Arbitrator’s Authority After Retirement: Supreme Court Restores Award in Contract Dispute

The case of M/s Laxmi Continental Construction Co. vs. State of U.P. & Anr. is a significant ruling in arbitration law, dealing with the authority of an arbitrator post-retirement and the validity of an arbitral award when the arbitrator continues proceedings beyond superannuation. The Supreme Court had to decide whether an arbitrator’s mandate automatically ceases upon retirement and if the award passed after retirement remains valid.

Background of the Case

The dispute arose from a contract between M/s Laxmi Continental Construction Co. and the State of Uttar Pradesh regarding an earthwork construction project. Clause 52 of the contract provided for arbitration in case of disputes, allowing the Chief Engineer to appoint an arbitrator from a list of officers of the rank of Superintending Engineer or higher.

Shri S.S. Manocha was appointed as the sole arbitrator on October 31, 1992. The arbitration proceedings continued until his retirement on November 30, 1995. Despite retiring, the arbitrator proceeded with the case, extended his tenure with court approval, and delivered an award in favor of the claimant on January 8, 1998.

The State of U.P. challenged the award, arguing that the arbitrator’s mandate ceased upon retirement. The High Court of Uttaranchal at Nainital ruled in favor of the State, setting aside the award. The claimant then approached the Supreme Court.

Legal Issues Raised

Whether an arbitrator’s mandate automatically terminates upon retirement.
Whether the High Court erred in setting aside the award despite the arbitrator’s court-approved tenure extension.
Whether the arbitrator’s conduct in continuing the proceedings constituted misconduct.

Petitioner’s Arguments (M/s Laxmi Continental Construction Co.)

The petitioner contended:

Clause 52 of the contract did not specify that an arbitrator’s mandate ends upon retirement.
The State actively participated in the arbitration even after the arbitrator’s retirement.
The Civil Judge (Senior Division), Roorkee, had extended the arbitration period lawfully.
The arbitrator acted within his jurisdiction, and his award should be upheld.

Respondent’s Arguments (State of U.P.)

The respondents countered:

Once the arbitrator retired, his mandate ceased, and he had no authority to continue proceedings.
The arbitration clause did not explicitly permit a retired officer to act as an arbitrator.
The High Court correctly ruled that the arbitrator had misconducted himself by proceeding after retirement.
The award was null and void due to the arbitrator’s lack of jurisdiction post-retirement.

Supreme Court’s Judgment

The Supreme Court overturned the High Court’s ruling, reinstating the arbitrator’s award. The Court emphasized that unless a contract explicitly states otherwise, an arbitrator’s authority does not automatically terminate upon retirement.

“The arbitration clause does not provide that an arbitrator ceases to have jurisdiction upon retirement. Once an arbitrator is validly appointed, he remains empowered to decide the dispute unless disqualified by law.”

“The State, having actively participated in the proceedings after the arbitrator’s retirement and sought extensions, cannot later claim the arbitrator had no jurisdiction.”

Key Observations:

The contract did not impose a limitation on the arbitrator’s tenure.
The Civil Judge’s extension of the arbitration period was valid and legally binding.
The respondents had waived objections by actively participating in post-retirement proceedings.

Impact of the Judgment

Clarifies that an arbitrator’s authority does not automatically cease upon retirement unless specified in the contract.
Reaffirms the principle that a party cannot contest jurisdiction after active participation.
Strengthens the enforceability of arbitration agreements and awards.
Sets a precedent for similar cases involving arbitrators continuing proceedings post-retirement.

Conclusion

The Supreme Court’s ruling in M/s Laxmi Continental Construction Co. vs. State of U.P. & Anr. upholds the integrity of arbitration proceedings and prevents misuse of procedural objections. The decision ensures that an arbitrator’s authority remains intact unless explicitly revoked, strengthening arbitration as an effective dispute resolution mechanism.

Petitioner Name: M/s Laxmi Continental Construction Co..
Respondent Name: State of U.P. & Anr..
Judgment By: Justice M.R. Shah, Justice A.S. Bopanna.
Place Of Incident: Uttar Pradesh.
Judgment Date: 20-09-2021.

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