The Supreme Court on December 4, 2018, in the case of SP Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh and Another has held that once an arbitrator has been appointed and he has assumed his role, the parties cannot approach the Court to appoint another arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.
A Bench comprising of JusticesR. Banumathi and Indira Banerjee was hearing an appeal filed against the judgment passed by the Himachal Pradesh High Court by which the Court dismissed the petitions filed by the appellant declining to appoint arbitrator holding that as per the terms of the agreement, an arbitrator had already been appointed.
The arbitrator was appointed on the basis of an arbitral clause (65) in the contract entered into between SP Singla Constructions Pvt. Ltd (appellant) and the Government of Himachal Pradesh.
As per the said arbitral clause (65), in the event of disputes, the arbitrator to settle the same would be appointed by the Chief Engineer of the Himachal Pradesh Public Works Department (HPPWD). Accordingly, in this case, the Chief Engineer appointed the Superintendent Engineer, Arbitration Circle, HPPWD to settle disputes that emerged in October 2010.
However, due to non-appearance of appellant before the arbitrator, the arbitrator terminated the proceedings under Section 25 of the Arbitration and Conciliation Act, 1996, on August 6, 2014.
The appellant moved Himachal Pradesh High Court challenging the appointment of the arbitrator and seeking the appointment of an independent arbitrator by the Court under Section 11(6) of the Arbitration and Conciliation Act, 1996.
Section 11(6) of the Act empowers the Chief Justice or his designate to appoint an arbitrator, on request, where either no arbitrator has been appointed, or the appointed arbitrators fail to reach an agreement.
The Himachal Pradesh High Court dismissed the appellant’s case, placing reliance upon the judgment of this Court in Antrix Corporation Limited v. Devas Multimedia Private Limited wherein it was held that “in case, if any party is dissatisfied or aggrieved by the appointment of arbitrator in terms of the agreement by other party/parties, his remedy would be by way of petition under Section 13 of the 1996 Act, and, thereafter while challenging the award under Section 34 of the 1996 Act.”
Thus the Himachal Pradesh High Court held that the appointment of “Superintendent Engineer” as arbitrator being in terms of clause (65) of the agreement, Section 11(6) of the Act cannot be invoked. The appointment of arbitrator could not be challenged by way of an application under Section 11(6) of the 1996 Act. Aggrieved by the decision the appellant moved the Supreme Court.
In the appeal before the Supreme Court, this view was affirmed once more, with the Bench noting that, “It is fairly well settled that any challenge to the arbitrator appointed ought to have been raised before the arbitrator himself in the first instance…In the present case, the Arbitrator has been appointed as per clause (65) of the agreement and as per the provisions of law. Once, the appointment of an arbitrator is made at the instance of the government, the arbitration agreement could not have been invoked for the second time.”
In the case, the appellant raised a contention that the arbitrator had been appointed by designation, and not by name. Further, the arbitrator was an employee of the HPPWD. This, it was argued, was barred by Section 12(5) of the Arbitration (Amendment) Act, 2015.
However, the Bench rejected the contention that the 2015 Amendment would apply to the case at hand, given that it involved arbitral proceedings which commenced in 2013 on the basis of a 2006 contract. As held in Board of Control for Cricket in India v. Kochi Cricket Private Limited and others, the 2015 Amendment cannot be retrospectively applied unless the parties agree for the same.
To the contrary, the appellant had contended that the parties had agreed to retrospectively apply the 2015 Amendment Act. To which the Supreme Court noted that the preceding provisions of clause 65 (arbitration clause) itself indicated that the parties had a contrary intention. The Bench noted that this clause also provided for the arbitration to be continued by a successor if the arbitrator originally appointed vacated his office. This meant that the agreement envisaged the appointment of arbitrators by designation as well.
The Bench stated that, “If appointments were only to be made by name and not by designation there could be no question of further appointment on the Arbitrator vacating his office. It is only when an Arbitrator is appointed by designation that the question of a vacancy upon the incumbent vacating office could arise thereby enabling the Chief Engineer to appoint another person to act as arbitrator.”
Further, the apex court also dismissed apprehensions surrounding the appointment of a governmental employee as the arbitrator in the government contract, observing that, “In a catena of judgments, the Supreme Court [has] held that arbitration clauses in government contracts providing that an employee of the department will be the sole arbitrator are neither void nor unenforceable…The fact that a named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or lack of independence on his part.”
Moreover, the Bench also noted that, “the Superintendent Engineer, Arbitration Circle, HPPWD was appointed as the sole Arbitrator who, by virtue of his designation, regularly does the arbitration devoting time to the arbitration proceedings and such appointment of Superintendent Engineer cannot be said to be a deviation from clause (65) of the agreement.”
Therefore, the Court dismissed the appeal directing that the termination order passed by the arbitrator to be set aside, on the ground that no notice or warning for the same was given to the appellant before it was passed. The HPPWD Chief Engineer was directed to appoint an arbitrator in terms of the arbitration clause and restart the arbitration process.