The Supreme Court held that an arbitration agreement survives even if the unilateral appointment mechanism is invalid; such offending portions are severable. Courts cannot review Section 11 orders absent patent error. Joint Section 29A extensions constitute waiver under Section 4 but cannot cure Section 12(5) ineligibility, which requires express post-dispute written waiver. Non-speaking SLP dismissal does not affirm underlying judgment
Facts Of The Case:
The dispute originated from a contract dated 04.03.2014 awarded by Respondent No. 1, Bihar Rajya Pul Nirman Nigam Limited, to the appellant, Hindustan Construction Company Limited, for construction of a bridge over the River Sone in Bihar. The contract contained Clause 25 providing for arbitration. The appellant had previously invoked this clause for claims during the original contract period, resulting in an arbitral award dated 31.12.2021, which was accepted and paid by the respondents without challenge. Subsequently, the appellant raised fresh claims concerning the extended period of the contract. After the Deputy Chief Engineer and Managing Director failed to respond, the appellant filed Request Case No. 53 of 2020 under Section 11 of the Arbitration and Conciliation Act, 1996 before the Patna High Court. By order dated 18.08.2021, the High Court appointed Justice Shivaji Pandey (Retd.) as sole arbitrator. Proceedings continued for over three years, with more than seventy hearings conducted, pleadings completed, and both parties jointly seeking extension of the arbitral mandate under Section 29A on three occasions, which were granted by the arbitrator and the High Court. At the stage when final arguments were underway, the respondents filed Civil Review Application No. 293 of 2024 seeking review of the 2021 appointment order, citing the arbitrator’s subsequent appointment as President of the Meghalaya State Consumer Disputes Redressal Commission. By order dated 04.10.2024, the High Court reviewed its earlier order and directed suspension of proceedings. Ultimately, by judgment dated 09.12.2024, the High Court dismissed the Section 11 petition entirely, holding that Clause 25 had become unenforceable. This dismissal was challenged before the Supreme Court.
Procedural History:
The appellant initially filed Request Case No. 4 of 2019 before the Patna High Court under Section 11 of the Arbitration and Conciliation Act, 1996, concerning claims during the original contract period, which resulted in appointment of a sole arbitrator and an award accepted by the respondents. Thereafter, the appellant filed Request Case No. 53 of 2020 before the same High Court seeking appointment of an arbitrator for disputes arising during the extended contract period. By order dated 18.08.2021, the High Court appointed Justice Shivaji Pandey (Retd.) as sole arbitrator. Arbitral proceedings commenced on 13.09.2021 and continued for over three years, during which both parties jointly filed three applications under Section 29A seeking extension of the arbitral mandate, which were granted by the arbitrator and confirmed by the High Court through orders dated 13.10.2023 in Request Case No. 79 of 2023 and 10.05.2024 in Request Case No. 59 of 2024. After more than seventy hearings and when final arguments were underway, the respondents filed Civil Review Application No. 293 of 2024 seeking review of the order dated 18.08.2021. On 04.10.2024, the High Court allowed the review to the extent of directing suspension of proceedings and listing the request case for appointment of a new arbitrator, noting that Justice Pandey had been appointed as President of the Meghalaya State Consumer Disputes Redressal Commission. However, by the impugned judgment dated 09.12.2024, the High Court dismissed Request Case No. 53 of 2020 in its entirety, holding that Clause 25 had become unenforceable. Aggrieved, the appellant preferred the present Civil Appeal before the Supreme Court under Article 136 of the Constitution.
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Court Observation:
The Supreme Court made several significant observations throughout its judgment. The Court observed that arbitration agreements must be interpreted purposively rather than literally, and that party autonomy and impartiality constitute the twin foundational pillars of the arbitral process. It observed that the judicial role in arbitration has evolved from that of a helicopter parent to a guardian angel, with successive legislative amendments seeking to curtail judicial interference. The Court observed that the Arbitration and Conciliation Act, 1996 is a self-contained code and what is not expressly permitted under the Act is deemed prohibited. It observed that unilateral appointment clauses in public-private contracts violate Article 14 of the Constitution and offend the principle of nemo judex in causa sua, being manifestly arbitrary. The Court observed that Section 7(4)(c) significantly widens the evidentiary scope for establishing arbitration agreements, and that active participation in arbitral proceedings without objection constitutes sufficient evidence of a valid and subsisting arbitration agreement. It observed that joint applications under Section 29A seeking extension of mandate signify a higher degree of consent and constitute waiver under Section 4, though such conduct cannot cure Seventh Schedule ineligibility which requires express post-dispute written waiver under Section 12(5). The Court observed that non-speaking dismissal of a Special Leave Petition does not amount to approval of the reasoning of the subordinate forum nor does it transform the underlying judgment into binding precedent. It further observed that public sector undertakings must act as model litigants, and that silence or procedural evasion by senior officers is inconsistent with constitutional trust reposed in public authorities.
Final Decision & Judgement:
The Supreme Court allowed the appeal and set aside the impugned judgment and order dated 09.12.2024 passed by the Patna High Court. The Court held that the High Court lacked jurisdiction to review its earlier order dated 18.08.2021 passed under Section 11(6) of the Arbitration and Conciliation Act, 1996, as such review was not founded on any error apparent on the face of the record and was filed after an unexplained delay of nearly three years. The Court declared that Clause 25 of the contract constitutes a valid and subsisting arbitration agreement under Section 7, and the unilateral and exclusionary appointment mechanism contained therein is void, arbitrary, and severable. The Court directed the High Court to appoint a substitute arbitrator within two weeks from the date of receipt of the judgment, who shall continue the proceedings from the stage at which they were interrupted and endeavour to conclude the arbitration within one year, subject to any further extension under Section 29A by mutual consent. The Court further directed that the newly appointed arbitrator shall be deemed to have received all evidence and material already on record, and the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal. While refraining from imposing costs, the Court issued a stern warning to the then Managing Director of the respondent company regarding his conduct in remaining silent despite repeated requests, observing that public officers are custodians of public faith and any repetition of such neglect may invite adverse remarks or personal accountability. The Court ordered no costs and disposed of all pending applications.