REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  1039         OF 2019 (Arising out of SLP(C)No.22809 of 2016)

RAJASTHAN SMALL INDUSTRIES  CORPORATION LIMITED      …Appellant

VERSUS

M/S GANESH CONTAINERS MOVERS                 SYNDICATE …Respondent

J U D G M E N T

R. BANUMATHI, J.

Leave granted.

2. This  appeal  arises  out  of  the  judgment  dated  22.04.2016

passed by the High Court of Rajasthan at Jaipur Bench in and by

which  the  High  Court  has  allowed  the  application  filed  by  the

respondent under Section 11 and Section 15 of the Arbitration and

Conciliation Act, 1996 thereby appointing Mr. J. P. Bansal, retired

District Judge as the sole arbitrator to resolve the dispute between

the parties.  

3. Brief facts which led to filing of this appeal are as under:-

The  appellant-Rajasthan  Small  Industries  Corporation

Limited invited tender for “Handling and Road transportation of ISO

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containers and Cargo between Inland container Depots at Jaipur,

Jodhpur and Ports.” Respondent-Contractor participated in the said

tender  and  Letter  of  Intent  was  issued  in  favour  of  the

respondent-Contractor  on  21.01.2000.  The  agreement  was

executed on 28.01.2000 between the parties. Initially, the contract

period was of three years; but it was extended for another two years

from  31.01.2003  by  consent  of  both  the  parties.  Dispute  arose

between the parties regarding imposition of transit penalty by the

appellant  upon  the  respondent  for  delay  in  transportation  of

containers,  non-payment  of  handling  charges  of  containers  for

various period of time and several other disputes. The terms of the

contract Clause 4.20.1 of Schedule-4 (General Conditions) provided

for  arbitration  by  the  Managing  Director  himself  or  his  or  her

nominee  for  the  sole  arbitration.  The  respondent-Contractor

requested for appointment of the arbitrator in terms of Clause 4.20.1

of  Schedule-4  (General  Conditions).  One  I.C.  Shrivastava,  IAS

(Retd.) was appointed as the sole arbitrator on 21.02.2005.  Since

the progress of the sole arbitrator was not satisfactory in disposing

the matter, the said sole arbitrator was removed on 26.03.2009 and

in  his  place,  Chairman-cum-Managing  Director  of  the  appellant-

Corporation  was  appointed  to  act  as  the  sole  arbitrator  by  the

consent of both the parties.

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4. For one reason or other, the arbitration proceedings could not

be concluded. According to the appellant, the matter was adjourned

repeatedly  vide orders  of  the  Arbitral  Tribunal  dated  10.02.2010,

11.02.2010,  15.02.2010,  18.02.2010  and  10.03.2010  as  no  one

appeared on behalf of the respondent-Contractor. On 16.03.2010,

the respondent raised its doubts regarding impartiality of the newly

appointed sole arbitrator. The sole arbitrator passed the order dated

06.04.2010 stating that the agreement Clause 4.20.1 of Schedule-4

(General Conditions) provides for arbitration by the Chairman-cum-

Managing Director of the Corporation or his nominee and that only

at the joint request of both the parties, the Chairman-cum-Managing

Director has taken up the arbitration to resolve the dispute between

the parties. The proceedings further continued fixing date of hearing

on various dates till 17.08.2011.

5. On 07.02.2013, the respondent-Contractor sent a legal notice

to the appellant stating that even after so many requests, the sole

arbitrator has not passed the award and called upon the appellant

to pay the amount of Rs.3,90,81,602/- said to have been settled,

along with the statutory interest  within one month.  The appellant

sent a reply dated 19.03.2013 stating that since the Chairman-cum-

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Managing Director has been transferred, award could not be passed

and there is no question of payment to the respondent-Contractor.  

6. On 13.05.2015, the respondent-Contractor filed an application

under  Section  11(6)  and  Section  15  of  the  Arbitration  and

Conciliation  Act,  1996  before  the  High  Court  seeking  for

appointment of an independent arbitrator for adjudication of dispute

between the appellant and the respondent in respect of agreement

dated 28.01.2000. On 18.12.2015, it was brought to the notice of

the arbitrator that an arbitration application has been filed before the

High  Court.  On  05.01.2016,  the  Arbitral  Tribunal  adjourned  the

matter to 13.01.2016 as a last opportunity of hearing to the parties.

On  13.01.2016,  the  arbitrator  rejected  the  application  of  the

respondent-Contractor  and  his  request  to  adjourn  the  matter  till

hearing  and  final  disposal  of  the  arbitration  application  pending

before  the  High  Court  and  held  that  the  arbitration  proceedings

would  be finalized on the basis  of  available  facts  and therefore,

adjourned the matter to 21.01.2016. The sole arbitrator passed an

ex-parte award on 21.01.2016.  

7. The High Court vide impugned order allowed the arbitration

application thereby appointing Mr. J.P. Bansal (Retd.), District Judge

as the  sole  arbitrator.  The High  Court  held  that  the respondent-

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Contractor had to approach the High Court due to prolongation of

the matter before the sole arbitrator who kept on changing one after

another  and  only  after  the  notice  of  the  arbitration  petition  was

served upon the appellant-Corporation,  the arbitrator speeded up

the proceedings and the ex-parte award was passed on 21.01.2016

without hearing the respondent-Contractor. The High Court was of

the view that the arbitrator hurried up to conclude the proceedings

with a view to frustrate the arbitration application.

