RETIREMENT FROM THE PRE-DEFINED QUALIFYING POSITION DOES NOT INFUSE AN IMPLIED POWER TO CULMINATE THE ARBITRATION PROCEEDINGS

 

CASE DIARY
Name of the case	M/s Laxmi Continental Construction Co. v. State of U.P. & Anr.
Application Ref.	Civil Appeal No. 6797 OF 2008
Appellant	M/s Laxmi Continental Construction Co.
Respondent	State of U.P. & Anr.
Judiciary	Supreme Court of India
Bench	·         Hon’ble Justice M R Shah ·         Hon’ble Justice A S Bopanna
Date of judgment	Sept. 20, 2021

PART - A: OVERVIEW

·     The Apex Court on the 20^th day of September 2021 rendered its judgment in an appeal preferred by the Appellant in the jurisdiction of the Hon’ble Supreme Court against the order passed by a bench of Hon’ble Uttaranchal High Court which set aside the order passed by Civil Judge (Senior Division), Roorkee, which upheld the award passed by Arbitrator under the Arbitration Act, 1940 (hereinafter “the Arbitration Act”).

·    The highest judiciary expounded view on whether condition of retirement of office of a person appointed as an arbitrator, which was set as pre-requisite qualification for appointment as an arbitrator would negate the arbitration proceedings consequent to such retirement.   

PART – B: FACTS OF THE CASE

·    The Appellant was engaged in business of construction, earthwork and undertook related contract work from various different parties.

·      The Appellant and Respondent entered into an agreement through which the Appellant was engaged by the Respondent for earthwork including lining of specific area. The agreement provided that all the disputes and differences between the parties were to be settled through arbitration, which was embedded in clause 52 of the agreement.

·     Clause 52 also provided for the mechanism for appointment of arbitrator, wherein it was specifically emphasised that “Within thirty days of receipt of notice from the contractor of his intention to refer the dispute to arbitration, the Chief Engineer shall send to the contractor a list of three officers of the rank of Superintending Engineer or higher, who have not been connected with the work under this contract.” The contractor was to recommend one name to the Chief Engineer, who in turn was to be appointed as the sole arbitrator by the Chief Engineer. 

·     During the course of the contract work, several disputes and differences arose between the parties and the matters were referred to arbitration.

·      In pursuance of the clause 52, one Shri S.S. Manocha, who was also a Chief Engineer was appointed as the sole arbitrator for adjudging the disputes between the parties. The arbitration proceedings were held subsequently and both the parties presented their cases including the necessary documents in support thereof.

·         However, due to the conduct of Respondent, the proceedings were adjourned at different instances.

·     During the proceedings, Shri S.S. Manocha, the sole arbitrator superannuated as the Chief Engineer on completion of superannuation age on 30.11.1995. The Respondents contended that the arbitration proceedings shall not subsist any further since the arbitrator retired due to superannuation.

·   The Appellant instituted an arbitration suit before Civil Judge (Senior Division), Roorkee under Section 28 of the Arbitration Act, 1940 praying for extension of time for making the award and for hearing and conducting the arbitration, which the Judge ruled in favor of the Appellant and granted a period of 30 days for disposing the proceedings and passing an award.

·       In compliance with the order issued by Civil Judge, proceedings were held and the arbitrator passed an award directing the Respondent to pay a sum of Rs.10,97,024.00/- with interest on the said sum to the Appellant, which the Respondent challenged before the Civil Judge under Section 30/33 of the Arbitration Act, 1940 contending that the award was void since the arbitrator retired prior to the conclusion of the proceedings, which was overruled by the Civil Judge.

·    Being dissatisfied by the order passed by Civil Judge, the Respondent filed an appeal before the Uttaranchal High Court wherein the High Court opined that conducting arbitration proceedings consequent to the retirement from the position that facilitated the appointment as arbitrator would tantamount to misconduct on the part of the arbitrator and hence the award was liable to be set aside.

·     Being aggrieved by the conclusion found by High Court, the Appellant preferred an appeal before the jurisdiction of the Hon’ble Supreme Court.

PART - C: CONTENTION OF THE PARTIES

C.1. CONTENTIONS OF THE APPELLANT

The Appellant during the course of appeal to the Apex Court made the following submissions:

·       The High Court has erred in brushing aside the order passed by Civil Judge and the award passed by the arbitrator.

·      Both parties are bound by the arbitration carved out under clause 52 of the agreement. Further, the process of appointment of arbitrator was duly followed and Shri S.S. Manocha bearing the rank of Chief Engineer was appointed as arbitrator.

·      The agreement did not provide that Shri S.S. Manocha would continue as arbitrator till he retires and the proceedings shall cease to continue once he attains superannuation. In the absence of an expressed provision, the arbitration proceedings shall continue even after the retirement of Shri S.S. Manocha from the position of Chief Engineer.

·     The Respondent participated in the arbitration proceedings even after Shri S.S. Manoch attained superannuation, which was upheld by the Civil Judge, which was failed to be appreciated by the High Court.

·    The order of Civil Judge, Roorkee extending the period of arbitration proceedings consequent to superannuation of the arbitrator remained unchallenged and attained finality.

C.2. CONTENTIONS OF THE RESPONDENT

The Respondent during the course of appeal to the Apex Court relied on the following submissions:

·    Shri S.S. Manocha attained the age of superannuation and was not in position to continue as Chief Engineer thereby bringing an end to his mandate as an arbitrator and a new arbitrator is required to be nominated pursuant to clause 52 of the agreement.

·     Objection was raised against the continuance of proceedings consequent to the superannuation of Shri S.S. Manocha which was ignored and proceedings were held. This was taken on record by the High Court. Therefore the conduct of S.S. Manocha tantamount to misconduct and the award passed is liable to be set aside.

