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The Government of Haryana PWD v. M/s. G.F. Toll Road Pvt. Ltd.

Civil Appeal · 2019 INSC 3Decided 3 Jan 2019
Civil Appeal No. 27 of 2019
Justice Abhay Manohar Sapre · Justice Indu Malhotra

Background

The State of Haryana had entered into a Build-Operate-Transfer agreement with G.F. Toll Road for two highway projects, with disputes to go to a three-member arbitration panel (each side naming one arbitrator, with a third appointed under Indian Council of Arbitration (ICA) rules). When a dispute arose, the ICA objected to the State's nominee arbitrator, a retired government engineer, as potentially biased, and when the State asked for 30 days to name a replacement, the ICA went ahead and appointed a substitute itself. The State's bid to have this appointment struck down in the civil courts and the Punjab and Haryana High Court failed, with the High Court ruling the State should instead raise its jurisdictional objection before the arbitral tribunal itself, prompting this further appeal.

Decision Breakdown

The Supreme Court held that under Section 15(2) of the Arbitration and Conciliation Act, 1996, a substitute arbitrator must be appointed by the same procedure used for the original appointment, meaning the State itself, not the ICA, had the right to name its own substitute nominee. The Court also found the original objection to the State's first nominee was unjustified: he had retired from government service over ten years earlier, and mere past employment, without more, does not create a reasonable apprehension of bias. Because the ICA improperly usurped the State's right to nominate before the State's requested 30-day window had even expired, the Court set aside the High Court's judgment. However, by the time of the hearing both sides had agreed to replace the entire three-member panel with a single sole arbitrator (a retired Supreme Court judge), so the appeal was disposed of on that consensual basis rather than by reviving the original three-member tribunal dispute.

Lesson Learnt

When an arbitration agreement lets each party pick its own arbitrator, a third-party institution administering the arbitration cannot simply step in and appoint a substitute on a party's behalf before giving that party a fair chance to name its own replacement, and a past (not current) employment relationship, standing alone, is not automatically enough to disqualify someone as biased.

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

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