2014 (9) TMI 1274 - SC - Indian Laws

Delay in Arbitral Proceedings - inspite of expiry of four years, the said tribunal did not complete the arbitral proceeding - whether such a course of action has to be necessarily adopted by the High Court in all cases, while dealing with an application Under Section 11 of the Act or there is a room for play in the joints and the High Court is not divested of exercising discretion under some circumstances? If yes, what are those circumstances? - HELD THAT - It is this very aspect which was specifically dealt with by this Court in NORTH EASTERN RAILWAY VERSUS TRIPPLE ENGINEERING WORKS 2014 (8) TMI 1236 - SUPREME COURT . Taking note of various judgments, the Court pointed out that the notion that the High Court was bound to appoint the arbitrator as per the contract between the parties has seen a significant erosion in recent past. In the case of contracts between Government Corporations/State owned companies with private parties/contractors, the terms of the agreement are usually drawn by the Government company or public sector undertakings. Government contracts have broadly two kinds of arbitration clauses, first where a named officer is to act as sole arbitrator; and second, where a senior officer like a managing director, nominates a designated officer to act as the sole arbitrator - If the Government has nominated those officers as arbitrators who are not able to devote time to the arbitration proceedings or become incapable of acting as arbitrators because of frequent transfers etc., then the principle of 'default procedure' at least in the cases where Government has assumed the role of appointment of arbitrators to itself, has to be applied in the case of substitute arbitrators as well and the Court will step in to appoint the arbitrator by keeping aside the procedure which is agreed to between the parties. However, it will depend upon the facts of a particular case as to whether such a course of action should be taken or not. What we emphasise is that Court is not powerless in this regard. The Appellant has not questioned the order of the High Court in so far as it has terminated the mandate of the earlier Arbitral Tribunal because of their inability to perform the task assigned to them. In such a situation, leaving the Respondent at the mercy of the Appellant thereby giving the power to the Appellant to constitute another Arbitral Tribunal would amount to adding insult to the serious injury already suffered by the Respondent because of non conclusion of the arbitral proceedings even when the dispute were raised in the year 2007. Where the Government assumes the authority and power to itself, in one sided arbitration clause, to appoint the arbitrators in the case of disputes, it should be more vigilant and more responsible in choosing the arbitrators who are in a position to conduct the arbitral proceedings in an efficient manner, without compromising with their other duties. Time has come when the appointing authorities have to take call on such aspects failing which (as in the instant case), Courts are not powerless to remedy such situations by springing into action and exercising their powers as contained in Section 11 of the Act to constitute an Arbitral Tribunal, so that interest of the other side is equally protected. There are no merit in the present appeal which is dismissed.

Summary

Issues Involved:
1. Delay in arbitral proceedings.
2. Termination of the mandate of the arbitral tribunal.
3. Appointment of a substitute arbitrator by the High Court.
4. Interpretation of Clause 64 of the GCC and relevant provisions of the Arbitration and Conciliation Act, 1996.

Detailed Analysis:

1. Delay in Arbitral Proceedings:
The appellant and respondent entered into an agreement containing an arbitration clause under Clause 64(1)(ii) of the General Condition of the Contract 2001 (GCC). Disputes arose, leading to the constitution of an arbitral tribunal in 2007, composed entirely of Railway authorities. Despite four years passing, the tribunal did not complete the proceedings due to transfers, retirements, and adjournments. The High Court noted that the delay was intentional, with the tribunal members employing dilatory tactics, violating specific directions to conclude the matter within three months.

2. Termination of the Mandate of the Arbitral Tribunal:
The High Court found the arbitral tribunal's conduct negligent and in disobedience of its orders. Consequently, the High Court terminated the tribunal's mandate and appointed a sole arbitrator. The Supreme Court upheld this decision, noting that the tribunal's inability to perform its function justified the termination of its mandate under Section 14 of the Arbitration and Conciliation Act, 1996.

3. Appointment of a Substitute Arbitrator by the High Court:
The appellant argued that the High Court lacked the power to appoint a sole arbitrator, contending that a fresh tribunal should be constituted per the arbitration agreement. However, the respondent justified the High Court's decision, emphasizing that the tribunal's conduct frustrated the arbitration's purpose. The Supreme Court acknowledged that while ordinarily, the procedure in the arbitration agreement should be followed, the High Court could exercise discretion in exceptional circumstances, such as when the appointed arbitrators fail to perform their duties effectively.

4. Interpretation of Clause 64 of the GCC and Relevant Provisions of the Arbitration and Conciliation Act, 1996:
Clause 64 of the GCC outlines the procedure for appointing arbitrators, including the appointment of a sole arbitrator for claims not exceeding Rs. 10 lakhs and a panel of three Gazetted Railway Officers for higher claims. Sections 14 and 15 of the Arbitration and Conciliation Act, 1996, provide for the termination of an arbitrator's mandate and the appointment of a substitute arbitrator. The Supreme Court highlighted that the Act's primary principles include fair, speedy, and inexpensive arbitration, party autonomy, and minimal court intervention. It emphasized that the High Court's discretion to appoint an independent arbitrator could be exercised when the designated procedure fails, as seen in prior judgments like Singh Builders Syndicate and Tripple Engineering Works.

The Supreme Court concluded that the High Court's appointment of a sole arbitrator was justified given the tribunal's failure to conclude the proceedings timely. It underscored that the government, when assuming the role of appointing arbitrators, must ensure the appointed arbitrators can effectively manage their arbitration duties without undue delay. The appeal was dismissed with costs, affirming the High Court's decision to appoint a sole arbitrator.