Supreme Court Directs Reappointment of Arbitrator in Construction Dispute
The case of SP Singla Constructions Pvt. Ltd. vs. State of Himachal Pradesh & Anr. is a significant judgment regarding arbitration in government contracts. The dispute arose from a construction contract awarded to the appellant, SP Singla Constructions Pvt. Ltd., for the completion of a bridge over the Beas River in Himachal Pradesh. The controversy primarily revolved around the appointment of an arbitrator under the contract’s arbitration clause.
The Supreme Court had to determine whether the appointment of the arbitrator, who was a government officer, was valid under the Arbitration and Conciliation Act, 1996, and whether the termination of arbitration proceedings by the arbitrator was justified.
Background of the Case
The appellant was awarded a construction contract on December 19, 2006, for a bridge over the Beas River. The project was supposed to be completed by January 4, 2009, but an extension was granted until June 30, 2010. The work was eventually completed on June 4, 2011.
After completion, the appellant raised certain claims and requested arbitration on October 18, 2013. In response, the Chief Engineer of the Himachal Pradesh Public Works Department (HPPWD) appointed the Superintendent Engineer, Arbitration Circle, HPPWD, Solan, as the arbitrator on October 30, 2013.
The appellant, however, objected to this appointment, arguing that the arbitrator should be independent and not a government employee. The appellant filed an arbitration petition before the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an independent arbitrator. The High Court dismissed the petition, holding that the arbitrator had already been appointed under the contract’s arbitration clause.
Legal Issues and Arguments
Arguments of the Appellant
The appellant, represented by senior counsel, contended that:
- The appointment of an arbitrator by designation (Superintendent Engineer) rather than by name was not valid.
- As per the Arbitration and Conciliation Act, 1996, the arbitrator should be independent and impartial.
- The arbitrator appointed was an employee of HPPWD, which raised concerns of bias.
- The proceedings were terminated unfairly under Section 25(a) of the Act due to the appellant’s absence.
Arguments of the Respondent
The respondents, represented by the State of Himachal Pradesh, defended the appointment, arguing that:
- The appointment was made as per Clause 65 of the contract, which allowed the Chief Engineer to appoint the arbitrator.
- The appellant had requested arbitration and later objected only to delay the process.
- The arbitrator provided multiple opportunities, but the appellant failed to appear, leading to the termination of proceedings.
Supreme Court’s Observations
The Supreme Court, comprising Justices R. Banumathi and Indira Banerjee, examined the validity of the arbitrator’s appointment and the termination of proceedings. The Court noted:
“A perusal of Clause 65 makes it clear that it was permissible to appoint a person by designation. 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.”
The Court further observed that arbitration agreements in government contracts commonly include clauses allowing the appointment of serving officers. It held:
“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.”
Termination of Arbitration Proceedings
The Supreme Court found that the appellant had repeatedly sought adjournments but did not appear for hearings. The arbitrator, therefore, terminated the proceedings under Section 25(a) of the Arbitration Act, which allows termination if the claimant fails to communicate its statement of claim.
However, the Court observed:
“The arbitrator could have issued a notice warning the appellant that no adjournment would be granted under any circumstances. Since no such warning was given, we deem it appropriate to set aside the order of termination.”
Final Judgment
The Supreme Court set aside the termination of arbitration proceedings and directed the Chief Engineer, HPPWD, to appoint an arbitrator as per Clause 65 of the agreement. The Court also allowed the appellant to file its claims before the newly appointed arbitrator.
Conclusion
This judgment reaffirms the principle that arbitration clauses in government contracts must be upheld unless they violate statutory provisions. The Court balanced the contractual agreement with the need for fair arbitration proceedings. The ruling ensures that government-appointed arbitrators cannot be challenged merely on the basis of employment, while also protecting the right of parties to be heard before termination of proceedings.
Petitioner Name: SP Singla Constructions Pvt. Ltd..Respondent Name: State of Himachal Pradesh & Another.Judgment By: Justice R. Banumathi, Justice Indira Banerjee.Place Of Incident: Himachal Pradesh.Judgment Date: 04-12-2018.
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