Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3632 OF 2007
UNION OF INDIA ....... APPELLANT (s)
Vs.
M/S. SINGH BUILDERS SYNDICATE ....... RESPONDENT (s)
O R D E R
R.V.Raveendran, J.
The appellant challenges the order of the Delhi High
Court dated 27.3.2006 appointing a Retired Judge of the
High Court as sole Arbitrator to decide the disputes
arising in respect of a construction contract between the
Northern Railways (appellant) and the respondent.
2. The appellant contends the appointment of arbitrators
should be only in accordance with Clause 64 of the general
terms and conditions contract which requires two serving
Gazetted Railway officers of equal status being appointed
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as Arbitrators, one by the contractor from a panel made
available by the General Manager of Northern Railways and
the other by the Northern Railways, and the two arbitrators
so appointed, in turn appointing an Umpire.
3. It is true that the Arbitral Tribunal should be
constituted in the manner laid down in the Arbitration
agreement. Provisions for arbitration in contracts entered
by governments, statutory authorities, and government
companies, invariably require that the Arbitrators should
be their own serving officers. Such a provision has to be
given effect, subject to requirements of independence and
impartiality. But there can be exceptions and this case
which has a chequered history, falls under such exceptions.
4. Let us refer to the facts briefly. The respondent made
a request for arbitration in the year 1999. As the
appellant failed to take necessary steps as mandated by
clause 64, the respondent filed an application under
Section 11 of the Arbitration and Conciliation Act, 1996
(`Act’ for short) in AA No. 202/2000. In pursuance of the
directions issued on 11.11.2002 by the designate of the
Chief Justice of the Delhi High Court, an Arbitral Tribunal
was constituted in terms of clause 64, consisting of Shri
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A.K. Mishra, (Chief Engineer/TPS) nominated by the
contractor, Shri S.P. Virdi (Dy.F.A. & CEO) nominated by
the appellant, and Shri H.K. Jaggi (Chief Bridge Engineer)
as the Umpire. But even before the proceedings could
commence before the Arbitral Tribunal, Shri A.K. Mishra,
one of the Arbitrators, was transferred and consequently he
tendered resignation in May, 2004. As the appellant failed
to provide a fresh panel to enable the respondent to make a
fresh nomination, the respondent again approached the High
Court by filing AA No.240/2004. A fresh panel was made
available thereafter from which the respondent nominated
Shri Ashok Gupta as its Arbitrator. Hardly after one
sitting of the Arbitral Tribunal, Shri Ashok Gupta was also
transferred and he tendered his resignation on 21.7.2005.
As appellant again failed to take steps for filling the
vacancy, the respondent approached the Court again by
filing IA No. 6511/2005 in AA 240/2004. In pursuance of an
order dated 24.8.2005 passed by the High Court, again a
panel was made available and the respondent made its choice
on 9.9.2005. As no steps were taken in pursuance of it by
the appellant, the respondent sent a reminder on
14.10.2005. There was no response. In this background, the
respondent again approached the High Court on 10.11.2005 in
Arb. Petn. No. 256/2005 for appointment of an independent
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sole arbitrator. During the pendency of the said petition,
the General Manager of Northern Railways appointed Sri Ved
Pal as the contractor’s nominee arbitrator on 22.11.2005.
5. The High Court was of the view that no useful purpose
will be served by again reconstituting a Three Member
Arbitral Tribunal in accordance with clause 64. The High
Court found that the matter has been pending from 1999 when
the respondent first made the request for reference to
Arbitration and that the cumbersome process of constituting
an Arbitral Tribunal in terms of the Arbitration agreement
and the delays on the part of Railways in complying with
the provisions of the arbitration agreement, led to the
arbitration becoming virtually a non-starter. Therefore,
the High Court allowed the petition on 27.3.2006 and
appointed Justice Jaspal Singh, a retired Judge of the
Delhi High Court as the arbitrator. Justice Jaspal Singh
recused himself and the High Court on 19.7.2006, appointed
Justice R.C. Chopra, another retired Judge of the Delhi
High Court as the arbitrator.
6. The said order is challenged in this appeal by special
leave. On 6.11.2006, this Court stayed the arbitration
proceedings before the sole Arbitrator. The question that
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arises for consideration in this appeal by special leave is
whether the appointment of a the retired Judge of the High
Court as sole Arbitrator should be set aside and an
Arbitral Tribunal should again be constituted in the manner
provided in terms of clause 64.
7. Dealing with a matter arising from the old Act
(Arbitration Act, 1940), this Court, in Union of India v.
M.P.Gupta [2004 (10) SCC 504], held that appointment of a
retired Judge as sole Arbitrator contrary to clause 64
(which requiring serving Gazetted Railway Officers being
appointed) was impermissible. The position after the new
Act came into force, is different, as explained by this
Court in Northern Railway Administration, Ministry of
Railway, New Delhi v. Patel Engineering Company Ltd. [2008
(11) SCALE 500]. This Court held that the appointment of
arbitrator/s named in the arbitration agreement is not
mandatory or a must, but the emphasis should be on the
terms of the arbitration agreement being adhered and/or
given effect, as closely as possible. It was further held
that the Chief Justice or his designate should first ensure
that the remedies provided under the arbitration agreement
are exhausted, but at the same time also ensure that the
twin requirements of sub-section (8) of section 11 of the
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Act are kept in view. This would mean that invariably the
court should first appoint the Arbitrators in the manner
provided for in the arbitration agreement. But where the
independence and impartiality of the Arbitrator/s
appointed/nominated in terms of the arbitration agreement
is in doubt, or where the Arbitral Tribunal appointed in
the manner provided in the arbitration agreement has not
functioned and it becomes necessary to make fresh
appointment, the Chief Justice or his designate is not
powerless to make appropriate alternative arrangements to
give effect to the provision for arbitration.