8. Mr. A.D.N. Rao, learned counsel for the appellant-Corporation

submitted that the High Court erred in not keeping in view of Clause

4.20.1  of  Schedule-4  (General  Conditions)  that  the  respondent

could not have moved the application under Section 11 and Section

15 of the Arbitration and Conciliation Act, 1996 in the light of the

agreement between the parties and the competence of the arbitral

tribunal to adjudicate the dispute between the parties. It was further

submitted that though the arbitrator was ready to proceed with the

matter, the arbitrator could not make progress since the respondent

was either not present or continually taking adjournments and when

the arbitrator was proceeding with the matter in right earnest, the

respondent  could  not  have  approached  the  High  Court  seeking

appointment of an arbitrator. It was urged that in the light of the fact

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that a final arbitral award has been passed by the arbitral tribunal,

the respondent could only challenge the same by way of an appeal

under Section 34 of the Arbitration and Conciliation Act, 1996 and

the impugned order of the High Court is liable to be set aside.

9. Ms.  Mishra,  learned  counsel  for  the  respondent-Contractor

submitted  that  in  view  of  Section  12  of  the  Arbitration  and

Conciliation  (Amendment)  Act,  2015,  if  the  arbitrator  is  an

employee/advisor or has any past or present business relation or

being  the  Manager/Director  then  he  cannot  be  appointed  as  an

arbitrator and not qualified to decide the dispute and therefore, the

High Court has rightly appointed the fresh independent arbitrator. It

was submitted that the disqualification of the person to hold the post

of an arbitrator as enumerated in Seventh Schedule of Arbitration

and Conciliation (Amendment) Act, 2015 is a legal right conferred

upon  the  respondent-Contractor  and  there  cannot  be  any

promissory  estoppel  against  the  statute  by  alleging  that  in  the

agreement  dated  28.01.2000,  the  respondent  agreed  that  the

dispute and differences shall be referred to the Managing Director

himself or his nominee for the sole arbitration. Placing reliance upon

Union  of  India  and  Others  v.  Uttar  Pradesh  State  Bridge

Corporation Limited (2015) 2 SCC 52, it was contended that when

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there is failure on the part of the arbitral tribunal to act and unable to

perform  its  functions,  it  is  open  to  a  party  to  the  arbitration

proceedings to approach the court for termination of the mandate of

the arbitrator and seek appointment of the substitute arbitrator. The

learned  counsel  for  the  respondent  further  submitted  that  in  the

present case, since for a long period of about ten years, no award

has been passed and that the arbitrators were kept on changing for

one reason or other, the respondent was justified in approaching the

High Court for substitution or appointment of fresh arbitrator. It was

submitted  that  only  after  the  respondent  approached  the  High

Court,  the proceedings were accelerated and award came to  be

passed.  

10. We  have  carefully  considered  the  contentions  of  both  the

parties  and  perused  the  impugned  judgment  and  materials  on

record. The following points arise for consideration:-

 In the light of the proceedings before the sole arbitrator

on various dates and when the proceedings before the

arbitrator  was  pending,  whether  the  respondent  was

right in filing arbitration petition approaching the High

Court  under  Section  11  and  Section  15  of  the

Arbitration  Act,  1996 for  appointment  of  a  substitute

arbitrator?  When by virtue of arbitration agreement Clause 4.20.1

of  Schedule-4  (General  Conditions),  parties  have

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agreed  that  the  dispute,  differences  between  the

parties to be resolved by the Managing Director or his

nominee, whether the High Court was right in deviating

from the terms of the agreement between the parties

and appointing an independent Arbitrator?  Whether by virtue of Section 12 of the Arbitration and

Conciliation  (Amendment)  Act,  2015,  the  Chairman-

cum-Managing Director has become ineligible to act as

the arbitrator?

 Whether  the High Court  was right  in terminating the

mandate  of  the  arbitrator  whom  the  parties  have

agreed  and  appointing  substitute  arbitrator  on  the

ground that there was delay in passing the award?

11. In deviation from the terms of the agreement, whether the

respondent was right in filing arbitration petition under Section

11 of the Arbitration Act:- Admittedly, the parties entered into an

agreement dated 28.01.2000 for handling on road transportation of

ISO containers and cargo between the Inland Container Depot at

Jaipur, Jodhpur and Ports. The agreement was to remain in force

for  a  period  of  three  years  starting  from  10.04.2000.  The

abovementioned agreement was extended for another period of two

years  starting  from  31.01.2003.  Clause  4.20.1  of  Schedule-4

(General  Conditions)  provided  for  arbitration  which  reads  as

follows:-

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“4.20.1 All disputes and difference arising out of or in any way concerning this Contract, shall be referred to the Managing Director himself, herself or his or her nominees for the sole arbitration. There will be no objection to any such appointment on the ground that the person so appointed is an employee of the Corporation, that he has dealt with the matters to which the contract relates and that in the course of his duties. As such arbitration shall be final and binding on the parties to the contract. If the person to whom the matter was originally referred to for arbitration becomes unable to  function  on  account  of  vacation  of  office,  transfer,  resignation, retirement from services, suspension or for any other reason, whatsoever, the  Managing Director  shall  nominate  another  person to  take over  his function as soon as possible. Such person shall proceed further from the stage where the matter was left by his predecessor. The arbitrator shall give reasons for the award.”

