HYDROELECTRIC PROJECT AUTHORITY, BHUTAN versus LARSEN & TOUBRO LTD.
[2021] 1 S.C.R. 587, Supreme Court of India, 2021
Outcome: Disposed off
Segment: Ratio
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   [2021] 1 S.C.R. 587
587
PUNATSANGCHHU – 1 HYDROELECTRIC PROJECT
AUTHORITY, BHUTAN
v.
LARSEN & TOUBRO LTD.
(Civil Appeal No. 693 of 2021)
FEBRUARY 22, 2021
[INDU MALHOTRA AND AJAY RASTOGI, JJ.]
Arbitration and Conciliation Act, 1996 – s.11 – Contract
between appellant-authority and respondent-contractor in relation
to a Hydro-electric Project in Bhutan – Disputes between the parties
– Respondent sent notice of arbitration to appellant under Clause
67 (ii) of the contract, and nominated its own nominee arbitrator –
Appellant stated it was agreeable for arbitration; however,
arbitration would be governed by Alternative Dispute Resolution
Act, 2013 of Bhutan and the place of arbitration shall be at Thimphu,
Bhutan – Thereafter, respondent filed application u/s.11(6) of the
Act, 1996 before High Court for appointment of arbitrator on behalf
of appellant – High Court held that Clause 67 (ii) of the contract
did not indicate that applicability of the 1996 Act would cease on
enactment of the Bhutan Act of 2013 – Since appellant had failed
to appoint its arbitrator, High Court exercised its jurisdiction u/
s.11, and made the appointment and further directed that the two
arbitrators would proceed to appoint the presiding arbitrator, and
the arbitral proceedings would be governed by the provisions of
the 1996 Act – Hence the instant appeal – Meanwhile, the arbitral
tribunal was constituted, as the two arbitrators had appointed a
presiding arbitrator – However,
thereafter, consensus arrived at
between appellant and respondent with respect to the applicable
statute and the seat of arbitration – Accordingly, order of High
Court modified to the extent that all disputes arising out of the
contract in question shall be conducted in accordance with the
Bhutan Act of 2013 with the seat of arbitration at Thimphu – The
tribunal will, however, be at liberty to conduct some of the hearings,
in consultation with the parties, at such venues as may be convenient
– Alternative Dispute Resolution Act, 2013 (enacted by Kingdom of
Bhutan).
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SUPREME COURT REPORTS
[2021] 1 S.C.R.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 693
of 2021.
From the Judgment and Order dated 11.12.2020 of the High Court
of Delhi at New Delhi in Arbitration Petition No. 461 of 2020.
Tushar Mehta, SGI Ranjeet Kumar, Gourab Banerjee, Sr. Advs.
Bharat Singh, Dhruv Gupta, Amit Pawan, Ananya Kumar, Rajat Joneja,
Ms. Neeharika Aggarwal, Divyam Agarwal, Advs. for the appearing
parties.
The following Order of the Court was passed:
ORDER
Leave granted.
1. On 14.04.2009, a Contract Agreement was executed between
the Appellant and the Respondent-Contractor for the Construction of
Diversion Tunnel, Dam, Intake and Desilting Arrangement including
Hydro-mechanical Works of the Punatsangchhu-I Hydro-electric Project
located in Wangdue Phodrang District in Bhutan. The contract provided
for resolution of disputes through arbitration. The relevant terms of the
Contract are as under :
Clause 5 (i) (b)
The law to which the Contract is to be subject and according to
which the Contract is to be construed shall be the law for the time
being in force in Bhutan and within the jurisdiction of Thimphu
courts.
Clause 67
(ii) Except where the decision has become final, binding and
conclusive in terms of Sub Para (i) above disputes or differences
shall be referred for arbitration through to an Arbitral Tribunal of
three arbitrators appointed jointly by the PHPA and the Contractor.
Where the mandate of an arbitrator terminates a substitute
arbitrator shall be appointed according to the rules that were
applicable to the appointment of the arbitrator being replaced.
In the absence of an Arbitration Act in Bhutan, the Arbitral Tribunal
shall follow / be guided by the basic principles and procedures as
contained in the Indian Arbitration and Conciliation Act 1996. The
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PUNATSANGCHHU – 1 HYDROELECTRIC PROJECT
AUTHORITY, BHUTAN v. LARSEN & TOUBRO LTD.
parties shall be free to agree on a procedure for appointing the
Arbitrators. Failing any agreement for appointment of Arbitrators,
each party shall appoint one Arbitrator and the two appointed
Arbitrators shall appoint the third Arbitrator, who shall act as the
presiding Arbitrator.
