REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 11824-11825 OF 2018

(Arising out of SLP(C) Nos.1274-75 of 2015)

SP SINGLA CONSTRUCTIONS PVT. LTD. …Appellant

VERSUS

STATE OF HIMACHAL PRADESH AND

ANOTHER …Respondents

J U D G M E N T

R. BANUMATHI, J.

Leave granted.

2.These appeals arise out of the judgments dated 10.03.2014 in

Arbitration Case No.4049 of 2013 and dated 01.09.2014 in Review

Petition No. RPST/20087/2014 passed by the High Court of

Himachal Pradesh in and by which the High Court dismissed the

Arbitration Petition and Review Petition filed by the appellant

declining to appoint arbitrator holding that as per the terms of the

agreement, arbitrator had already been appointed.

3.Brief facts which led to the filing of these appeals are as

follows:-

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The appellant was awarded construction work contract on

19.12.2006 relating to balance work of 214.00 mtrs. span C/C

bearings on abutment bridge over river Beas at Harsipattan on

Mandi Rewalsar Chandesh-Rakhota Maserah Sarkaghat Tihra

Sandhole Alampur Jawalamukhi road for a sum of

Rs.14,29,81,500/-. An agreement was also entered into between

the parties and clause (65) of the General Conditions of Contract

contains arbitration clause. The period allowed for completion of

work was on or before 04.01.2009. However, extension was granted

to the appellant up to 30.06.2010. The work was completed by the

appellant on 04.06.2011 and payment for the execution of work was

made. The appellant raised a dispute and requested for the

appointment of arbitrator vide its letter dated 18.10.2013. Pursuant

to the request of the appellant, the Chief Engineer, HPPWD

appointed the “Superintendent Engineer, Arbitration Circle, HPPWD,

Solan” as the arbitrator on 30.10.2013 and the said appointment

had been made in terms of clause (65) of the agreement. The

arbitrator entered upon reference on 11.11.2013. The appellant

after requesting for the appointment of arbitrator either remained

absent from the proceedings or sought adjournments stating that he

intends to challenge the appointment of arbitrator before the Chief

Justice as per the provisions of Arbitration and Conciliation Act,

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1996. Even after hearing, no statement of claim was filed by the

appellant. On 06.08.2014, arbitration proceedings were terminated

under Section 25(a) of the Arbitration and Conciliation Act, 1996.

4.Being aggrieved by the appointment of “Superintendent

Engineer, Arbitration Circle, Solan, HPPWD” as the arbitrator, the

appellant filed petition before the High Court under Section 11(6) of

the 1996 Act praying for appointment of independent arbitrator. The

High Court placed reliance upon the judgment of this Court in

Antrix Corporation Limited v. Devas Multimedia Private Limited

(2014) 11 SCC 560 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. The 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. Being aggrieved by the dismissal of

the arbitration petition, the appellant is before us.

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5.On behalf of the appellant, learned senior counsel Mr.

Maninder Singh submitted that the appointment by office after

coming into operation of the 1996 Act, was no more permissible and

any appointment could only be made in terms of Section 11 of 1996

Act. It was further submitted that since the arbitrator appointed by

office had entered upon the reference, the appellant was compelled

to file Arbitration Petition No.4049 of 2013 and the High Court

erroneously rejected the prayer made on behalf of the appellant for

appointment of an independent arbitrator by name. The learned

senior counsel further submitted that the arbitrator appointed by

office, is an employee in service of the HPPWD which the provision

of Section 12(5) bars at the threshold. Learned senior counsel

placed reliance upon Ratna Infrastructure Projects Pvt. Ltd. v.

Meja Urja Nigam Private Limited (2017) SCC Online Del 7808.