·      Reliance is placed in Section 4 of the Arbitration Act, emphasis on state amendment to the State of Uttar Pradesh, wherein it is stated that where any appointed arbitrator who neglects or refuses to act, or becomes incapable of acting or dies, the vacancy shall be supplied by the person designated as mentioned in sub-section (1) of Section 4 of the Arbitration Act.

PART – D: QUESTION OF LAW INVOLVED

The perusal of the case by different levels of judiciary in the case under consideration has raised the following questions of law involved:

a.  Does the retirement of an officer who was appointment as an arbitrator pursuant to an agreement endorse the conclusion of arbitration proceedings thereat?

b.  Whether prolongation of arbitration proceedings consequent to retirement of arbitrator tantamount to misconduct?

PART – E: RULING BY THE APEX COURT

·      Upon inspection of clause 52 of the agreement, it is observed that sole qualification for appointment as an arbitrator is that he should be the officer of the rank of the Superintending Engineer or higher.

·     Consequent to appointment of a person as an arbitrator, the proceedings shall be convened under such an arbitrator unless he incurs the disqualification under the provisions of the Indian Arbitration Act, 1940.

·      Clause 52 does not reflect that superannuation of an arbitrator shall be a ground for termination of arbitration proceedings.

·     Identical question was answered in case of Himalayan Construction Co. v. Executive Engineer, Irrigation Division, J&K and Anr., (2001) 9 SCC 359, wherein it was reasoned by the apex court that appointment of an arbitrator considering his designation was a pre-requisite requirement and any conduct be it by himself or due to the afflux of time consequent to his appointment does not render the proceedings invalid, unless the arbitrator meets disqualification under the law.

·      Considering Clause 52 of the agreement, it cannot be said that Shri Manocha’s mandate to continue with the arbitration proceedings would come to an end on his retirement.

·      The Civil Judge, Roorkee after hearing the parties allowed extension to the arbitration proceedings for a further period of 30 days which was enforced and attained finality, being unchallenged by the Respondent until the enforcement of such order. It is not prudent that the issue is to be looked towards again.

·      State amendment through Section 4 does not find substance since arbitrator has not acted beyond his capacity and it is not right to term that the arbitrator was incapable of continuing the proceedings considering the reasoning provided above.

·      The Civil Judge, Roorkee after hearing the parties allowed extension to the arbitration proceedings for a further period of 30 days. The arbitrator has proceeded to continue the proceedings consequent to the order by Civil Judge which in so far does not equate to misconduct on his part.

·       The order passed by the High Court deserves to be set aside. The award passed by the arbitrator and the Civil Judge stands restored.

PART – F: ANALYSIS

·      Section 2(a) of the Arbitration Act defines arbitration agreement as to mean a written agreement to submit present future differences to arbitration, whether an arbitrator is named therein or not. Section 3 of the Act read with Schedule I sets out the provisions that shall be implied and deemed to be present in the arbitration agreement or clause, in the absence of a contrary intention expressed therein.

·      However, upon a wider inspection it is understood that, save as otherwise for the implied provisions embedded in Schedule I thereto, all other intentions / provisions adjoining arbitration are to be necessarily expressed in the arbitration agreement / clause.

·     Hence, unless the clause specified that the arbitration proceedings shall culminate consequent to the retirement of the arbitrator, the challenge against the same shall be devoid of merit as the parties never intended the same at the time when the clause was drafted.

·     Both parties consciously participated in the arbitration proceedings after the order of Civil Judge, which in absence of being challenged waived off the jurisdictional objection against the conduct of the arbitrator.

·       The established proposition with respect to conduct of the arbitrator and the arbitral proceedings are laid down and flows down from the arbitration agreement. Therefore it can be rightly termed that aspect of arbitration cannot supersede its Constitution. The Calcutta High Court in Union of India v. Surendranath Kanungo and Anr. (2005 (2) ARBLR 106 Cal) postulated that while deciding the question of jurisdiction in the context of the question raised by the parties it is necessary to examine the scope and content of arbitration agreement itself in as much as, the scope and authority of the Arbitrator emanates from the agreement itself as it is settled position of law.

·    The opinion chalked out by Delhi High Court in Lloyd Insulations (India) Pvt. Ltd. v. Cement Corporation of India Ltd. (1994 (31) DRJ 86) on the character of an arbitrator is extremely importance and unmissed. The Court opined that an arbitrator is deemed to be an independent person and his retirement has no relevance for his continuation as an arbitrator. Relying on this opinion, it can be substantiated that designation or position of an arbitrator which, was relevant at the time of considering his appointment in statutory terms does not percolate towards the termination of proceedings consequent to his retirement.

·    It is imperative to note the dictum in Union of India and Others v. M/B. Prabhat Kumar & Brothers (AIR 1994 SC 649). The Apex Court upheld that the Arbitrator appointed by the Government ceased to be an arbitrator consequent to his retirement. The terms and conditions with respect to appointment of an arbitrator, supplementing the arbitration clause, in particular the language employed in condition 70 categorically stated that a new arbitrator shall be appointed in place of the former consequent to retirement. This view was also affirmed consequently in People Co-Operative Labour & Ors. v. Union of India and Anr. (71 (1997) DLT 106).

The Judgment can be accessed at:

https://main.sci.gov.in/supremecourt/2007/20200/20200_2007_43_1501_30172_Judgement_20-Sep-2021.pdf

 

DISCLAIMER:

This is a personal blog. Any views or opinions represented in this blog are personal and belong solely to the blog owner and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. All content provided on this blog is for informational purposes only. The owner will not be liable for any losses, injuries or damages from the display or use of this information.