TaxTMI 
TaxTMI 
2025 (11) TMI 2042
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....bitration is often a friend in conferences but a foe in practice. Its raison d'etre has always been to ease the burden on courts and to ensure the expeditious resolution of commercial disputes. Yet, this is not its only virtue. The true advantage of arbitration lies in its freedom and flexibility, with party autonomy as the cornerstone of the arbitral process. 3.1. Parties enjoy the liberty to determine the strength and composition of the tribunal, to appoint domain experts as arbitrators, and to design procedures suited to the nature and complexity of their disputes. This freedom allows them to bring to the table expertise and insight that even a judge may not be able to contribute. 3.2. However, parties often embrace arbitration in good times, only to resist or manipulate it when disputes actually arise - seeking either to wiggle out of arbitration altogether or to tilt the process unfairly in their favour. In such situations, judicial intervention becomes inevitable and rightly so to safeguard fairness and the integrity of the arbitral process. 3.3. The evolution of the judicial role from that of a helicopter parent to that of a guardian angel of arbitration has been ne....
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....ising fresh claims relating to extension of time for completion of works and compensation for the additional costs incurred during the extended period. However, no response was received, and the appeal to the Managing Director also remained undecided. 4.4. On 10.01.2020, the appellant issued a notice of intention to commence arbitration and sought appointment of an arbitrator for adjudication of the aforesaid disputes. As the Managing Director failed to act, the appellant filed another petition under Section 11 of the A&C Act before the Patna High Court, being Request Case No. 53 of 2020, for appointment of arbitrator. 4.5. By judgment dated 18.08.2021, the High Court appointed Justice Shivaji Pandey (Retd.) as the sole arbitrator to adjudicate all disputes arising out of the contract dated 04.03.2014. 4.6. Upon completion of pleadings, the parties jointly sought extension of the mandate under Section 29A of the A&C Act. The arbitrator, by order dated 11.03.2023, extended the mandate for six months. As the extended period was to expire on 27.08.2023, both parties sought liberty to approach the Court for further extension. The arbitrator, by order dated 17.06.2023, granted ....
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....and proceeded to dismiss Section 11 petition itself, thereby nullifying its own subsisting order and acting in excess of jurisdiction. 5.2. Without prejudice to the above, it was submitted that the review petition was hopelessly barred by limitation, having been filed more than three years after the order of appointment had been passed and fully acted upon by both sides. Even assuming that a review was maintainable in law, it could not have been entertained after such an inordinate and unexplained delay. 5.3. The learned senior counsel submitted that Clause 25 of the agreement contains a valid arbitration clause in writing, clearly manifesting the parties' intention to refer all or certain disputes arising out of the contract to arbitration. The language of the clause leaves no ambiguity regarding the parties' intention to submit their disputes to an arbitral forum. Consequently, the High Court's finding that Clause 25 was not an arbitration clause is misconceived, untenable, and contrary to the settled position of law. 5.4. It was pointed out that the appellant had duly complied with the prearbitral procedure prescribed under Clause 25 by referring the dispute to the Depu....
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.... that in their reply to the Section 11 petition, the respondents had categorically admitted that Clause 25 of the agreement provided for arbitration. Such admission, coupled with its active participation in the proceedings, conclusively establishes the existence of a valid arbitration agreement. The plea of non-arbitrability was raised for the first time only in the review petition and was initially rejected. The review was allowed only to the limited extent of substituting the arbitrator since Justice Shivaji Pandey had been appointed as President, State Consumer Protection Commission, Meghalaya. Despite this, the High Court subsequently dismissed the Section 11 petition in its entirety. 5.10. It was further contended that unilateral appointment of an arbitrator has been held to be impermissible in law. Hence, the only option available to the appellant was to invoke the jurisdiction of the High Court under Section 11(6) of the A&C Act. The High Court, however, by enforcing a clause of unilateral appointment, acted contrary to the principles laid down by this Court in TRF Ltd v. Energo Engineering Projects Ltd (2017) 8 SCC 377, and Perkins Eastman Architects DPC and another v. H....
