The speed with which India is developing, there are a lot of construction contracts being awarded and executed between the parties. There generally exists an arbitration clause when an agreement is executed between the parties to the contract, for resolution of disputes between the contracting parties.
In the event of disagreement between the parties on the appointment of the arbitrator, or, when nominee-arbitrators fail to appoint the presiding arbitrator, or, when one of the parties fail to appoint its nominee arbitrator, or, when on the occurrence of vacancy, appointment of substitute arbitrator is not made, or in other such like situations, party desirous of constitution of arbitral tribunal shall move an application before the High Court, under section 11 of the Act.
Facts of the Cases:
The High Court of Delhi appointed an independent arbitrator for adjudication of disputes between the parties by order dated May 15, 2015, and February 2, 2015, instead of directing appointment of an arbitrator as per Clause 64 of General Conditions of Contract (GCC) which stipulated that Railways Officers would be appointed as arbitrator.
Facts of PradeepVinod Construction Co. case:
The Railways failed to appoint an arbitrator despite invocation of the arbitration clause by the respondent on May 5, 2014, therefore, the High Court was of the view that the Railways forfeited its right under the arbitration clause and the learned Judge appointed a sole arbitrator instead of directing the appointment of arbitrator as per Clause 64 of the General Conditions of Contract.
Facts of M/s B.M. Construction Co.case:
The appellant claimed that the disputes raised by the respondent were in the nature of “excepted matters”. The High Court held that the issue could be examined by the arbitrator even though the disputes fell under the category of “excepted matters”. With those findings, the court-appointed a sole arbitrator and directed that arbitration shall take place under the aegis of the Delhi International Arbitration Centre.
Hence, the present appeal.
Issue before the Court:
Whether an independent arbitrator can be appointed by the High Court where an arbitration clause clearly stipulates that Railways Officers should be appointed as arbitrator for adjudication of disputes between the parties?
Stand of the Appellant:
The appellant contended that the request to appoint an arbitrator was made prior to the Amendment Act, 2015 and hence, the proceedings must be governed by the Act of 1996.
In Union of India and another v. M.P. Guptaand Union of India and another v. V.S. Engineering (P) Ltd.and in a number of judgments, the court held that whenever the agreement specifically provides for appointment of named arbitrators, the appointment of arbitrator should be in terms of the contract. Therefore, the High Court made an error by appointing an independent arbitrator instead of directing the General Manager of the Railways to point an arbitrator as per Clause 64 of GCC which clearly states that “excepted matters” cannot be referred to arbitration.
The Appellant denied the request made by the respondents to appoint an arbitrator on the ground that their claims have been settled and the respondents have issued a “No Claim” certificate as well as executed a supplementary agreement expressing “accord and satisfaction”. Therefore, the dispute in question is not referable to arbitration.
Stand of the Respondents:
Respondents submitted that since the appellant has failed to appoint an arbitrator under the terms of the arbitration agreement under Section 11(6) of the Arbitration and Conciliation Act, 1996, hence, its right to appoint an arbitrator is forfeited and it is for the Chief Justice/Designate Judge to appoint an independent arbitrator.
Insofar as the contention that the respondents have already received the final bill and issued “No Claim” letter to the Railway, respondents submitted that “No Claim” certificate was issued under compulsion and undue influence of the authorities. Hence, it is open to the arbitrator to adjudicate by examining the bills which were furnished for payment and in such circumstances, it cannot be said to be an “excepted matter”.
After considering a number of matters of railway contract, the court, in the light of M.P. Gupta, V.S. Engineering and Parmar Construction Companyset aside the appointment of independent arbitrator and the General Manager of the Railways was directed to appoint the arbitrator as per the procedure specified in Clause 64 of the GCC.
The Court further held that the contention raised by the appellant relating to “No Claim” certificate to which the respondent disputed that the same was issued under compulsion and undue influence by the railway authorities, must be agitated. As a result, the Supreme Court while allowing the appeal directed the appellant to appoint the arbitrator in terms of Clause 64(3) of the agreement within a period of one month.
The Apex Court by allowing the appeals has sent down a positive message that stipulations of the contract must be satisfied while appointing arbitrator and that the High Court fell in error by appointing an independent arbitrator without resorting to the inbuilt mechanism agreed by the parties, as prescribed under Clause 64(3) of the contract.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances
Union of India v. PradeepVinod Construction Company, 2019(6) R.A.J. 685(SC).
Union of India v. M/s B.M. Construction Company, 2019(6) R.A.J. 685(SC).
Union of India and another v. M.P. Gupta, (2004) 10 S.C.C. 504 (India).
Union of India and another v. V.S. Engineering (P) Ltd., (2006) 13 S.C.C. 240 (India).
Union of India v. Parmar Construction Company, 2019(3) R.A.J. 445 (India).