2012 (12) TMI 1257 - SC - Indian Laws

Contractor's Appeal Dismissed, Arbitrator's Award Upheld

M/s. LADLI CONSTRUCTION CO. (P) LTD. Versus PUNJAB POLICE HOUSING CORPN. LTD. & others

The Supreme Court dismissed the contractor's appeal, affirming the lower courts' judgments. The contractor's claims of bias were unfounded, and the ... Whether on facts, the Contractor has been able to establish that the arbitrator was biased against it ? Held that:- Appeal dismissed. Except raising the vague and general objections that the arbitrator was biased and had predisposition to decide against the Contractor, no materials, much less cogent materials, have been placed by the Contractor to show bias of the arbitrator. No sufficient reason appears on record as to why the arbitrator should not have proceeded with the arbitral proceedings. The test of reasonable apprehension of bias in the mind of a reasonable man is not satisfied in the factual situation Issues Involved:1. Delay in construction and rescission of contract.2. Appointment and removal of the arbitrator.3. Allegations of bias against the arbitrator.4. Validity of the arbitration award.5. Legal principles regarding bias and arbitration agreements.Issue-wise Detailed Analysis:1. Delay in Construction and Rescission of Contract:The contractor, M/s Ladli Construction Co. (P) Ltd., entered into a contract with the Punjab Police Housing Corporation Limited for constructing 240 houses. The contract stipulated that 'time was essence of the contract.' The contractor failed to maintain the time schedule, leading the Corporation to rescind the contract under Clause 3 and assign the remaining work to another contractor.2. Appointment and Removal of the Arbitrator:The contractor moved the court for appointing an arbitrator under Clause 25A of the contract. The Sub Judge appointed the Chief Engineer of the Corporation as the arbitrator. The contractor later sought the arbitrator's removal, alleging bias, but the Sub Judge dismissed this application and made the award rule of the court.3. Allegations of Bias Against the Arbitrator:The contractor argued that the arbitrator, being the Chief Engineer of the Corporation, was biased as he was involved in the inspection and termination of the contract. The contractor highlighted that the arbitrator conducted the proceedings swiftly and concluded them while the removal application was pending. However, the court found no evidence of bias, noting that the contractor had initially agreed to the arbitrator's appointment and failed to provide substantial reasons for the alleged bias.4. Validity of the Arbitration Award:The arbitrator proceeded ex parte when the contractor did not appear and awarded the Corporation's claims, including interest on unutilized secured advances. The contractor challenged the award, but the District Judge and High Court upheld it, finding no misconduct or bias. The arbitrator's actions were deemed fair and in accordance with the contract and legal principles.5. Legal Principles Regarding Bias and Arbitration Agreements:The court reiterated that a contractor bound by an agreement to arbitrate disputes with a designated engineer must adhere to it unless substantial evidence of bias exists. Mere apprehensions or vague suspicions are insufficient. The court cited precedents emphasizing that an arbitrator must act fairly and without bias, but a pre-existing role or opinion does not automatically disqualify them.Conclusion:The Supreme Court dismissed the contractor's appeal, affirming the lower courts' judgments. The contractor's claims of bias were unfounded, and the arbitrator's award was upheld. The court emphasized adherence to arbitration agreements and the necessity of substantial evidence to prove bias.