Union of India Vs.
M/S. Singh Builders Syndicate [2009] INSC 431 (26 February 2009)
Judgment
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 3632 OF 2007 UNION OF
INDIA ....... APPELLANT (s)
O R D E R
R.V.Raveendran, J.
1.
The
appellant challenges the order of the Delhi High Court dated 27.3.2006
appointing a Retired Judge of the High Court as sole Arbitrator to decide the
disputes arising in respect of a construction contract between the Northern
Railways (appellant) and the respondent.
2.
The
appellant contends the appointment of arbitrators should be only in accordance
with Clause 64 of the general terms and conditions contract which requires two
serving Gazetted Railway officers of equal status being appointed as Arbitrators,
one by the contractor from a panel made available by the General Manager of
Northern Railways and the other by the Northern Railways, and the two
arbitrators so appointed, in turn appointing an Umpire.
3.
It
is true that the Arbitral Tribunal should be constituted in the manner laid
down in the Arbitration agreement. Provisions for arbitration in contracts
entered by governments, statutory authorities, and government companies,
invariably require that the Arbitrators should be their own serving officers.
Such a provision has to be given effect, subject to requirements of
independence and impartiality. But there can be exceptions and this case which
has a chequered history, falls under such exceptions.
4.
Let
us refer to the facts briefly. The respondent made a request for arbitration in
the year 1999. As the appellant failed to take necessary steps as mandated by
clause 64, the respondent filed an application under Section 11 of the Arbitration
and Conciliation Act, 1996 (`Act' for short) in AA No. 202/2000. In pursuance
of the directions issued on 11.11.2002 by the designate of the Chief Justice of
the Delhi High Court, an Arbitral Tribunal was constituted in terms of clause
64, consisting of Shri 3 A.K. Mishra, (Chief Engineer/TPS) nominated by the
contractor, Shri S.P. Virdi (Dy.F.A. & CEO) nominated by the appellant, and
Shri H.K. Jaggi (Chief Bridge Engineer) as the Umpire. But even before the
proceedings could commence before the Arbitral Tribunal, Shri A.K. Mishra, one
of the Arbitrators, was transferred and consequently he tendered resignation in
May, 2004. As the appellant failed to provide a fresh panel to enable the
respondent to make a fresh nomination, the respondent again approached the High
Court by filing AA No.240/2004. A fresh panel was made available thereafter
from which the respondent nominated Shri Ashok Gupta as its Arbitrator. Hardly
after one sitting of the Arbitral Tribunal, Shri Ashok Gupta was also transferred
and he tendered his resignation on 21.7.2005.
As appellant again
failed to take steps for filling the vacancy, the respondent approached the
Court again by filing IA No. 6511/2005 in AA 240/2004. In pursuance of an order
dated 24.8.2005 passed by the High Court, again a panel was made available and
the respondent made its choice on 9.9.2005. As no steps were taken in pursuance
of it by the appellant, the respondent sent a reminder on 14.10.2005. There was
no response. In this background, the respondent again approached the High Court
on 10.11.2005 in Arb. Petn. No. 256/2005 for appointment of an independent sole
arbitrator. During the pendency of the said petition, the General Manager of
Northern Railways appointed Sri Ved Pal as the contractor's nominee arbitrator
on 22.11.2005.
5.
The
High Court was of the view that no useful purpose will be served by again
reconstituting a Three Member Arbitral Tribunal in accordance with clause 64.
The High Court found that the matter has been pending from 1999 when the
respondent first made the request for reference to Arbitration and that the
cumbersome process of constituting an Arbitral Tribunal in terms of the
Arbitration agreement and the delays on the part of Railways in complying with
the provisions of the arbitration agreement, led to the arbitration becoming
virtually a non-starter. Therefore, the High Court allowed the petition on
27.3.2006 and appointed Justice Jaspal Singh, a retired Judge of the Delhi High
Court as the arbitrator. Justice Jaspal Singh recused himself and the High
Court on 19.7.2006, appointed Justice R.C. Chopra, another retired Judge of the
Delhi High Court as the arbitrator.
6.
The
said order is challenged in this appeal by special leave. On 6.11.2006, this
Court stayed the arbitration proceedings before the sole Arbitrator. The
question that 5 arises for consideration in this appeal by special leave is
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.
7.
Dealing
with a matter arising from the old Act (Arbitration Act, 1940), this Court, in
Union of India v. M.P.Gupta [2004 (10) SCC 504], held that appointment of a
retired Judge as sole Arbitrator contrary to clause 64 (which requiring serving
Gazetted Railway Officers being appointed) was impermissible. The position
after the new Act came into force, is different, as explained by this Court in
Northern Railway Administration, Ministry of Railway, New Delhi v. Patel
Engineering Company Ltd. [2008 (11) SCALE 500]. This Court held that the
appointment of arbitrator/s named in the arbitration agreement is not mandatory
or a must, but the emphasis should be on the terms of the arbitration agreement
being adhered and/or given effect, as closely as possible. It was further held
that the Chief Justice or his designate should first ensure that the remedies
provided under the arbitration agreement are exhausted, but at the same time
also ensure that the twin requirements of sub-section (8) of section 11 of the
6 Act are kept in view. This would mean that invariably the court should first
appoint the Arbitrators in the manner provided for in the arbitration
agreement. But where the independence and impartiality of the Arbitrator/s
appointed/nominated in terms of the arbitration agreement is in doubt, or where
the Arbitral Tribunal appointed in the manner provided in the arbitration
agreement has not functioned and it becomes necessary to make fresh
appointment, the Chief Justice or his designate is not powerless to make
appropriate alternative arrangements to give effect to the provision for
arbitration.