12. In order to appreciate the points, it is necessary to refer to the

details  of  various  proceedings  before  the  arbitrator,  before  the

respondent-Contractor  approached  the  High  Court.  In  terms  of

Clause 4.20.1, I.C. Shrivastava, IAS (Retd.) was appointed as sole

arbitrator  by  order  dated  21.02.2005.  Since  the  progress  of  the

arbitration  proceedings  before  the  said  arbitrator  was  not

satisfactory,  vide order  No.RSIC/Legal/08-09/23999-24001  dated

26.03.2009,  appointment  of  I.C.  Shrivastava,  IAS  (Retd.)  as

arbitrator was withdrawn. Since records were not received from the

said arbitrator, an order was passed on 13.08.2009 in the presence

of both the parties, wherein it  was agreed that the records of the

case are to be reconstructed and by the same order, it was decided

to request Additional Chief Secretary (SSI), Rukmani Haldea, IAS to

be the sole arbitrator. However, subsequently by the consent of both

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the  parties  Chairman-cum-MD  of  the  appellant-Corporation  was

appointed as the sole arbitrator.

13. The  matter  was  adjourned  before  the  arbitral  tribunal  on

24.11.2009 and 30.11.2009 and other dates.  It  is seen from the

order of the arbitral tribunal dated 08.01.2010, the earlier arbitrator

was requested number of times to handover the records connected

with  the  case;  but  he  had  not  handed  over  the  records  and

therefore,  parties  were  advised  to  exchange  records  so  that  the

proceedings  could  begin  and  the  matter  was  adjourned.  In  the

subsequent  hearing  on  25.01.2010,  both  the  parties  were

represented  by  their  counsel  and  therefore,  the  matter  was

adjourned  to  08.02.2010  for  final  arguments.   On  08.02.2010,

arguments of  the respondent-claimant  was heard in  part  and the

case was adjourned to 10.02.2010 on account of paucity of time. On

the  subsequent  hearing  dates  viz.  10.02.2010,  11.02.2010,

15.02.2010,  18.02.2010  and  10.03.2010,  there  was  no

representation  for  the  respondent-claimant  and  the  matter  was

adjourned  to  17.03.2010.  Respondent-Contractor  vide its  letter

dated  16.03.2010  addressed  to  the  Chairman  and  Managing

Director of the appellant-Corporation raised doubts on impartiality of

the arbitrator expressing his desire to withdraw the arbitration from

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the  present  sole  arbitrator  and  was  willing  to  get  the  matter

adjudicated  by  the  pervious  arbitrator,  I.C.  Shrivastava  who  was

already removed at the joint request of the parties.  By letter dated

18.03.2010, respondent requested for adjournment of the matter. On

the  next  date  of  hearing  i.e.  on  19.03.2010,  the  respondent-

Contractor  has  not  entered  appearance  and  the  matter  was

adjourned to 06.04.2010. On 06.04.2010, the respondent-Contractor

was appeared  through its  representative  F.K.  Sherwani.  As  seen

from the proceeding of arbitrator dated 06.04.2010, though initially

pressed  for  arbitrator  outside  appellant-RSIC,  finally  gave  his

consent that Chairman-cum-Managing Director may arbitrate.   

14. On  29.04.2010,  the  matter  could  not  be  taken  up  as  on

28.04.2010, the arbitral tribunal passed the order stating that the sole

arbitrator-CMD has to go to Mumbai for attending a very important

official work and the matter was adjourned to 19.05.2010. The matter

was  then  adjourned  to  20.05.2010,  16.06.2010,  25.08.2010  and

21.10.2010. It is seen that the respondent-claimant (vide letter dated

21.10.2010)  stated  that  they  have  full  faith  in  the  present  sole

arbitrator and that the matter has to be decided at an early date on

the basis of material available on record at the earliest.  

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15. For want of reconciliation of records of the parties and certain

clarifications, by order dated 24.03.2011, the arbitrator directed both

the parties to appear before him on 18.04.2011 along with complete

records relating to the claim and counter claim. On the next hearing

dates  i.e.  20.04.2011  and  21.04.2011,  there  were  detailed

discussions  between  the  parties  and  the  sole  arbitrator  and

accordingly,  the respondent-Contractor  agreed to  withdraw certain

claims. By various correspondence dated 21.04.2011,  18.05.2011,

20.05.2011  and  24.05.2011,  the  arbitrator  required  certain

clarifications from both the parties to finalise the award and replies

were  also  received.  On  17.08.2011,  in  the  presence  of  both  the

parties, the arbitral tribunal passed the following order:-

“The “file regarding this arbitration” appears tempered/missing paper or incomplete. Therefore, the chronological events need to  be  ascertained  and  reconstruction  will  be  required.  The detailed order will be passed informing both the parties in this respect. They must wait till further order in this content.”

