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Punatsangchhu-I Hydroelectric Project Authority v. Larsen & Toubro Limited

Civil Appeal · 2021 INSC 108Decided 22 Feb 2021
Civil Appeal No. 693 of 2021
Justice Indu Malhotra · Justice Ajay Rastogi

Background

A Bhutanese hydroelectric project authority and an Indian construction company (L&T) were in a contract dispute over a major dam project in Bhutan. Their 2009 contract provided for arbitration, referencing the Indian Arbitration and Conciliation Act, 1996 (since Bhutan had no arbitration law at the time) but naming Thimphu, Bhutan courts as having jurisdiction, with arbitration seated at New Delhi or Thimphu. After Bhutan later enacted its own Alternative Dispute Resolution Act in 2013, a dispute arose over which law and which seat would now govern. When the Authority failed to appoint its arbitrator, L&T approached the Delhi High Court, which appointed an arbitrator and held that the Indian 1996 Act continued to apply. The Authority appealed to the Supreme Court, essentially contesting the choice of governing law and seat, not the composition of the arbitral tribunal itself.

Decision Breakdown

By the time the case reached the Supreme Court, the tribunal had already been constituted (with a former Chief Justice of India as presiding arbitrator), and the Authority's only real grievance was over the applicable law and the seat of arbitration. During hearings, the parties reached a consensus: L&T agreed to have the arbitration proceed under Bhutan's 2013 Alternative Dispute Resolution Act with the seat at Thimphu, rather than under the Indian 1996 Act with a New Delhi seat. The Supreme Court recorded this agreement, modified the Delhi High Court's order accordingly, allowed the tribunal flexibility to hold hearings at convenient venues, and disposed of the appeal with no order as to costs.

Lesson Learnt

Even where a contract's arbitration clause becomes ambiguous due to later legal developments (such as a country enacting its own arbitration law), parties can resolve a jurisdictional dispute by mutual consent before the Court, which will readily record and give effect to such an agreement rather than forcing a contested ruling on governing law.

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

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