8.
The
object of the alternative dispute resolution process of arbitration is to have
expeditious and effective disposal of the disputes through a private forum of
parties' choice. If the Arbitral Tribunal consists of serving officers of one
of the parties to the dispute, as members in terms of the arbitration
agreement, and such Tribunal is made non-functional on account of the action or
inaction or delay of such party, either by frequent transfers of such members
of the Arbitral Tribunal or by failing to take steps expeditiously to replace
the arbitrators in terms of the Arbitration Agreement, the Chief Justice or his
designate, required to exercise power 7 under section 11 of the Act, can step
in and pass appropriate orders. We fail to understand why the General Manager
of the Railways repeatedly furnished panels containing names of officers who
were due for transfer in the near future. We are conscious of the fact that a
serving officer is transferred on account of exigencies of service and transfer
policy of the employer and that merely because an employee is appointed as
arbitrator, his transfer cannot be avoided or postponed. But an effort should
be made to ensure that officers who are likely to remain in a particular place
are alone appointed as Arbitrators and that the Arbitral Tribunal consisting of
serving officers, decides the matter expeditiously.
Constituting Arbitral
Tribunals with serving officers from different far away places should be
avoided. There can be no hard and fast rule, but there should be a conscious
effort to ensure that Arbitral Tribunal is constituted promptly and arbitration
does not drag on for years and decades.
9.
As
noticed above, the matter has now been pending for nearly ten years from the
date when the demand for arbitration was first made with virtually no progress.
Having regard to the
passage of time, if the Arbitral 8 Tribunal has to be reconstituted in terms
of clause 64, there may be a need to change even the other two members of the
Tribunal. The delays and frequent changes in the Arbitral Tribunal make a
mockery of the process of arbitration. Having regard to this factual
background, we are of the view that the appointment of a retired Judge of the
Delhi High Court as sole Arbitrator does not call for interference in exercise
of jurisdiction under Article 136 of the Constitution of India.
10.
Another
aspect referred to by the appellant, however requires serious consideration.
When the arbitration is by a Tribunal consisting of serving officers, the cost
of arbitration is very low. On the other hand, the cost of arbitration can be
high if the Arbitral Tribunal consists of retired Judge/s. When a retired Judge
is appointed as Arbitrator in place of serving officers, the government is
forced to bear the high cost of Arbitration by way of private arbitrator's fee
even though it had not consented for the appointment of such non-technical
non-serving persons as Arbitrator/s. There is no doubt a prevalent opinion that
the cost of arbitration becomes very high in many cases where retired Judge/s
are Arbitrators. The large number of sittings and charging of very high fees
per sitting, with several add-ons, without any ceiling, have many a time
resulted in the cost of arbitration approaching or even exceeding the amount
involved in the dispute or the amount of the award. When an arbitrator is
appointed by a court without indicating fees, either both parties or at least
one party is at a disadvantage. Firstly, the parties feel constrained to agree
to whatever fees is suggested by the Arbitrator, even if it is high or beyond
their capacity. Secondly, if a high fee is claimed by the Arbitrator and one
party agree to pay such fee, the other party, who is unable to afford such fee
or reluctant to pay such high fee, is put to an embarrassing position. He will
not be in a position to express his reservation or objection to the high fee,
owing to an apprehension that refusal by him to agree for the fee suggested by
the arbitrator, may prejudice his case or create a bias in favour of the other
party who readily agreed to pay the high fee. It is necessary to find an urgent
solution for this problem to save arbitration from the arbitration cost.
Institutional
arbitration has provided a solution as the Arbitrators' fees is not fixed by
the Arbitrators themselves on case to case basis, but is governed by a uniform
rate prescribed by the institution under whose aegis the Arbitration is held.
Another solution is for the court to fix the fees at the time of appointing the
arbitrator, with the consent of parties, if necessary in consultation with the
arbitrator concerned. Third is for the retired Judges offering to serve as
Arbitrators, to indicate their fee structure to the Registry of the respective
High Court so that the parties will have the choice of selecting an Arbitrator
whose fees are in their `range' having regard to the stakes involved. What is
found to be objectionable is parties being forced to go to an arbitrator
appointed by the court and then being forced to agree for a fee fixed by such
Arbitrator. It is unfortunate that delays, high cost, frequent and sometimes
unwarranted judicial interruptions at different stages are seriously hampering
the growth of arbitration as an effective dispute resolution process. Delay and
high cost are two areas where the Arbitrators by self regulation can bring
about marked improvement.
11.
We
find 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 11 phasing out arbitration clauses providing for serving
officers and encourage professionalism in arbitration.
12.
As
far as this case is concerned, we do not propose to issue any directions in
regard to the fees, as the High Court has fixed the fee at Rs.10,000/- per
hearing subject to a maximum of Rs.150,000/- plus clerk age, to be shared
equally by the parties.
13.
In
view of the above, the appeal is dismissed.
_________________J
[R. V. Raveendran]
_________________J
[H.L. Dattu]
New
Delhi;
February
26, 2009.
Back