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.... Kashish Developers. 5.15. Accordingly, it was prayed that this Court may be pleased to set aside the impugned judgment dated 09.12.2024, restore the validity of the arbitration proceedings pursuant to the order dated 18.08.2021, and either appoint a substitute arbitrator itself or direct the High Court to do so within a time-bound period. 6. Per contra, the learned counsel for the respondents submitted that the present dispute does not merely raise questions on the enforceability of unilateral appointment but brings to light an uncommon yet valid manifestation of party autonomy, where the contract explicitly restricts arbitration to a single prescribed method and thereby excludes all alternate routes to arbitration. 6.1. According to the learned counsel, the specific question, as to whether an arbitration clause which stipulates the unilateral appointment of an arbitrator by one party and further provides that no arbitration shall be held if such appointment cannot be made, can still be said to constitute a valid and subsisting arbitration agreement, has not been directly adjudicated upon by this Court and thus requires authoritative determination. 6.2. It was further ....
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.... as a contingent contract under Section 31 of the Indian Contract Act, 1872. The first part constitutes a positive covenant for arbitration by an arbitrator appointed by the Managing Director, while the second part provides that if such appointment cannot be made, there shall be no arbitration. Upon the unilateral appointment clause being rendered unenforceable by law, the contingency contemplated in the first part became impossible, triggering the operation of the second part under Section 33 of the Contract Act. Consequently, the clause itself dictates that no arbitration shall take place. 6.6. The learned counsel further submitted that the principle of party autonomy, as reaffirmed in CORE, remains the foundational norm of arbitration, subject to statutory limitations and the principle of equality. However, party autonomy cannot be invoked to rewrite the parties' agreement. In Vidya Drolia and others v. Durga Trading Corporation (2021) 2 SCC 1, this Court held that the scope and existence of arbitration depend on the subjective will of the parties as expressed in the arbitration agreement. If the parties have agreed that arbitration shall not be held unless a specific mode of....
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....n view of the foregoing, it was submitted that the arbitration agreement in the present case has been rendered inoperative and unenforceable by operation of law. The second part of Clause 25 constitutes a binding negative covenant reflecting the parties' express intention to exclude arbitration if the Managing Director is unable to appoint an arbitrator. Any attempt by the Court to appoint an arbitrator notwithstanding this stipulation would amount to rewriting the contract and negating party autonomy. The impugned order, therefore, correctly concludes that no arbitration agreement exists between the parties, and the appeal deserves to be dismissed. 7. We have considered the submissions advanced by learned counsel for both sides and have meticulously examined the materials placed on record. 8. Apparently, there was an express agreement dated 04.03.2014 between Respondent No.1 and the appellant for award of the contract for construction of a bridge over River Sone in the Districts of Aurangabad and Rohtas. Clause 25 thereof provided for settlement of disputes through arbitration. The appellant's claim for additional costs / losses incurred during the original contract period, ....
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....between the parties within the meaning of Section 7 of the A&C Act, and whether clause 25 of the contract satisfies the statutory requirements of a binding arbitration clause. (iii) whether the joint application filed by both parties, seeking extension of the arbitrator's mandate under Section 29A constitutes an express or implied waiver of the ineligibility under Section 12(5), and Section 4 of the Act. 10. Before proceeding further, it is apposite to look into the relevant provisions of the Arbitration and Conciliation Act, 1996, as follows: "2. Definitions. -(1) In this Part, unless the context otherwise requires, - (b) "arbitration agreement" means an agreement referred to in section 7; 4. Waiver of right to object.-A party who knows that- (a) any provision of this Part from which the parties may derogate, or (b) any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his righ....
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....discharging the functions and duties of arbitral institution and any reference to the arbitrator shall be deemed to be an arbitral institution for the purposes of this section and the arbitrator appointed by a party shall be entitled to such fee at the rate as specified in the Fourth Schedule: Provided further that the Chief Justice of the concerned High Court may, from time to time, review the panel of arbitrators. (4) If the appointment procedure in sub-section (3) applies and- (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, [the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be]. (5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fai....
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....ent time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Explanation1.-The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Explanation 2.-The disclosure shall be made by such person in the form specified in the Sixth Schedule. (2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. (3) An arbitrator may be challenged only if- (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. (5) Notwithstanding any prior agreeme....
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....its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,- (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. (4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified. (5) The arbitral tribunal shall decide on a....