6.Refuting the above contention, on behalf of the respondent-

State, learned counsel submitted that the appointment of

Superintendent Engineer, Arbitration Circle is as per clause (65) of

the agreement and as per the provisions of law. In response to the

contention that Section 12(5) of the Amendment Act, 2015 bars

appointment of arbitrator by post, the learned counsel for the State

placed reliance upon Board of Control for Cricket in India v.

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Kochi Cricket Private Limited and others (2018) 6 SCC 287 and

submitted that the provisions of the Amendment Act, 2015 shall

apply in relation to arbitral proceedings commenced on or after the

date of commencement of the Amendment Act, 2015 and shall not

apply to the arbitral proceedings commenced prior to the

Amendment Act, 2015 unless the parties otherwise agree. The

learned counsel submitted that the provision contained in clause

(65) of the general conditions of the Contract would not amount to

agreement of the parties so as to imply application of the provisions

of the Amendment Act, 2015.

7.We have carefully considered the contentions of the parties

and perused the impugned judgment and materials on record. The

point falling for consideration in this appeal is that in the light of the

agreement between the parties in clause (65) of the general

conditions of contract whether the appellant/contractor can

challenge the appointment of the Superintendent Engineer,

Arbitration Circle as Arbitrator to resolve the dispute between the

parties.

8.By the order of HPPWD dated 30.10.2013, the

Superintendent Engineer, Arbitration Circle, HPPWD, Solan was

appointed as the sole Arbitrator to decide and make its award

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regarding claim/dispute given by the appellant/contractor. The main

thrust of challenge for appointment of sole arbitrator was on the

ground that the arbitrator had not been appointed by name but, had

been appointed by designation. It was submitted that appointment

of arbitrator by office is not permissible and appointment ought to

have been made by name and the same is evident from bare

perusal of clause (65) of the contract. It was submitted that as per

Section 11(1) of the 1996 Act “a person of any nationality may be

an arbitrator, unless otherwise agreed by the parties…….”. It was

submitted that the Arbitrator appointed by the office is not an

appointment in terms of clause (65) of the contract and this aspect

has not been properly considered by the High Court.

9.For proper appreciation of the contentions, we may usually

refer to Clause (65) of the general conditions of contract which

reads as under:-

“Clause 65 of the General Conditions of Contract-…..Except

where otherwise provided in the contract all questions and disputes

relating to the meaning of the specifications, designs drawings and

instructions therein before mentioned and as to the quality of

workmanship of materials used on the work or as to any other

question, claim, right matter or thing whatsoever in any way arising

out of or relating to the contractor designs drawings, specification

and estimates, instructions orders or these conditions otherwise

concerning the works of the execution or failure to execute the

same whether arising during the progress of the work or after the

completion or abandonment thereof shall be referred to the sole

arbitration of the person appointed by the Engineer-in-Chief/Chief

Engineer, Himachal Pradesh Public Works Department. It will be no

objection to any such appointment that the arbitrator so appointed

is a Government servant that he had to deal with the matters to

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which the contract relates, and that in the course of his duties as

Government servant he had expressed views on all or any of the

matters in dispute or different. The arbitrator to whom the matter is

originally referred being transferred or vacating his office or being

unable to act for any reason that (sic) the Chief Engineer, HPPWD

at the time of such transfer vacation of office or inability to act shall

appoint another person to act as arbitrator in accordance with the

terms of the contract. Such person shall be entitled to proceed with

the reference from the stage at which it was left by his predecessor,

it is also a terms of this contract that no person other than a person

appointed by the Chief Engineer, HPPWD, should act as arbitrator

and if for any reason that is not possible the matter is not be claim

in dispute is Rs.50,000/- (Rupees Fifty Thousand) and above, the

arbitrator shall give reasons for the award.

