Union of India v. Parmar Construction Company and connected matters

Civil Appeal · 2019 INSC 438Decided 29 Mar 2019
Civil Appeal No. 3303 of 2019, Civil Appeal No. 3305 of 2019, Civil Appeal No. 3306 of 2019, Civil Appeal No. 3307 of 2019, Civil Appeal No. 3308 of 2019, Civil Appeal No. 3310 of 2019, Civil Appeal No. 3311 of 2019, Civil Appeal No. 3309 of 2019, Civil Appeal No. 3312 of 2019, Civil Appeal No. 3319 of 2019, Civil Appeal No. 3313 of 2019, Civil Appeal No. 3314 of 2019, Civil Appeal No. 3315 of 2019, Civil Appeal No. 3316 of 2019, Civil Appeal No. 3317 of 2019, Civil Appeal No. 3318 of 2019, Civil Appeal No. 3304 of 2019
Justice A.M. Khanwilkar · Justice Ajay Rastogi

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.

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