2009 (2) TMI 794 - SC - Companies Law

Whether the appointment of a the retired Judge of the High Court as sole Arbitrator should be set aside and an Arbitral Tribunal should again be constituted in the manner provided in terms of clause 64? Held that - A provision for serving officers of one party being appointed as arbitrator/s brings out considerable resistance from the other party, when disputes arise. Having regard to the emphasis on independence and impartiality in the new Act, government, statutory authorities and government companies should think of phasing out arbitration clauses providing for serving officers and encourage professionalism in arbitration. Appeal dismissed.

Summary

Issues:
Appointment of arbitrators as per contract clause vs. appointment of retired Judge as sole arbitrator

Analysis:
The appellant challenged the Delhi High Court's order appointing a retired Judge as the sole Arbitrator in a construction contract dispute between the Northern Railways and the respondent. The appellant argued that arbitrators should be appointed as per Clause 64 of the contract, requiring two serving Gazetted Railway officers of equal status. However, the High Court found that due to delays and inaction by the Railways, the arbitration process had stalled since 1999. The High Court appointed a retired Judge as the arbitrator to expedite the process.

The Supreme Court examined the issue in light of previous judgments. It noted that under the new Arbitration Act, while adherence to the arbitration agreement is crucial, the appointment of named arbitrators is not mandatory. The emphasis should be on following the terms of the agreement as closely as possible. The Court highlighted the importance of independence and impartiality in arbitrator appointments, allowing for alternative arrangements if necessary.

The Court criticized the Railways for repeatedly appointing officers due for transfer as arbitrators, causing delays and hindering the arbitration process. It stressed the need for prompt constitution of Arbitral Tribunals to prevent cases from dragging on for years. In this case, with almost a decade of pending arbitration, the Court upheld the appointment of a retired Judge as the sole arbitrator to move the process forward.

Another aspect raised was the high cost of arbitration when retired Judges are appointed as arbitrators instead of serving officers. The Court acknowledged the challenges posed by high fees and suggested solutions such as institutional arbitration with fixed fees or retired Judges disclosing their fee structures to ensure fairness and affordability for parties involved.

In conclusion, the Court dismissed the appeal, affirming the appointment of the retired Judge as the sole arbitrator in the case. It refrained from issuing directions on fees, as the High Court had already set a fee structure. The judgment highlighted the need for professionalism in arbitration and phasing out clauses requiring serving officers as arbitrators to promote independence and impartiality in the arbitration process.