Subject as aforesaid the provision of the Arbitration Act, 1940 or

any statutory modification or re-enactment thereof and the rules

made thereunder and for the time being shall apply to the

arbitration proceeding under this clause.” [Underlining added]

10.A perusal of clause (65) makes it apparently clear that it was

permissible to appoint a person by designation and this will be

evident from clause (65), in particular the sentence “the arbitrator to

whom the matter is originally referred being transferred or vacating

his office or being unable to act for any reason the Chief Engineer is

to appoint another person….”. 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. The Superintendent Engineer, Arbitration Circle appointed

as the Arbitrator is from the very arbitration circle, HPPWD and such

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appointment is only as per clause (65) of the contract and we find

no merit in the objection raised by the appellant.

11.Likewise, there is no merit in the contention of the appellant-

contractor that the appointed arbitrator is an employee in service of

the HPPWD which the provision of Section 12(5) of the 1996 Act (as

amended w.e.f. 23.10.2015) bars at the threshold itself. In a catena

of judgments, the Supreme Court held that arbitration clauses in

government contracts providing that an employee of the department

will be the sole arbitrator are neither void nor unenforceable.

[Indian Oil Corporation Limited and others v. Raja Transport

Private Limited (2009) 8 SCC 520, Ace Pipeline Contracts (P)

Ltd. v. Bharat Petroleum Corporation Limited (2007) 5 SCC 304,

Union of India and another v. M.P. Gupta (2004) 10 SCC 504]

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. The arbitration agreements in

government contracts providing that an employee of the department

or a higher official unconnected with the work or the contract will be

the arbitrator are neither void nor unenforceable.

12.Observing that, in government contracts before appointing

arbitrators, the appointing authority should be more vigilant and

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more responsible in choosing arbitrators who are in a position to

conduct arbitral proceedings in an efficient manner without

comprising with the other duties, in Union of India v. Uttar

Pradesh State Bridge Corporation Limited (2015) 2 SCC 52, it

was held as under:-

“17. In the case of contracts between government

corporations/State-owned companies with private

parties/contractors, the terms of the agreement are usually drawn

by the government company or public sector undertakings.

Government contracts have broadly two kinds of arbitration

clauses, first where a named officer is to act as sole arbitrator; and

second, where a senior officer like a Managing Director, nominates

a designated officer to act as the sole arbitrator. No doubt, such

clauses which give the Government a dominant position to

constitute the Arbitral Tribunal are held to be valid. At the same

time, it also casts an onerous and responsible duty upon the

persona designata to appoint such persons/officers as the

arbitrators who are not only able to function independently and

impartially, but are in a position to devote adequate time in

conducting the arbitration. If the Government has nominated those

officers as arbitrators who are not able to devote time to the

arbitration proceedings or become incapable of acting as arbitrators

because of frequent transfers, etc., then the principle of “default

procedure” at least in the cases where Government has assumed

the role of appointment of arbitrators to itself, has to be applied in

the case of substitute arbitrators as well and the Court will step in to

appoint the arbitrator by keeping aside the procedure which is

agreed to between the parties. However, it will depend upon the

facts of a particular case as to whether such a course of action

should be taken or not. What we emphasise is that Court is not

powerless in this regard.”

As pointed out earlier, in the case at hand, 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

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appointment of Superintendent Engineer cannot be said to be a

deviation from clause (65) of the agreement.

13.Any challenge regarding the appointment of an arbitrator as

per the terms of the agreement between the parties must be viewed

in the context of the agreement between the parties. As pointed out

earlier, the parties have mutually agreed that there will be sole

Arbitration by the person appointed by the Engineer-in-Chief and

that the appellant shall have no objection to any such appointment

that the Arbitrator so appointed is a Government Servant. If the

appellant has any grievance that the appointment of the arbitrator is

by ‘post’ and not by ‘person’, the appellant ought to have raised the

challenge before the arbitrator in the first instance. Be it noted, in

the petition filed before the High Court under Section 11(6) of the

Arbitration and Conciliation Act, 1996 on 28.12.2013, the appellant

has only prayed for quashing the appointment of the Superintendent

Engineer, Arbitration Circle, HPPWD, Solan as the sole arbitrator as

unconstitutional and sought for appointment of an independent and

impartial sole arbitrator to adjudicate the dispute between the

parties. 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.