8. The object of the alternative dispute resolution
process of arbitration is to have expeditious and effective
disposal of the disputes through a private forum of
parties’ choice. If the Arbitral Tribunal consists of
serving officers of one of the parties to the dispute, as
members in terms of the arbitration agreement, and such
Tribunal is made non-functional on account of the action or
inaction or delay of such party, either by frequent
transfers of such members of the Arbitral Tribunal or by
failing to take steps expeditiously to replace the
arbitrators in terms of the Arbitration Agreement, the
Chief Justice or his designate, required to exercise power
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under section 11 of the Act, can step in and pass
appropriate orders. We fail to understand why the General
Manager of the Railways repeatedly furnished panels
containing names of officers who were due for transfer in
the near future. We are conscious of the fact that a
serving officer is transferred on account of exigencies of
service and transfer policy of the employer and that merely
because an employee is appointed as arbitrator, his
transfer cannot be avoided or postponed. But an effort
should be made to ensure that officers who are likely to
remain in a particular place are alone appointed as
Arbitrators and that the Arbitral Tribunal consisting of
serving officers, decides the matter expeditiously.
Constituting Arbitral Tribunals with serving officers from
different far away places should be avoided. There can be
no hard and fast rule, but there should be a conscious
effort to ensure that Arbitral Tribunal is constituted
promptly and arbitration does not drag on for years and
decades.
9. As noticed above, the matter has now been pending for
nearly ten years from the date when the demand for
arbitration was first made with virtually no progress.
Having regard to the passage of time, if the Arbitral
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Tribunal has to be reconstituted in terms of clause 64,
there may be a need to change even the other two members of
the Tribunal. The delays and frequent changes in the
Arbitral Tribunal make a mockery of the process of
arbitration. Having regard to this factual background, we
are of the view that the appointment of a retired Judge of
the Delhi High Court as sole Arbitrator does not call for
interference in exercise of jurisdiction under Article 136
of the Constitution of India.
10. Another aspect referred to by the appellant, however
requires serious consideration. When the arbitration is by
a Tribunal consisting of serving officers, the cost of
arbitration is very low. On the other hand, the cost of
arbitration can be high if the Arbitral Tribunal consists
of retired Judge/s. When a retired Judge is appointed as
Arbitrator in place of serving officers, the government is
forced to bear the high cost of Arbitration by way of
private arbitrator’s fee even though it had not consented
for the appointment of such non-technical non-serving
persons as Arbitrator/s. There is no doubt a prevalent
opinion that the cost of arbitration becomes very high in
many cases where retired Judge/s are Arbitrators. The large
number of sittings and charging of very high fees per
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sitting, with several add-ons, without any ceiling, have
many a time resulted in the cost of arbitration approaching
or even exceeding the amount involved in the dispute or the
amount of the award. When an arbitrator is appointed by a
court without indicating fees, either both parties or at
least one party is at a disadvantage. Firstly, the parties
feel constrained to agree to whatever fees is suggested by
the Arbitrator, even if it is high or beyond their
capacity. Secondly, if a high fee is claimed by the
Arbitrator and one party agrees to pay such fee, the other
party, who is unable to afford such fee or reluctant to pay
such high fee, is put to an embarrassing position. He will
not be in a position to express his reservation or
objection to the high fee, owing to an apprehension that
refusal by him to agree for the fee suggested by the
arbitrator, may prejudice his case or create a bias in
favour of the other party who readily agreed to pay the
high fee. It is necessary to find an urgent solution for
this problem to save arbitration from the arbitration cost.
Institutional arbitration has provided a solution as the
Arbitrators’ fees is not fixed by the Arbitrators
themselves on case to case basis, but is governed by a
uniform rate prescribed by the institution under whose
aegis the Arbitration is held. Another solution is for the
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court to fix the fees at the time of appointing the
arbitrator, with the consent of parties, if necessary in
consultation with the arbitrator concerned. Third is for
the retired Judges offering to serve as Arbitrators, to
indicate their fee structure to the Registry of the
respective High Court so that the parties will have the
choice of selecting an Arbitrator whose fees are in their
`range’ having regard to the stakes involved. What is found
to be objectionable is parties being forced to go to an
arbitrator appointed by the court and then being forced to
agree for a fee fixed by such Arbitrator. It is unfortunate
that delays, high cost, frequent and sometimes unwarranted
judicial interruptions at different stages are seriously
hampering the growth of arbitration as an effective dispute
resolution process. Delay and high cost are two areas where
the Arbitrators by self regulation can bring about marked
improvement.
11. We find that a provision for serving officers of one
party being appointed as arbitrator/s brings out
considerable resistance from the other party, when disputes
arise. Having regard to the emphasis on independence and
impartiality in the new Act, government, statutory
authorities and government companies should think of
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phasing out arbitration clauses providing for serving
officers and encourage professionalism in arbitration.
12. As far as this case is concerned, we do not propose to
issue any directions in regard to the fees, as the High
Court has fixed the fee at Rs.10,000/- per hearing subject
to a maximum of Rs.150,000/- plus clerkage, to be shared
equally by the parties.
13. In view of the above, the appeal is dismissed.
_________________J
[R. V. Raveendran]
_________________J
[H.L. Dattu]
New Delhi;
February 26, 2009.