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....ervention, and procedural self-sufficiency. Section 5 expressly restricts judicial interference except as provided under the Act, reflecting the pro arbitration intent of the legislature. Once the parties have agreed to resolve their disputes through arbitration, and such agreement satisfies the requirements of Section 7, the Court's role becomes largely facilitative - confined to enabling, not obstructing, the arbitral process. 10.2. Section 11 delineates the mechanism for the appointment of arbitrators and underscores the neutrality of the arbitral process by empowering the High Courts and this Court to intervene only where the parties or the designated authorities fail to act. Importantly, sub-section (6) confers a default power upon the Court to secure such appointment when the agreed procedure breaks down, while Section 11(8) reinforces independence and impartiality through mandatory disclosures under Section 12(1). 10.3. Section 12(5) renders persons having relationships enumerated in the Seventh Schedule ineligible for appointment as arbitrators, subject only to an express written waiver executed after the disputes have arisen. This provision marks a deliberate shift f....
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....wider inquiry recognized in SBP & Co. v. Patel Engineering Ltd. and another (2005) 8 SCC 618. 11.4. Section 5 of the A&C Act begins with a non-obstante clause that expressly restricts judicial intervention only to situations enumerated under the Act. The statute identifies specific points for court involvement - principally under Sections 8, 9, 11, 29A, 34 and 37 - beyond which judicial interference is prohibited. 11.5. In the seven-Judge Bench decision in Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, In re (2024) 6 SCC 1, this Court reaffirmed that the role of the referral court under Section 11 is confined to a prima facie examination of the existence of an arbitration agreement. All other questions including validity, enforceability, and jurisdiction are matters for the arbitral tribunal under Section 16. The Court further emphasized that the Arbitration Act is a self-contained code governed by the principle that what is not expressly permitted under the Act is deemed prohibited. The following passages from Interplay highlight that minimal judicial intervention is the governing principle and that referral courts ....
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....hat is permissible under the law ought to be performed only in the manner indicated, and not otherwise. Accordingly, matters governed by the Arbitration Act such as the arbitration agreement, appointment of arbitrators and competence of the Arbitral Tribunal to rule on its jurisdiction have to be assessed in the manner specified under the law. The corollary is that it is not permissible to do what is not mentioned under the Arbitration Act. Therefore, provisions of other statutes cannot interfere with the working of the Arbitration Act, unless specified otherwise. 94. The Arbitration Act represents the principles of modern arbitration, which seeks to give effect to the mutual intention of the parties to resolve their disputes by a neutral third-party Arbitral Tribunal, whose decision is final and binding on all the parties. Arbitration law allows the parties to design arbitral procedures, which ensures efficiency and expediency of the arbitration process. One of the reasons that business and commercial entities prefer arbitration is because it obviates cumbersome judicial processes, which can often prove expensive, complex and interminable. Most legal jurisdictions have al....
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.... determine the existence of an arbitration agreement - whether the underlying contract contains an arbitration agreement which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. Therefore, the scope of examination under Section 11(6-A) should be confined to the existence of an arbitration agreement on the basis of Section 7. Similarly, the validity of an arbitration agreement, in view of Section 7, should be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. This interpretation also gives true effect to the doctrine of competence-competence by leaving the issue of substantive existence and validity of an arbitration agreement to be decided by Arbitral Tribunal under Section 16. ... 166. The burden of proving the existence of arbitration agreement generally lies on the party seeking to rely on such agreement. In jurisdictions such as India, which accept the doctrine of competence-competence, only prima facie proof of the existence of an arbitration agreement must be adduced before the Referral Court. The Referral Court is not the appropriate forum to conduct a mi....
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....lity principle under the Arbitration Act. (Emphasis Supplied) Thus, the entire scheme of the Act strongly discourages any mid-way judicial intervention, especially by way of review, as it would run contrary to both the text and the spirit of the statute. 11.7. Although the power exercised by the High Court under Section 11 is judicial in nature post - SBP & Co. case, its scope remains narrow. Once an arbitrator is appointed, the arbitral process must proceed unhindered. There is no statutory provision for review or appeal from an order under Section 11, which reflects a conscious legislative choice. 11.8. While High Courts, as courts of record, do possess a limited power of review, such power is extremely circumscribed in matters governed by the Arbitration Act. It may be exercised only to correct an error apparent on the face of the record or to address a material fact that was overlooked. It cannot be used to revisit findings of law or reappreciate issues already decided. 11.9. In Grindlays Bank Ltd v. Central Government Industrial Tribunal and others (1980) supp SCC 420, this Court drew a clear distinction between procedural review and review on merits....