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14.Drawing our attention to the wordings in Clause (65) “that the

agreement is subject to any statutory modification or re-enactment

thereof and the rules made thereunder and for the time being shall

apply to the arbitration proceeding under this clause” the learned

senior counsel contended that these words would certainly attract

Section 12(5) of the Act as amended with effect from 23.10.2015. In

this regard, the learned senior counsel placed reliance upon Delhi

High Court judgment in Ratna Infrastructure Projects Pvt. Ltd. v.

Meja Urja Nigam Private Limited (2017) SCC Online Del 7808

wherein interpreting the similar words in a contract, Delhi High Court

held that those words satisfy the requirement of Section 26

(amended Act of 2015) of there being an agreement between the

parties that the Act as amended with effect from 23.10.2015 will

apply and held as under:-

“22. ……. The words “any statutory modification or re-enactment

thereof and the rules made thereunder and for the time being in

force shall apply to the arbitration…” satisfies the requirement of

Section 26 of there being an agreement between the parties that

the Act as amended with effect from 23

rd

October 2015 will apply.

The Court is not prepared to draw the fine distinction between

‘agree’ and ‘agreed’. Once the amendment to the clause clearly

stated that all statutory modidications and re-enactments would

apply, then there is no need for further agreement in that respect

after 23

rd

October, 2015. The plea of the Respondent in this regard

is rejected.

23. The net result is that Section 12(5) as amended with effect from

23

rd

October 2015 would apply. Section 12(5) clearly prohibits the

employee of one of the parties from being an Arbitrator. This would

straightway disqualify Mr. Kher who happens to be a serving GM of

the Respondent. Therefore it is to no avail that the Respondent has

by its letter dated 21

st

August 2016 appointed Mr. Kher as an

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Arbitrator to adjudicate the Arbitration Case Nos. 1 of 2013 and 1 of

2014. His mandate stands terminated.”

15.Considering the facts and circumstances of the present case,

we are not inclined to go into the merits of this contention of the

appellant nor examine the correctness or otherwise of the above

view taken by the Delhi High Court in Ratna Infrastructure Projects

case; suffice it to note that as per Section 26 of the Arbitration and

Conciliation (Amendment) Act, 2015 the provisions of the Amended

Act, 2015 shall not apply to the arbitral proceedings commenced in

accordance with the provisions of Section 21 of the Principal Act

before the commencement of the Amendment Act unless the parties

otherwise agree. In the facts and circumstances of the present

case, the proviso in clause (65) of the general conditions of the

contract cannot be taken to be the agreement between the parties

so as to apply the provisions of the amended Act. As per Section

26 of the Act, the provisions of the Amendment Act, 2015 shall apply

in relation to arbitral proceedings commenced on or after the date of

commencement of the Amendment Act, 2015 (w.e.f. 23.10.2015).

In the present case, arbitration proceedings commenced way back

in 2013, much prior to coming into force of the amended Act and

therefore, provisions of the Amended Act cannot be invoked.

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16.In Board of Control for Cricket in India v. Kochi Cricket

Private Limited and others, (2018) 6 SCC 287, this Court has held

that the provisions of Amendment Act, 2015 (with effect from

23.10.2015) cannot have retrospective operation in the arbitral

proceedings already commenced unless the parties otherwise

agree and held as under:-

“37. What will be noticed, so far as the first part is concerned,

which states—

“26. Act not to apply to pending arbitral

proceedings.—Nothing contained in this Act shall

apply to the arbitral proceedings commenced, in

accordance with the provisions of Section 21 of the

principal Act, before the commencement of this Act

unless the parties otherwise agree.…”

is that: (1) “the arbitral proceedings” and their commencement is

mentioned in the context of Section 21 of the principal Act; (2) the

expression used is “to” and not “in relation to”; and (3) parties may

otherwise agree. So far as the second part of Section 26 is

concerned, namely, the part which reads, “… but this Act shall apply

in relation to arbitral proceedings commenced on or after the date

of commencement of this Act” makes it clear that the expression “in

relation to” is used; and the expression “the” arbitral proceedings

and “in accordance with the provisions of Section 21 of the principal

Act” is conspicuous by its absence.”