16. It  was  in  the  above  background,  the  respondent-Contractor

sent  a legal  notice dated 07.02.2013 stating that  both the parties

have submitted their  relevant  claims before  the  sole  arbitrator  on

18.04.2011 and that it was mutually agreed to settle the claim after

deduction of some amount and that the amount was finalised and

settled  for  Rs.3,90,81,602/-  and  in  spite  of  the  fact  that  settled

amount was agreed between the parties, no award was passed by

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the  arbitrator.  The  respondent  sent  another  legal  notice  dated

07.03.2013  reiterating  the  claim  for  Rs.  3,90,81,602/-  along  with

statutory  interest.  The  appellant-Corporation  has  sent  a  detailed

reply dated 19.03.2013 denying any settlement and also denying that

the amount was finalised for a sum of Rs.3,90,81,602/-.  

17. It was in the above backdrop, on 13.05.2015, the respondent-

Contractor filed an application under Section 11 and Section 15 of

the Arbitration and Conciliation Act, 1996 before the High Court for

appointment of an independent arbitrator for adjudication of disputes

and  differences  between  the  appellant-Corporation  and  the

respondent-contractor  in  respect  of  agreement  dated  28.01.2000.

When  the  said  petition  was  pending  before  the  High  Court,  the

arbitrator vide order dated 18.12.2015 fixed the next date of hearing

for 05.01.2016. The respondent-Contractor sent a letter requesting to

keep the arbitration proceedings in abeyance. However, the Arbitral

Tribunal adjourned the matter to 13.01.2016 and then to 21.01.2016,

on which date the final  award came to be passed by the Arbitral

Tribunal. It was thereafter, by the impugned order dated 22.04.2016

passed by the High Court retired District Judge, Mr. J.P. Bansal was

appointed as the sole arbitrator to resolve the dispute between both

the parties.

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18. As pointed out earlier, on 06.04.2010, though the respondent

initially  pressed  for  arbitrator  outside  RSIC,  then  finally  gave  its

consent  for  Managing Director  to  arbitrate.   The said  proceeding

dated 06.04.2010 reads as under:-

“Shri F.K. Sherwani appeared on behalf of the Claimant and Shri G.C. Garg and Shri  R.K.  Agarwal,  Advocates appeared on behalf  of  the Corporation.  Shri  F.K.  Sherwani  initially  pressed  for  appointing  an Arbitrator from outside RSIC. His apprehension was that the CMD will not be an independent Arbitrator since he is likely to take interest of the  RSIC  into  consideration.  This  would  be  more  so  due  to  the financial difficulties being faced by the Corporation.

It was explained to Shri Sherwani that the agreement signed in principle  provides  for  arbitration  by  the  Chairman  or  MD  of  the Corporation or his nominee and also it was at the joint request of  both the  parties  that  the  arbitration  was  taken  away  from  the  earlier Arbitrator. After discussions it was decided that the CMD may arbitrate the dispute. Shri Sherwani also has given his consent that CMD may arbitrate.

The next date of hearing is fixed for 29.04.2010 at 3.00 PM.”

19. As  seen  from the  order  dated  21.10.2010,  the  respondent

submitted that “they do not want to prolong the matter further and

they have full faith in the present sole arbitrator and that they would

like the sole arbitrator to decide the case and pass an award on the

basis  of  material  available  on  record  at  the  earliest.”  As  stated

earlier,  to  that  effect,  Shri  Ram B.  Salve,  sole  proprietor  of  the

respondent had also given a letter  dated 21.10.2010.  Since the

papers  were missing or  incomplete,  in  the presence of  both  the

parties,  the  arbitral  tribunal  vide its  order  dated  17.08.2011  has

decided that the chronological events need to be ascertained and

reconstruction will be required and a detailed order will be passed

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informing  both  the  parties  in  this  regard.  As  seen  from  the

proceedings  of  the  arbitral  tribunal  till  that  time,  the  respondent

voluntarily participated and acquiesced in the proceedings before

the arbitral tribunal and also expressed faith in the sole arbitrator.

Having thus voluntarily participated in the arbitral proceedings, the

respondent  has  sent  a  legal  notice  dated  07.02.2013  to  the

appellant-Corporation  stating that  in  the  arbitral  proceedings,  the

respondent mutually agreed to the claim and the matter was settled

for a sum of Rs.3,90,81,602/- and that in spite of repeated requests,

the amount was not paid to the respondent. The respondent also

sent another legal notice dated 07.03.2013 reiterating its demand

for  payment  of  Rs.3,90,81,602/-.  To  that  effect,  the  appellant-

Corporation has sent a detailed reply dated 19.03.2013.

20. It is in this backdrop, the respondent has filed the arbitration

petition before the High Court under Section 11 and Section 15 of

the Arbitration and Conciliation Act,  1996 on 13.05.2015 seeking

appointment of an independent arbitrator. As noted earlier, as per

Clause 4.20.1 of Schedule-4 (General Conditions), the parties have

agreed that all disputes and differences arising out of or in any way

concerning the contract, shall be referred to the Managing Director

himself or his nominees for the sole arbitration and that there will be

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no objection to any such appointment on the ground that the person

so appointed is an employee of the Corporation and that he has

dealt with the matter to which the contract relates. When the parties

have consciously agreed that the disputes or differences shall be

referred to the Managing Director himself or his nominee for sole

arbitration and having participated in the arbitral proceedings before

arbitrator for quite some time, the respondent cannot turn round and

seek for appointment of an independent arbitrator.  