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....under a misapprehension by it, and (2) a review on merits when the error sought to be corrected is one of law and is apparent on the face of the record. It is in the latter sense that the Court in Patel Narshi Thakershi case (AIR 1970 SC 1273) held that no review lies on merits unless a statute specifically provides for it. Obviously when a review is sought due to a procedural defect, the inadvertent error committed by the Tribunal must be corrected ex debito justitiae to prevent the abuse of its process, and such power inheres in every Court or Tribunal.'' "27. We reject the plea of the learned counsel for the petitioner that on termination of proceedings under Section 25(a) of the said Act, the Arbitrator becomes functus officio, as he is a persona designata. Both the methods of appointment of Arbitrator are possible, i.e. by consent or through the process of Court. The position would not be different in the two situations. It is not as if there is a better sanctity to the appointment of an Arbitrator which enlarges the power if he is appointed by mutual consent, while there are abridged powers if he is not appointed by the Court." "29. We are also in ag....
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....action. 11.14. As emphasized in BSNL v. Nortel Networks (India) (P) Ltd (supra), courts must resist "attempts to re-enter through the back door what the statute has shut through the front door". Section 11 is intended to trigger arbitration, not to create multiple stages of judicial reconsideration. 11.15. For the reasons discussed above, this Court is of the considered view that the High Court did not have the jurisdiction to reopen or review its earlier order passed under Section 11(6) of the A&C Act. Once the appointment was made, the court became functus officio and could not sit in judgment over the very issue it had already settled. The review order cuts against the grain of the Act, undermines the principle of minimal judicial interference, and effectively converts the review into an appeal in disguise. Such an exercise cannot stand. Accordingly, this issue is answered in the negative. 12. Issue No.2 Whether a valid and subsisting arbitration agreement exists between the parties within the meaning of Section 7 of the A&C Act, and whether Clause 25 of the agreement satisfies the statutory requirements of an arbitration clause. 12.1. Section 7 of the A&C Act def....
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....ely participated, filed pleadings, paid fees, and incurred substantial costs. 12.7. It is also significant to note that in an earlier dispute between the same parties, arising from the same contractual framework, arbitration had been invoked under Section 11, and the respondents had accepted the resulting award without protest. Such consistent conduct fortifies the conclusion that both parties intended to, and indeed did, submit their disputes to arbitration. 12.8. These circumstances collectively establish a clear meeting of minds and constitute compelling evidence of a valid and subsisting arbitration agreement within the meaning of Section 7(4)(c). Having invoked and participated in the arbitral process, the respondents cannot now be permitted to resile from its earlier position. 12.9. Clause 25 of the agreement reads as follows: "Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, design, drawings and instructions here-in-before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim right matter or thing whatsoever in any way arising o....
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....ch it was left by his predecessor. It is a term of this contract that the party invoking arbitration shall give a list of disputes with amounts claimed in respect of each such dispute along with the notice for appointment of arbitrator and giving reference to the rejection by the Managing Director of the appeal. It is also a term of this contract that no person other than a person appointed by such Managing Director or administrative head of the Nigam as aforesaid should act as arbitrator and if for any reason that is not possible, the matter shall not be referred to arbitrator at all. It is also a term of this contract that if the Agency does not make any demand for appointment of arbitrator in respect of any claims in writing as aforesaid within 45 days of receiving the intimation from the Engineer-in-Charge that the final bill is ready for payment, the claim of the Agency shall be deemed to have been waived and absolutely barred and the B.R.P.N.N.L. TD shall be discharged and released of all liabilities under the contract in respect of these claims. The arbitration shall be conducted in accordance with the provisions of the Arbitration and Con....
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....ilateral appointment clauses in public-private contracts violate Article 14 and offend the principle of nemo judex in causa sua. The Constitution Bench observed in paragraph 164 as follows: "Unilateral appointment clauses in a public-private contract fail to provide the minimum level of integrity required in authorities performing quasi-judicial functions such as arbitral tribunals. Therefore, a unilateral appointment clause is against the principle of arbitration, that is, impartial resolution of disputes between parties. It also violates the nemo judex rule which constitutes the public policy of India in the context of arbitration. Therefore, unilateral appointment clauses in public-private contracts are violative of Article 14 of the Constitution for being arbitrary, in addition to being contrary to the equality principle under the Arbitration Act." 12.12. Accordingly, the portion of Clause 25 that vests exclusive appointment power in one party and forecloses arbitration in default of such appointment must be severed as void and unenforceable. However, the substantive agreement to arbitrate survives by virtue of the doctrine of severability. 12.13. The legal posit....