17.Immediately after the appointment of the Superintendent

Engineer, Arbitration Circle as the sole Arbitrator (30.10.2013), the

appellant preferred Arbitration Petition No.4049/2013 (28.12.2013)

before the High Court under Section 11(6), 14 and 15 of the

Arbitration and Conciliation Act, 1996 for appointment of an

independent sole Arbitrator.

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18.The High Court placed reliance upon the judgment in Antrix

Corporation Limited v. Devas Multimedia Private Limited (2014)

11 SCC 560 and held that when the Superintendent Engineer,

Arbitration Circle was appointed as the Arbitrator in terms of the

agreement (or arbitration clause), the provisions of sub-section (6)

of Section 11 cannot be invoked again. The High Court further

observed that in case, the other party is dissatisfied or aggrieved by

the appointment of an arbitrator in terms of the agreement, his

remedy would be by way of petition under Section 13 and thereafter

while challenging the award under Section 34 of the 1996 Act.

19.The High Court in the impugned judgment placed reliance

upon the judgment in Antrix Corporation Limited v. Devas

Multimedia Private Limited (2014) 11 SCC 560 wherein the

Supreme Court held as under:-

“31. The matter is not as complex as it seems and in our view, once

the arbitration agreement had been invoked by Devas and a

nominee arbitrator had also been appointed by it, the arbitration

agreement could not have been invoked for a second time by the

petitioner, which was fully aware of the appointment made by the

respondent. It would lead to an anomalous state of affairs if the

appointment of an arbitrator once made, could be questioned in a

subsequent proceeding initiated by the other party also for the

appointment of an arbitrator. In our view, while the petitioner was

certainly entitled to challenge the appointment of the arbitrator at

the instance of Devas, it could not do so by way of an independent

proceeding under Section 11(6) of the 1996 Act. While power has

been vested in the Chief Justice to appoint an arbitrator under

Section 11(6) of the 1996 Act, such appointment can be questioned

under Section 13 thereof. In a proceeding under Section 11 of the

1996 Act, the Chief Justice cannot replace one arbitrator already

appointed in exercise of the arbitration agreement.”

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……….

33. Sub-section (6) of Section 11 of the 1996 Act, quite

categorically provides that where the parties fail to act in terms of a

procedure agreed upon by them, the provisions of sub-section (6)

may be invoked by any of the parties. Where in terms of the

agreement, the arbitration clause has already been invoked by one

of the parties thereto under the ICC Rules, the provisions of sub-

section (6) cannot be invoked again, and, in case the other party is

dissatisfied or aggrieved by the appointment of an arbitrator in

terms of the agreement, his/its remedy would be by way of a

petition under Section 13, and, thereafter, under Section 34 of the

1996 Act.”

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.

20.As pointed out earlier the Arbitrator has already entered upon

reference on 11.11.2013. The Arbitrator had first hearing on

07.12.2013; on which date appellant-contractor was absent. For the

next date of hearing on 13.03.2014 the Arbitrator has recorded the

finding that the appellant-claimant-contractor was absent without

any intimation to the Tribunal. In this regard, Mr. Maninder Singh,

the learned Senior Council for the appellant has drawn our attention

to the letter dated 12.03.2014 sent by the appellant requesting for

adjournment. Similarly, in the next date of hearings before the

arbitrator namely, 03.04.2014, 25.04.2014 and 06.08.2014 the

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appellant-contractor did not appear; but only sent the letters

requesting for adjournment. On 03.04.2014, the matter was

adjourned to 25.04.2014 directing that both parties to come

prepared for the next date of hearing on 25.04.2014. Similar was

the order passed on 25.04.2014 that both parties have to come

prepared for the next date of hearing on 06.08.2014. Since the

appellant-claimant did not appear before the Arbitrator, the Arbitrator

terminated the proceedings on 06.08.2014 under Section 25(a) of

the 1996 Act.

