arbitration proceedings would come to an end on his retirement.

Thus, court held that in absence of any agreement regarding the retirement, the nominated arbitrator shall continue until he attracts any provision for disqualification of an arbitrator. The court also brought to attention to Himalayan Construction Co. v. Executive Engineer, Irrigation Division, J&K (2001) wherein similar issues were raised and the court overruled the objection that a retired person becomes an ineligible arbitrator. With regard to the state amendment to Section 4 of the Act, the court held that it was totally untenable as by the reason that an arbitrator has retired, he does not become incapable.

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.

DECISION-The impugned judgment and order passed by the High  Court  quashing and setting aside the award as well as the order passed by the learned Civil Judge (Senior Division), Roorkee, deserves to be quashed and set aside. Accordingly, the present appeal is allowed. In the facts and circumstances of the  case, there  shall be no order as to costs.

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