Case: Union of India (UOI) Vs. U.P. State Bridge Corporation Ltd

In order to determine the controversy that is raised in this appeal, which is filed by the Union of India, challenging the decision dated 03.08.2011 of the High Court, minimal facts which require a mention, are theAppellant had entered into an agreement with the Respondent vide which contract for construction of guide bunds, foundation and substructure of Rail Bridge across river Gangaes near Digha Ghat, Patna and the said agreement contained various terms and conditions. Clause 64(1)(ii) of the General Condition of the Contract 2001 (for short the GCC), contained an arbitration clause that is provided for deciding the dispute between the parties through arbitration by an arbitral tribunal to be constituted in terms of the said agreement.Disputes arose between the parties with respect to the said contract and on the request of the Respondent an arbitral tribunal of the persons was constituted in the year 2007, in which all the members were Railway authorities. It is a matter of regret that inspite of expiry of four years, the said tribunal did not complete the arbitral proceeding and the matter kept hanging due to transfers/retirement/adjournments etc.The Respondent felt exasperated due to the prolongation of the matter before the arbitral tribunal and chose to file Request Case No. 10/2010. Even at the time of filing of that case, there was a vacancy in the Arbitral Tribunal. When this case was taken up by the High Court on 09.03.2011, by that time, the Appellant had filled up the said vacancy. Taking note thereof, the said petition was disposed of by the High Court vide order dated 09.03.2011 giving the last chance to the Arbitral Tribunal to complete the arbitral proceeding within a period of three months with direction to hold regular sittings at Patna from the date of receipt/production of a copy of the said order. It was also stated in the order dated 09.03.2011 that if arbitration proceedings are not completed within the period fixed by the Court, the Respondent would be at liberty to approach the Court again and the Court would be constrained to pass appropriate order in accordance with the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act).4. The Arbitral Tribunal was made aware of the said order as the copy thereof was produced before it on 25.03.2011. This means that it was supposed to complete the case by 25.06.2011. However, even within the said allotted time, the proceedings were not brought to an end and, therefore, the Respondent filed Request Case No. 3/2011 datedAppellant contested the aforesaid petition of the Respondent on various grounds and also gave its own reasons because of which the Arbitral Tribunal would not complete the proceedings. It was also pointed out that though the Arbitral Tribunal was ready to hear the case of the parties and decide it finally on 22.07.2011, the Respondent had informed the Tribunal of the filing of the said petition which led to the adjournment of the matter by the Tribunal.5. The High Court took note of the various dates of hearings that are fixed by the Tribunal between 25.03.2011 and 25.06.2011 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. 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.6. In the instant appeal, challenge is made to the aforesaid judgment of the High Court with the plea that it was not open to the High Court to appoint the sole arbitrator as it was not empowered to constitute Arbitral Tribunal of its own and, that too, contrary to the arbitration clause.

Court's reasoning:
9. As is clear from the reading of Section 14, when there is a failure on the part of the Arbitral Tribunal to act and it is unable to perform its function either de jure or de facto, it is open to a party to the arbitration proceedings to approach the Court to decide on the termination of the mandate. Section 15 provides some more contingencies when mandate of an arbitrator can get terminated. In the present case, the High Court has come to a categorical finding that the Arbitral Tribunal failed to perform its function, and rightly so. It is a clear case of inability on the part of the members of the Tribunal to proceed in the matter as the matter lingered on for almost four years, without any rhyme or justifiable reasons. The members did not mend their ways even when another life was given by granting three months to them. Virtually a preemptory order was passed by the High Court, but the Arbitral Tribunal remained unaffected and took the directions of the High Court in a cavalier manner. Therefore, the order of the High Court terminating the mandate of the arbitral tribunal is flawless. This aspect of the impugned order is not even questioned by the Appellant at the time of hearing of the present appeal.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.