21. The respondent having participated in the proceedings before

the arbitral tribunal for quite some time and also having expressed

faith  in  the  sole  arbitrator,  is  not  justified  in  challenging  the

appointment of the Managing Director of the appellant-Corporation

as  the  sole  arbitrator.  In  Indian  Oil  Corporation  Limited  and

Others v. Raja Transport Private Limited (2009) 8 SCC 520, this

Court held as under:-

“34. The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part. There can however be a justifiable apprehension about the independence or impartiality of an employee arbitrator, if such person was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate (as contrasted from an officer of an inferior rank in some other Department) to the officer whose decision is the subject-matter of the dispute.

44. While  considering  the  question  whether  the  arbitral procedure prescribed in the agreement for reference to a named arbitrator, can be ignored, it is also necessary to keep in view clause  (v)  of  sub-section  (2)  of  Section  34  of  the  Act  which provides that an arbitral award may be set aside by the court if

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the composition of the Arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties (unless such agreement was in conflict with any provision of Part I of the Act  from  which  parties  cannot  derogate,  or,  failing  such agreement, was not in accordance with the provisions of Part I of the Act). The legislative intent is that the parties should abide by the terms of the arbitration agreement.” [underlining added]

22. The respondent has not placed any material  to show that it

has reason to believe that the arbitrator had not acted independently

or  impartially.   The  respondent  has  not  brought  on  record  any

material to entertain an apprehension that the Managing Director of

the  appellant-Corporation  is  not  likely  to  act  independently  or

impartially.  On  the  other  hand,  as  noted  earlier,  as  per  the

proceeding of the arbitral tribunal dated 21.10.2010, the respondent

had expressed its full faith in the sole arbitrator and had also given a

letter dated 21.10.2010 to that effect. The fact that the sole arbitrator

is  the  Managing  Director  of  the  appellant-Corporation  is  not  a

ground to raise a presumption of bias or lack of independence on

his  part.  The  arbitration  Clause  4.20.1  of  Schedule-4  (General

Conditions) stipulates a high official i.e. - Managing Director of the

Corporation not connected with the contract or the work executed by

the  respondent.  Having  participated  in  the  entire  arbitration

proceedings and acquiesced in the proceedings, the respondent is

estopped from challenging the competence of the arbitrator.   The

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respondent was not justified in filing the arbitration petition seeking

appointment of an independent arbitrator.  

Whether by virtue of  Section 12 of  the Amendment  Act,  the Managing Director has become ineligible to act:-

23. After the amendment to the Arbitration and Conciliation Act,

2015, Section 12(5) prohibits the employee of  one of  the parties

from  being  an  arbitrator.  In  the  present  case,  the  agreement

between  the  parties  was  entered  into  on  28.01.2000  and  the

arbitration proceedings commenced way back in 2009 and thus, the

respondent  cannot  invoke  Section  12(5)  of  the  Arbitration  and

Conciliation (Amendment) Act, 2015.  As per Section 26 of the Act,

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 this

Act unless the parties otherwise agree.

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

Private Limited and others, (2018) 6 SCC 287, this Court 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.  In the present case, there is nothing to suggest that  the

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parties have agreed that the provisions of the new Act shall apply in

relation to the arbitral proceedings.

25. Contending  that  the  sole  arbitrator/Chairman-cum-Managing

Director, by virtue of 2015 amendment, has become ineligible to act

as  the  arbitrator,  the  learned  counsel  for  the  respondent  placed

reliance  upon  TRF  Limited  v.  Energo  Engineering  Projects

Limited (2017)  8  SCC  377.   In  the  said  case,  though  the

agreement/purchase  order  was  dated  10.05.2014  (prior  to  the

amendment), notice invoking arbitration was issued on 28.12.2015

(after  the  Amendment  Act  2015)  and  the  letter  of  the  Managing

Director  nominating  the  arbitrator  is  dated  27.01.2016.   In  such

factual  matrix  of  the  case,  this  Court  has  held  that  the  named

arbitrator-Managing Director of the respondent therein had become

ineligible  by  operation  of  law and therefore,  he  cannot  nominate

another person as an arbitrator.  In para (54), it was held as under:-

“54. In such a context, the fulcrum of the controversy would be, can an  ineligible  arbitrator,  like  the  Managing  Director,  nominate  an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the  individual  respectability.  We  are  only  concerned  with  the authority or the power of the Managing Director.  By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has  become  ineligible  by  operation  of  law,  he  cannot  nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in  law  that  person  who  is  statutorily  ineligible  can  nominate  a person.  Needless  to  say,  once  the  infrastructure  collapses,  the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the

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Managing  Director  as  the  sole  arbitrator  is  lost,  the  power  to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so.” [underlining added]

26. The facts of the said case are entirely different from the case

in  hand.   In  the  said  case,  when notice  invoking arbitration  was

issued on 28.12.2015, after  the Amendment  Act,  2015 came into

force  with  effect  from 23.10.2015,  by  virtue  of  which  the  person

named in the agreement became ineligible to act as the arbitrator.

