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Chennai Metro Rail Limited vs. M/s Transtonnelstroy Afcons (JV) & Anr.

SLP (C) · 2023 INSC 932Decided 19 Oct 2023
SLP (C) No. 8553 of 2022
S. Ravindra Bhat · Aravind Kumar

Background

Chennai Metro Rail Limited had a Rs. 1,566 crore contract dispute referred to a three-member arbitral tribunal. The tribunal, midway through proceedings, unilaterally decided to double its hearing fee (from Rs. 1,00,000 to Rs. 2,00,000 per session) despite Chennai Metro's objection, and directed that the higher fee also apply retroactively to past hearings. The opposing party, Afcons, paid the increased fee, which Chennai Metro argued created a real apprehension that the tribunal would no longer be impartial. Chennai Metro approached the Madras High Court under Section 14 of the Arbitration and Conciliation Act, seeking a declaration that the tribunal's mandate stood terminated due to bias; the High Court dismissed this application, and Chennai Metro appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that unilaterally revising the agreed fee without consensus of both parties was indeed contrary to its earlier ruling in ONGC v. AFCONS Gunasa JV, which requires fee changes to be by mutual agreement. However, it held that this kind of overreach by a tribunal on a procedural/administrative matter like fees does not automatically amount to the tribunal becoming "de jure unable to perform its functions" under Section 14: a ground reserved for statutory ineligibility conditions listed in the Seventh Schedule of the Arbitration Act (such as specific relationships creating conflicts of interest), not for general allegations of bias arising from conduct during proceedings. Since the tribunal members had already reversed their fee-increase decision and undertaken to act impartially, and since Chennai Metro's complaint did not fall within the narrow statutory grounds for direct court intervention, the application to terminate the tribunal's mandate was rejected, and the arbitration was directed to continue.

Lesson Learnt

Not every instance of an arbitrator's questionable conduct (like unilaterally changing agreed fees) automatically ends their authority to hear a case: Indian arbitration law reserves outright disqualification for specific, serious conflict-of-interest situations, while lesser complaints about fairness must generally first be raised before the same tribunal, and only challenged in court after an award is passed.

Official source (sci.gov.in)View Judgment (PDF)

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