21.Section 25 of the Arbitration Act, 1996 deals with the situation

where the parties commit default without showing sufficient cause

and consequent termination of the proceedings. Section 25

provides three situations where on account of the default of a party,

the arbitral tribunal shall terminate the proceedings which are as

under:-

(i)Under Section 25(a) where the claimant fails to

communicate his statement of claim in accordance

with sub-section (1) of Section 23;

(ii)Under Section 25(b) continue the proceedings on the

failure of the respondent to communicate his claim of

defence in accordance with sub-section (1) of

Section 23;

(iii)Under Section 25(c) continue the proceedings, and

make the arbitral award on the evidence before it, in

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the event of a party failing to appear at an oral

hearing or produce documentary evidence.

Section 25(a) provides that the Arbitral Tribunal shall terminate the

proceedings where the claimants failed to communicate his claim in

accordance with sub-section (1) of Section 23 of the Act. In the

present case, the appellant has failed to file his statement of claim;

and only sent the communication to the arbitrator seeking

adjournment on the ground that the appellant has approached the

High Court by filing petition under Section 11(6) of the Act. When

the parties have specifically agreed for appointment of sole

Arbitrator of the person appointed by the Engineer-in-Chief/Chief

Engineer, HPPWD, the appellant was not right in approaching the

High Court seeking appointment of an independent Arbitrator.

22.Inspite of extension of time, since the appellant-contractor had

not filed statement of claim, the arbitrator terminated the

proceedings under Section 25(a) of the 1996 Act by proceedings

dated 06.08.2014. The appellant-contractor did not file his

statement of claim before the arbitrator since the appellant had

approached the High Court by filing petition under Section 11(6) of

the 1996 Act, probably under the advice that the appellant can get

an independent arbitrator appointed. The appellant had been

writing letters to the arbitrator before the hearing seeking

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adjournment. However, on the fourth occasion, proceedings were

simply terminated since no hearings were held on earlier occasions,

he expected that his request might be accepted. 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. Appellant had made a claim on account of

delay as indicated in his letter dated 18.10.2013 under various

heads. In the interest of justice, in our considered view, an

opportunity is to be afforded to the appellant to go before the

departmental arbitrator (as agreed by the parties in clause (65) of

the general conditions of contract) and the proceedings of the

arbitrator dated 06.08.2014 terminating the proceedings is to be set

aside. We are conscious that after the Amendment Act, 2015, there

cannot be a departmental arbitrator. As discussed earlier, in this

case, the agreement between the parties is dated 19.12.2006 and

the relationship between the parties are governed by the general

conditions of the contract dated 19.12.2006, the provisions of the

Amendment Act, 2015 cannot be invoked.

23.In the result, the appeals are disposed of with the following

directions:-

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(i) the proceedings of the arbitrator dated 06.08.2014

terminating the arbitral proceedings is set aside. In terms

of clause (65) of the general conditions of contract, the

Chief Engineer, Himachal Pradesh Public Works

Department is directed to appoint an arbitrator in terms

of clause (65) of the agreement.

(ii) the appellant shall file his claim before the arbitrator

so nominated and the arbitrator shall afford sufficient

opportunities to both the parties and proceed with the

matter in accordance with law.

We make it clear that we have not expressed any opinion on the

merits of the claim of the appellant.

…………….……………J.

[R. BANUMATHI]

…………….……………J.

[INDIRA BANERJEE]

New Delhi;

December 04, 2018

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