In the case in hand, the arbitration proceedings started way back in

2009  long  before  2015  Amendment  Act  came  into  force  and

therefore,  2015  Amendment  Act  is  not  applicable  to  the  case  in

hand.  The statutory provisions that  would govern the matter  are

those which were then in force before the Amendment Act.

27. To fortify our view, we can usefully refer to the decision of this

Court  in  Aravali  Power  Company Private Limited v.  Era  Infra

Engineering  Limited  (2017)  15  SCC  32.   In  this  case,  the

invocation of arbitration was on 29.07.2015 and the arbitrator was

appointed  on  19.08.2015  and  the  parties  appeared  before  the

arbitrator on 07.10.2015 well before 23.10.2015 i.e. date on which

the Amendment Act was deemed to have come into force.  It was

held that  the statutory provisions that  would therefore govern the

controversy are those that were in force before the Amendment Act

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came  into  effect.   This  Court  has  therefore  directed  that  the

arbitration,  in  pursuance  of  the  appointment  of  the  arbitrator  on

19.08.2015, shall proceed in accordance with law.

Whether the High Court was right in terminating the mandate of the arbitrator appointed as per the agreement:-

28. The main question falling for consideration is whether the High

Court  was  right  in  terminating  the  mandate  of  the  arbitrator

appointed  as  per  the  agreement  and  appointing  a  substitute

arbitrator in the application filed under Section 11(6) and Section 15

of the Arbitration Act.  As pointed out earlier, the proceedings before

the  Arbitral  Tribunal  proceeded  till  17.08.2011  and  thereafter,  no

progress  was  made.   The  respondent  issued  legal  notice  on

07.02.2013  calling  upon  the  appellant  to  pay  Rs.3.90,81,602/-

alleging  that  the  said  amount  was  settled  during  the  course  of

proceedings before the Arbitral Tribunal.  Reiterating the demand,

the  respondent  has  again  sent  the  legal  notice  on  07.03.2013.

However,  no  award  came  to  be  passed.   The  respondent  filed

application  under  Sections  11  and  15  of  the  Act  of  1996  on

13.05.2015  seeking  appointment  of  an  independent  arbitrator  for

adjudication of the disputes and differences between the appellant

and the respondent.   

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29. In  support  of  his  contention,  the  learned  counsel  for  the

respondent relied upon the decision in Union of India and others

v. Uttar Pradesh State Bridge Corporation Limited (2015) 2 SCC

52. Learned counsel for the respondent contended that the arbitrator

failed to conclude the proceedings even after  four  years and the

High Court rightly appointed the substitute arbitrator departing from

the arbitration clause in the agreement between the parties.  In the

said case, since the Arbitral Tribunal did not pass award in spite of

expiry  of  four  years,  the  respondent  thereon filed  Request  Case

No.10/2010  and  the  High  Court  passed  order  dated  09.03.2011

giving the last chance to the Arbitral Tribunal to complete the arbitral

proceedings within  a  period of  three months.   In  para (6)  of  the

judgment, this Court pointed out that the High Court took note of the

various dates and hearings that are fixed by the Tribunal between

25.03.2011 and 25.06.2011 and came to  the conclusion that  the

delay  caused  in  the  arbitral  proceedings  was  intentional.   After

referring to  Union of India v. Singh Builders Syndicate (2009) 4

SCC 523 and other judgments, this Court observed that the delays

and frequent changes in the Arbitral Tribunal defeat the process of

arbitration and therefore,  the appointment of  the arbitrator  by the

court  of  its  own choice departing from the arbitration clause has

become an acceptable proposition of law which can be termed as a

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legal  principle  which  has  come to  be  established  by  a  series  of

judgments of this Court.  Having regard to the facts of the said case,

observing that the delay in arbitral proceedings was intentional, in

para (6)  of  Uttar Pradesh State Bridge Corporation Limited,  it

was held as under:-  

“6. The High Court took note of the various dates of hearings that are fixed by the Tribunal between 25-3-2011 and 25-6-2011 and came  to  the  conclusion  that  delay  caused  in  the  arbitral proceedings  was  intentional.  So  much  so,  the  members  of  the Arbitral Tribunal were continuing their dilatory tactics in deciding the matter  before  it  since  2007  and  four  years  had  passed  in  the process.  The  Tribunal  had  faltered  even  after  giving  specific directions  to  conclude  the  matter  within  three  months  and  long adjournments were granted thereby violating the specific directions of  the  High  Court.  Terming  this  attitude  of  the  members  of  the Tribunal  as  negligent  on  their  part  towards  their  duties  with  no sanctity for any law or for the orders of the High Court, the High Court allowed the petition of the respondent herein and set aside the mandate of the Tribunal with the appointment of sole arbitrator by the Court itself.”

