The Supreme Court in its recent decision in the matter of Laxmi Continental Construction Co. v. State of U.P.1 has clarified that the mandate of a sole arbitrator can not be terminated solely on the ground of their retirement.
FACTS OF THE CASE:
The Appellant entered into a contract with the Respondents whereby various disputes arose amongst the parties during the contract period. An arbitration clause was provided for under the contract, specifying that the disputes between the parties shall be resolved by the officer of the rank of superintending engineer or higher, who were not connected with the work under the contract. As per the provisions of the arbitration clause, a sole arbitrator was appointed who was the Chief Engineer at that point of time and the arbitration process commenced. Significantly, the timeline for completion of the arbitral proceedings and publishing of the arbitral award was extended from time to time on account of delays on the part of the Respondents and eventually, could not be completed within the timeline. During the pendency of the arbitration proceedings, the sole arbitrator retired from the post of Chief Engineer.
The Appellant filed an arbitration suit under Section 28 of the Arbitration Act, 1940 ("Arbitration Act") inter-alia praying for extension of time for conducting the arbitration proceedings and passing of the award. The said proceedings were objected to by the Respondents on the ground that since the Sole Arbitrator had already retired from his services, he should not be permitted to proceed with the arbitration. Subsequently, the Respondents also filed a miscellaneous suit, inter-alia, praying for declaration of the reference sent to the sole arbitrator as inoperative and illegal. The suits filed by the Appellant and the Respondents were heard together by the Civil Judge at Roorkee and disposed of by a common order extending the period of arbitration for 30 days and directing the sole arbitrator to decide the matter within the extended timeline.
Thereafter, the Arbitral Tribunal vide its award directed the Respondents to pay a total sum of Rs. 10,97,024 (Rupees Ten Lakhs Ninety Seven Thousand Twenty Four only) along with interest to the Appellant. Significantly, the Respondents filed their objections to the arbitral award under Section 30 and 33 of the Arbitration Act before Civil Judge, Roorkee. The said objections were dismissed by the Learned Civil Judge, leading to a further challenge by the Respondent before the High Court. Notably, the High Court vide its impugned order set aside the order of the Civil Judge primarily on the ground of retirement of the sole arbitrator from his post. As per the Hon'ble Court since the retired Arbitrator continued the arbitral proceedings even post his retirement, it was held that there was misconduct on his part. The impugned order of the High Court was challenged by the Appellant before the Supreme Court.
QUESTIONS OF LAW:
- Whether the mandate of a department officer acting as an arbitrator comes to an end on his retirement?
- Whether continuance of the arbitral proceedings by the arbitrator post his retirement could be said to be a misconduct of a sole arbitrator?
DECISION OF THE SUPREME COURT:
With respect to the first question of law, the Supreme Court examined the arbitration clause in the Agreement and interpreted that the only qualification for the appointment as a sole arbitrator was that he should be an officer of the rank of a Superintending Engineer or higher. It was further held that once such an officer was appointed as the sole arbitrator, he would continue to be an arbitrator until the proceedings were completed, unless he incurred any disqualification under the provisions of the Arbitration Act. In this regard the Hon'ble Court relied on one of its earlier decision in Himalayan Construction Co. v. Executive Engineer Irrigation Division, J&K and Anr2, wherein the Supreme Court had overruled the objection that a sole arbitrator appointed by designation could not continue arbitral proceedings and pass an award upon his retirement. Accordingly, in the instant case, the Hon'ble Court reiterated that the mandate of the sole arbitrator would not be terminated upon his retirement.
While deciding upon the second question of law, the Supreme Court held that the sole arbitrator passed the arbitral award within the extended period of time granted by the Civil Judge, and therefore, no form of misconduct can be recorded on the part of the Arbitrator. The Hon'ble Court further observed that the parties had nowhere under the arbitration clause specified that the mandate of the sole arbitrator, appointed by designation, would terminate upon his retirement from the department.
The Supreme Court consequently quashed the judgment of the High Court and allowed the instant appeal.
1 2021 SCC OnLine SC 750
2 (2001) 9 SCC 359
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