Union of India v. Parmar Construction Company and connected matters
Background
This was the lead appeal in a batch of 17 government construction-contract disputes. A contractor was engaged by a government department for construction work; a dispute arose over final payment/escalation, and when the government department failed to appoint an arbitrator as agreed under Clause 64(3) of the General Conditions of Contract, the contractor approached the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996. The High Court, rather than enforcing the agreed contractual procedure, directly appointed an independent arbitrator (commonly a retired High Court Judge) in each case, prompting the government to appeal to the Supreme Court across all these matters together.
Decision Breakdown
The Supreme Court held that the High Court erred in appointing an independent arbitrator without first ensuring that the remedies/procedure agreed in the contract (Clause 64(3)) had been exhausted; the terms of an arbitration agreement must be given effect as closely as possible, and departure from the agreed procedure is permissible only in limited circumstances, such as genuine doubt about an arbitrator's independence or failure of the agreed mechanism to function. Since none of the appeals showed such special circumstances, the Court quashed the High Court's orders across the whole batch and directed the government appellants to appoint arbitrators under Clause 64(3) within one month, with contractors to submit their claim statements within four weeks thereafter so arbitration could proceed expeditiously. This judgment finally disposed of the entire batch of appeals, including the lead case.
Lesson Learnt
Parties to a contract with an agreed arbitrator-appointment procedure should expect courts to enforce that procedure rather than substitute their own preferred arbitrator, absent a genuine failure of the contractual mechanism.