30. Having regard to the factual matrix of the present case, in our

considered view, the ratio of the said decision cannot be applied to

the case in hand.   Per contra, in the present case, the proceedings

of  the  arbitral  tribunal  continued  till  17.08.2011.   From  the

proceeding of the arbitral tribunal dated 17.08.2011, it is seen that

the “arbitrator observed that the file regarding arbitration appears

tampered/missing  papers  are  incomplete  and  therefore,  the

chronological events need to be ascertained and reconstitution will

be required.”  It is in this background, the award was not passed till

2013.  It is true that there was some delay in passing the award.

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However, between 2011 and 2013, the respondent has not filed any

application  to  expedite  the  proceedings  and  for  passing  of  the

award.  The  respondent  has  neither  filed  the  Request  Case  for

passing of the award at an early date nor filed the petition under

Section 14 of the Act for termination of the mandate of the arbitrator

that the arbitrator has ‘failed to act without undue delay’.   

31. Mere neglect of an arbitrator to act or delay in passing the

award by itself cannot be the ground to appoint another arbitrator in

deviation from the terms agreed to by the parties.  We may usefully

refer to RUSSELL ON ARBITRATION, 20th Edition which reads as

under:-

“Mere  neglect  of  an  arbitrator  to  act,  as  distinct  from refusal  or incapacity, does not of itself give the court power to appoint another arbitrator in his place.  It does, however, give the court power to remove him, whereupon there is a power to replace him.”*

*[RUSSELL ON ARBITRATION, 20th Edition,  Pg. 136 quoted in Law relating to Arbitration and Conciliation, 9th Edition, by Dr. P.C. Markanda at Pg. 620]

32. Section  15  deals  with  termination  of  the  mandate  and

substitution of an arbitrator. Sub-section (1) of Section 15 states that

in addition to the circumstances referred to in Sections 13 and 14 of

the  Act,  the  mandate  of  an  arbitrator  shall  terminate  where  he

withdraws  from  office  for  any  reason  or  by  pursuant  to  the

agreement  of  the  parties.  In  terms  of  sub-section  (2),  after

termination  of  arbitrator’s  mandate,  the  appointment  of  the

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substitute arbitrator shall be in accordance with the rules applicable

to the appointment of an arbitrator who is being replaced.   

33. After analysis of the scheme of Sections 11, 14 and 15, in

S.B.P. and Company v. Patel Engineering Limited and Another

(2009)  10  SCC  293,  this  Court  held  that  the  legislature  has

repeatedly  laid  emphasis  on  the  necessity  of  adherence  to  the

terms  of  agreement  between  the  parties  in  the  matter  of

appointment of arbitrators and procedure to be followed for such

appointment. In para (31), it was held as under:-

“31. ………..Even Section 15(2), which regulates appointment of a substitute arbitrator, requires that such an appointment shall be made according to  the rules which were applicable to the appointment of  an original  arbitrator.  The term “rules” used in this sub-section is not confined to statutory rules or the rules framed by the competent authority in exercise of the power of delegated legislation but also includes the terms of agreement entered into between the parties.”

34. In  Yashwith Constructions (P)  Ltd.  v.  Simplex Concrete

Piles  India  Ltd.  and Another (2006)  6  SCC 204,  the Supreme

Court was called upon to examine the scope of Section 15 of the

Act in the backdrop of the fact that after resignation of the arbitrator

appointed by the Managing Director  of  the respondent  company,

another  arbitrator  was  appointed  by  him  in  accordance  with  the

arbitration agreement. At that stage, the petitioner thereon filed an

application under Section 11(5) read with Section 15(2) of the Act

praying  for  appointment  of  a  substitute  arbitrator  to  resolve  the

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disputes between the parties. The said application was dismissed

by the Chief Justice holding that Section 15(2) refers not only to the

statutory rules framed for regulating the appointment of arbitrators

but also to contractual provisions for such appointment upholding

the view taken by the Chief  Justice.  In para (4),  it  was held as

under:-

“4.  ………The withdrawal  of  an arbitrator from the office for any reason  is  within  the  purview  of  Section  15(1)(a)  of  the  Act. Obviously,  therefore,  Section  15(2)  would  be  attracted  and  a substitute arbitrator has to be appointed according to the rules that are applicable for the appointment of the arbitrator to be replaced. Therefore, what Section 15(2) contemplates is an appointment of the  substituted  arbitrator  or  the  replacing  of  the  arbitrator  by another  according  to  the  rules  that  were  applicable  to  the appointment of the original arbitrator who was being replaced. The term “rules” in Section 15(2) obviously referred to the provision for appointment contained in the arbitration agreement or any rules of any institution under which the disputes were referred to arbitration. There was no failure on the part of the party concerned as per the arbitration agreement, to fulfil his obligation in terms of Section 11 of the Act so as to attract the jurisdiction of the Chief Justice under Section  11(6)  of  the  Act  for  appointing  a  substitute  arbitrator. Obviously,  Section 11(6)  of  the Act  has application only  when a party  or  the  person concerned had failed  to  act  in  terms of  the arbitration agreement. When Section 15(2) says that a substitute arbitrator  can  be  appointed  according  to  the  rules  that  were applicable for the appointment of the arbitrator originally, it is not confined to an appointment under any statutory rule or rule framed under  the  Act  or  under  the  scheme.  It  only  means  that  the appointment of the substitute arbitrator must be done according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage…….” [underlining added]

As held in Yashwith Constructions, Section 11(6) of the Act would

come into play only when there was failure on the part of the party

concerned  to  appoint  an  arbitrator  in  terms  of  the  arbitration

agreement. In the case in hand, the High Court, in our view, was not

26

right in appointing an independent arbitrator without keeping in view

the terms of the agreement between the parties and therefore, the

impugned order appointing an independent arbitrator/retired District

Judge is not sustainable.  