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 Art.136 of the Constitution of India.In the present case, we find the fact situation almost same as in Tripple Engineering Works (supra) and Singh Builders Syndicate (supra). If the contention of the Appellant is allowed, it would amount to giving premium to the Appellant for the fault of the Arbitral Tribunals members who were appointed by none else but by Appellant itself. As pointed above, the Appellant has not questioned the order of the High Court in so far as it has terminated the mandate of the earlier Arbitral Tribunal because of their inability to perform the task assigned to them. In such a situation, leaving the Respondent at the mercy of the Appellant thereby giving the power to the Appellant to constitute another Arbitral Tribunal would amount to adding insult to the serious injury already suffered by the Respondent because of non conclusion of the arbitral proceedings even when the dispute were raised in the year 2007. In case, the cherished and benevolent purpose and objective of speedy resolution of the disputes by arbitral proceedings is to be accomplished, it becomes the bounden duty of the persona designata to appoint such arbitrator(s) who have sufficient time at their disposal to attend to this task assigned to them and to conclude the arbitral proceedings in a speedily manner. It is a common sight that the officers who are awfully busy in their other routine functions, because of their status and position, are made arbitrators. For them, discharge of their other duties assumes more importance (and naturally so) and their role as the arbitrators takes a back seat. This kind of behaviour showing casual approach in arbitration cases is anathema to the very genesis of arbitration. Therefore, where the Government assumes the authority and power to itself, in one sided arbitration clause, to appoint the arbitrators in the case of disputes, it should be more vigilant and more responsible in choosing the arbitrators who are in a position to conduct the arbitral proceedings in an efficient manner, without compromising with their other duties. Time has come when the appointing authorities have to take call on such aspects failing which (as in the instant case), Courts are not powerless to remedy such situations by springing into action and exercising their powers as contained in Section 11 of the Act to constitute an Arbitral Tribunal, so that interest of the other side is equallydoubt, ordinarily that would be the position. The moot question, however, is as to whether such a course of action has to be necessarily adopted by the High Court in all cases, while dealing with an application Under Section 11 of the Act or there is a room for play in the joints and the High Court is not divested of exercising discretion under some circumstances? If yes, what are those circumstances? It is this very aspect which was specifically dealt with by this Court in Tripple Engineering Works (supra). Taking note of various judgments, the Court pointed out that the notion that the High Court was bound to appoint the arbitrator as per the contract between the parties has seen a significant erosion in recent past. In para 5 of the said decision, those judgments where departure of the aforesaid "classical notion" has been made are taken note of.e 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 faraway places should be avoided. There can be norule, but there should be a conscious effort to ensure that the Arbitral Tribunal is constituted promptly and arbitration does not drag on for years and decades.18. 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 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.In the present case, we find the fact situation almost same as in Tripple Engineering Works (supra) and Singh Builders Syndicate (supra). If the contention of the Appellant is allowed, it would amount to giving premium to the Appellant for the fault of the Arbitral Tribunals members who were appointed by none else but by Appellant itself. As pointed above, the Appellant has not questioned the order of the High Court in so far as it has terminated the mandate of the earlier Arbitral Tribunal because of their inability to perform the task assigned to them. In such a situation, leaving the Respondent at the mercy of the Appellant thereby giving the power to the Appellant to constitute another Arbitral Tribunal would amount to adding insult to the serious injury already suffered by the Respondent because of non conclusion of the arbitral proceedings even when the dispute were raised in the year 2007. In case, the cherished and benevolent purpose and objective of speedy resolution of the disputes by arbitral proceedings is to be accomplished, it becomes the bounden duty of the persona designata to appoint such arbitrator(s) who have sufficient time at their disposal to attend to this task assigned to them and to conclude the arbitral proceedings in a speedily manner. It is a common sight that the officers who are awfully busy in their other routine functions, because of their status and position, are made arbitrators. For them, discharge of their other duties assumes more importance (and naturally so) and their role as the arbitrators takes a back seat. This kind of behaviour showing casual approach in arbitration cases is anathema to the very genesis of arbitration. Therefore, where the Government assumes the authority and power to itself, in one sided arbitration clause, to appoint the arbitrators in the case of disputes, it should be more vigilant and more responsible in choosing the arbitrators who are in a position to conduct the arbitral proceedings in an efficient manner, without compromising with their other duties. Time has come when the appointing authorities have to take call on such aspects failing which (as in the instant case), Courts are not powerless to remedy such situations by springing into action and exercising their powers as contained in Section 11 of the Act to constitute an Arbitral Tribunal, so that interest of the other side is equally