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....holly inconsistent with the pro-arbitration policy of the Act and violative of Article 14. 12.14. The present contract, being a public -private contract, must withstand not only conventional contractual scrutiny but also constitutional scrutiny. As held in CORE II, arbitral appointments in public contracts must satisfy the requirements of fairness, equality, and non-arbitrariness under Article 14. 12.15. The sub-clause in Clause 25 which provides that "if for any reason the matter shall not be referred to arbitration" is vague, uncertain, and arbitrary. The expression "for any reason" confers an unguided and absolute veto, particularly objectionable in a public contract. Such a clause fails the test of manifest arbitrariness and violates Section 18 of the Act, which mandates equal treatment of parties. 12.16. In light of the above discussion, the following propositions emerge: (i) The parties' conduct clearly demonstrates their intention to arbitrate, satisfying the requirement of Section 7(4)(c); (ii) Clause 25, in its substantive form, constitutes a valid arbitration agreement; (iii) The unilateral and exclusionary appointment mechanism is void....
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....rsons from acting as arbitrators, such as employees, consultants, advisors, or those having financial or professional ties with a party. By the 2015 Amendment, the provision came to embody the twin pillars of independence and impartiality in arbitration. The proviso to Section 12(5) creates a narrow exception: such ineligibility may be waived only through an express agreement in writing, and only after disputes have arisen. The deliberate use of this phrase reflects a conscious legislative choice to exclude any notion of implied or inferred waiver. 13.4. In contrast, Section 4 embodies the broader principle of waiver by conduct - where a party, knowing of any non-compliance with the Act or the arbitration agreement, proceeds with the arbitration without timely objection. Rooted in party autonomy, Section 4 prevents parties from raising tactical or belated objections after having substantially participated. Thus, while Section 12(5) demands an express post-dispute written waiver, Section 4 covers all other situations involving informed inaction or acquiescence. 13.5. In Bharat Broadband Network Ltd. v. United Telecoms Ltd (2019) 5 SCC 755, this Court held that once a person fa....
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....uage is categorical: only an express written post-dispute waiver can cure Seventh Schedule ineligibility. 13.11. Reconciling Sections 4, 12(5) and 29A * Section 12(5) addresses inherent ineligibility - a structural defect affecting jurisdiction. * Section 4 governs procedural waiver by conduct. * Section 29A concerns extension of mandate, where joint invocation indicates consent but not an express written waiver. The harmonious construction lies in recognizing that only Seventh Schedule disqualifications attract the stringent waiver regime of Section 12(5). In all other cases viz., procedural lapses, delays, or non-jurisdictional irregularities, Section 4 applies. Accordingly, a joint application under Section 29A amounts to a valid waiver under Section 4, save in cases of statutory ineligibility under Section 12(5). Any contrary view would render Section 4 redundant and distort the legislative design. 13.12. Where the disqualification under Section 12(5) is attracted, the language being plain and mandatory, a joint application merely seeking extension, without an informed written waiver, cannot cure ineligibility. Conversely, where no such disqu....
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....an SLP neither endorses the reasoning of the judgment challenged nor transforms it into binding precedent. At best, such a decision has persuasive value; its only legal effect is to bring finality to the dispute between the parties in that particular case. CONCLUSION 15. In the present case, the High Court had itself appointed the arbitrator in 2021 under Section 11(6) of the Act. Both parties participated fully, and more than seventy hearings took place. The High Court also extended the arbitrator's mandate twice under Section 29A. At that stage, the High Court could not, by invoking its jurisdiction under Articles 226 and 227, retrospectively invalidate its own appointment order on the strength of a subsequent interpretation of a similar clause in another matter. Such an approach undermines certainty, dilutes the sanctity of judicial orders, and erodes confidence in the arbitral process. 16. Once the High Court had accepted the existence of a valid arbitration agreement and appointed an arbitrator, its later interference on the same question of the validity of Clause 25 amounted, in substance, to an appeal disguised as supervisory review. If the arbitrator had become una....