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Arbitration & Commercial LawSupreme Court of India

Central Organisation for Railway Electrification v. M/S ECI-SPIC-SMO-MCML (JV)

Civil Appeal · 2019 INSC 1394Decided 17 Dec 2019
Civil Appeal Nos. 9486-9487 of 2019
Justice R. Banumathi · Justice A.S. Bopanna · Justice Hrishikesh Roy

Background

A railway electrification contract worth over Rs. 165 crore was terminated by the Railways after the contractor failed to complete work on time, leading to a dispute. The contract's arbitration clause (as modified in 2016) required a panel of serving or retired Railway officers to act as arbitrators, but the contractor approached the Allahabad High Court, which instead appointed an independent retired judge as the sole arbitrator. The Railways appealed to the Supreme Court, arguing the High Court had ignored the contractually agreed arbitrator-appointment procedure.

Decision Breakdown

The Supreme Court held that the modified contract clauses (64(3)(a)(ii) and 64(3)(b)) built in sufficient counter-balance, the contractor could choose two arbitrators from a panel of four names supplied by the Railways, so the "General Manager" nominating the panel did not make the process invalid or one-sided, unlike the situation in the earlier TRF Ltd. case. Since the agreement expressly specified a panel-based arbitral tribunal of three serving or retired Railway officers, the High Court had no power to override this and appoint an independent sole arbitrator. The Court set aside the High Court's orders and directed the Railways to send a fresh panel of four retired officers within 30 days, from which the contractor would select two within the following 30 days to constitute the Tribunal.

Lesson Learnt

Courts will generally enforce the arbitrator-appointment procedure that parties agreed to in their contract, especially where the clause has been balanced to avoid one party unilaterally controlling the appointment, unless the process is genuinely one-sided and renders a party ineligible to appoint.

Central Organisation for Railway Electrification v. M/S ECI-SPIC-SMO-MCML (JV) – Legal Case Shots | LegalAware