35. Remedy to the Respondent-Contractor:- The award passed

by the arbitrator dated 21.01.2016, whether sustainable, is the next

question  falling  for  consideration.   As  discussed  earlier,  after

17.08.2011 the Arbitral Tribunal could not make progress and as per

the  proceeding  of  the  Arbitral  Tribunal  dated  17.08.2011,  the

arbitrator  observed  that  the  “…..missing  papers  are

incomplete…..the chronological events need to be ascertained and

reconstitution  will  be  required….”.   As  pointed  out  earlier,  the

respondent filed application under Sections 11 and 15 of the Act of

1996 before the High Court on 13.05.2015.  As per the proceedings

of the Arbitral Tribunal dated 18.12.2015, the arbitration application

before the High Court was brought to the notice of the tribunal and

the same was recorded.  On 05.01.2016, the respondent prayed for

keeping the arbitration proceedings in abeyance and the matter was

adjourned for 13.01.2016.  The Arbitral Tribunal passed a detailed

order  on  13.01.2016  stating  that  the  matter  is  pending  for  quite

some time and on the basis of the available facts and materials, the

27

matter will be finalized and adjourned the matter for 21.01.2016.  On

the basis of available materials, the Arbitral Tribunal passed the final

award on 21.01.2016 awarding a sum of Rs.1,38,000/-, Rs.83,000/-

and  Rs.1,97,110/-  in  respect  of  claims  at  Serial  Nos.3,  4  and  9

respectively to the claimant and the respondent’s claim in respect of

other  claims  was  rejected.   So  far  as  the  counter  claim  of  the

appellant-Corporation  in  respect  of  Serial  No.17,  the  arbitrator

awarded a sum of Rs.58,39,018/-.

36. Since the High Court was in seisin of the matter, the Arbitral

Tribunal could have given further opportunity to the respondent to

put  forth his  case.   The proceedings of  the Arbitral  Tribunal  was

pending  for  quite  some  time  from  2009  till  2015  and  after  the

respondent approached the High Court in May, 2015, the arbitrator

appears to have hurriedly passed the award. It is pertinent to note

that  the  respondent  was  repeatedly  praying  for  adjournment  on

05.01.2016, 13.01.2016 and was not present on the date of passing

of the final award dated 21.01.2016.  As pointed out earlier, it was

noted in the proceedings dated 17.08.2011 that  the chronological

events need to be ascertained and reconstruction will be required.  It

is not known whether the same was ascertained or not and whether

reconstruction  was  done  before  passing  the  final  award  on

28

21.01.2016.   The  respondent  has made number  of  claims under

various heads.  The respondent has to be given an opportunity to

substantiate its claim under various heads.  In order to do complete

justice between the parties and in exercise of power under Article

142 of the Constitution of India, the award dated 21.01.2016 is to be

set aside.   

37. In exercise of power under Article 142 of the Constitution of

India, it is open to the court to mould the relief by safeguarding the

interest  of  parties.   The  paramount  consideration  in  such  cases

should be to ensure that there is no injustice caused.  In Raj Kumar

and others v. Union of India and another (2006) 1 SCC 737, this

Court held as under:-

“19. …….in  exercise  of  our  powers  under  Article  142  of  the Constitution  in  order  to  do  complete  justice  to  a  section  of  the personnel  who  would  otherwise  be  placed  in  an  inequitable situation for which the authorities are also partly to blame. It is open to this Court to mould the relief by safeguarding the interest of the parties even while declaring the law. The paramount consideration in  such  cases  should  be  to  ensure  that  there  is  no  injustice caused…….”

38. The phrase “complete justice” engrafted in Article 142(1) is the

word  of  width  couched  with  elasticity  to  meet  myriad  situations

created  by  human  ingenuity  or  cause  or  result  of  operation  of

Statute law or law declared under Articles 32, 136 and 141 of the

Constitution.  (Vide Ashok Kumar Gupta and another v. State of

29

U.P. and others (1997) 5 SCC 201)  In the case in hand, to relegate

the respondent to challenge the award under Section 34 of the Act,

it  would  further  prolong  the  litigation  between  the  parties.

Considering the facts of the case and in order to do complete justice

between the parties, in exercise of power under Article 142 of the

Constitution, the award dated 21.01.2016 is set aside.   

39. In  the  result,  the  impugned  order  of  the  High  Court  dated

22.04.2016 is set  aside and this appeal is allowed.  The present

Managing  Director  of  the  appellant-Rajasthan  Small  Industries

Corporation Limited shall be the sole arbitrator and the Managing

Director  is  directed  to  take  up  the  matter  and  continue  the

proceedings and afford sufficient opportunity to both the parties to

adduce further evidence and to make oral submissions and pass the

final award within a period of four months.  It is made clear that the

arbitrator may not be influenced by any of the views expressed by

the High Court.

..……………………….J.      [R. BANUMATHI]  

                            ...………………………..J.      [INDIRA BANERJEE]

New Delhi; January 23, 2019

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