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The State of Bihar v. M/S Brahmaputra Infrastructure Limited

Civil Appeal · 2018 INSC 1223Decided 22 Mar 2018
Civil Appeal arising out of SLP (Civil) No. 18212 of 2017
Justice Adarsh Kumar Goel · Justice Rohinton Fali Nariman · Justice Uday Umesh Lalit

Background

The State of Bihar objected to a court-appointed arbitrator under Section 11(6) of the (Central) Arbitration and Conciliation Act, 1996, arguing that the Bihar Public Works Contracts Arbitration Tribunal Act, 2008 (a State law creating its own arbitration tribunal) excluded the Central Act for government works contracts. The contractors, however, pointed out that their 2012 works agreement with the State itself expressly provided that arbitration would be conducted under the Central Act. The dispute reached the Supreme Court through two connected appeals arising from Bihar High Court orders upholding the arbitrator's appointment under the Central Act.

Decision Breakdown

The Supreme Court held that, reading Sections 8, 9 and 22 of the Bihar State Act together, the State Act only applies to works contracts by default when the contract itself is silent on which law governs arbitration; where, as here, the contract expressly agreed to apply the Central Act, that agreement prevails and the State Act has no application. On that basis it dismissed the State's appeals, while leaving it open to the State to approach the High Court separately if it had genuine, specific objections to the neutrality of the appointed arbitrator. Going further, the Court also examined a separate constitutional challenge to Section 4(3)(b) of the State Act, which let the Government terminate the Arbitration Tribunal's Chairman and members "at pleasure" (i.e., at will) despite a fixed three-year tenure under Section 4(1). It held this at-will termination power was manifestly arbitrary and violated Article 14 of the Constitution, since it let a party to a dispute (the Government) threaten the independence of the very tribunal members deciding that dispute, and accordingly declared Section 4(3)(b) unconstitutional.

Lesson Learnt

A specific arbitration clause freely agreed to in a contract overrides a general State law on arbitration procedure, and any law allowing a government to terminate adjudicators "at pleasure" while they decide disputes involving that same government is constitutionally invalid as a threat to judicial independence.

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

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