Clause 67 (iv)
If either of the parties fail to appoint its arbitrators in pursuance of
sub-clause (ii) above, within 30 days after the receipt of the notice
of the appointment of its arbitrators or the two appointed Arbitrators
fail to agree on third Arbitrator within thirty days from the date of
their appointment then the appointment shall be made, upon request
of a party, by the Chief Justice, Delhi High Court, India/Thimphu
High Court, Bhutan or any person or institutions designated by
him.
Clause 67 (vii)(a)
All arbitration shall be held at New Delhi, India/ Thimphu, Bhutan.
2. On 25.02.2013, the Kingdom of Bhutan enacted the Alternative
Dispute Resolution Act, 2013 (“the Bhutan Act”) to provide for settlement
of disputes through arbitration. The Act came into force w.e.f. 14.03.2013.
3. Disputes arose between the parties with respect to certain
claims made by the Respondent-Contractor.
On 28.07.2020, the Respondent-Contractor sent a notice of
arbitration to the Appellant-Authority under Clause 67 (ii) of the Contract,
and nominated a retired Judge of this Court as its nominee arbitrator.
4. In response to the Notice dated 28.07.2020, the Appellant replied
vide Letter dated 04.08.2020, stating that it was agreeable for settlement
of disputes through arbitration. However, as per Clause 67 (ii) of the
Contract, the arbitration would be governed by the Bhutan Act, 2013
and the place of arbitration shall be at Thimphu, Bhutan as provided by
Clause 67 (vii) (a).
5. In October, 2020, the Respondent-Contractor filed an application
u/S. 11 (6) of the Arbitration & Conciliation Act, 1996 before the Delhi
High Court for appointment of an arbitrator on behalf of the Appellant-
Authority.
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SUPREME COURT REPORTS
[2021] 1 S.C.R.
6. The Delhi High Court vide Order dated 11.12.2020 held that
Clause 67 (ii) of the Agreement did not indicate that the applicability of
the 1996 Act would cease on the enactment of the Bhutan Act. The
enactment of the Bhutan Act, 2013 would not result in the 1996 Act
becoming inapplicable. The arbitration would be governed by the 1996
Act. Since the Hydro-electric Authority had failed to appoint its arbitrator,
the Court exercised its jurisdiction u/S.11, and made the appointment. It
was further directed that the two arbitrators would proceed to appoint
the presiding arbitrator, and the arbitral proceedings would be governed
by the provisions of the 1996 Act.
7. Aggrieved by the Order dated 11.12.2020, the Hydro-electric
Authority filed the present special leave petition.
We have heard Mr. Tushar Mehta, learned Solicitor General of
India and Mr. Ranjeet Kumar, Senior Advocate on behalf of the Appellant-
Authority, and Mr. Gourab Banerji, Senior Advocate on behalf of the
Respondent-Contractor.
On 16.02.2021, the matter was taken up for admission hearing.
We were informed by the Senior Counsel for the parties that in the
meanwhile, the arbitral tribunal had been constituted, as the two arbitrators
had appointed Justice (Retd.) R.C. Lahoti, former Chief Justice of India,
as the presiding arbitrator.
The learned Solicitor General appearing on behalf of the Authority
fairly submitted that the Appellant herein did not have
an issue with
respect to the panel of arbitrators appointed for adjudication of the
disputes. Their grievance was limited to the applicability of the Indian
Arbitration & Conciliation Act, 1996 and the seat of arbitration at New
Delhi.
8. The matter was then taken up on 22.02.2021 for further hearing.
Mr. Gourab Banerji, learned Senior Advocate for the Respondent-
Contractor submitted that his clients were agreeable to the arbitration
being conducted in accordance with the Alternative Dispute Resolution
Act, 2013 of Bhutan, with the seat of arbitration at Thimphu.
9. In view of the consensus arrived between the parties, the Order
of the High Court stands modified to the extent that all disputes arising
out of the Agreement dated 14.04.2009 shall be conducted in accordance
with the Alternative Dispute Resolution Act of Bhutan, 2013 with the

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seat of arbitration at Thimphu. The tribunal will, however, be at liberty to
conduct some of the hearings, in consultation with the parties, at such
venues as may be convenient.
The Civil Appeal is disposed of, with no order as to costs.
Pending applications, if any, shall stand disposed of.
Devika Gujral
Appeal disposed of.
PUNATSANGCHHU – 1 HYDROELECTRIC PROJECT
AUTHORITY, BHUTAN v. LARSEN & TOUBRO LTD.