Read Judgment: M/s Laxmi Continental Construction Co. vs. State of UP & Anr.

Pankaj Bajpai

New Delhi, September 21, 2021: The Supreme Court has held that the mandate of the Sole Arbitrator, who at the relevant time was the Chief Engineer and was qualified to become the Sole Arbitrator was even nominated and/or appointed by the Chief Engineer, to continue with the arbitration proceedings would not come to an end on his retirement.

A Division Bench of Justice M.R. Shah and Justice A.S. Bopanna observed that once the Sole Arbitrator continued with the arbitration proceedings and passed the award within the extended period of time, it cannot be said that he has misconducted himself as he continued with the arbitration proceedings.

The observation came to be passed in reference to the question as to once an officer of the department is appointed as an Arbitrator considering the arbitration clause, whether his mandate to continue the arbitration proceedings shall come to an end on his retirement?

The background of the case was that a contract was entered into between the appellant and the respondents regarding the earthwork including lining of V.U.G.C. Since, during the contract work, various disputes and differences arose between the parties, the disputes came to be referred to the sole arbitrator.

Since the arbitration proceedings were adjourned at various dates the instance of the respondents, the Arbitrator superannuated on completion of superannuation age. Accordingly, the appellant filed Arbitration Suit before the Civil Court praying for extension of time for making the award and for hearing and conducting the arbitration.

As a result, the Civil Judge extended the period of arbitration for 30 days and directed the Sole Arbitrator to decide the same within the extended period of time. Accordingly, an award was passed and the respondents were directed to pay a total sum of Rs.10,97,024 with interest. The objections challenging the award was also dismissed upon finding that arbitration clause does not provide for terminating the mandate of the Arbitrator on his retirement.

However, the High Court set aside the award passed by the Sole Arbitrator, the then Chief Engineer, solely on the ground that after the retirement, the Sole Arbitrator has misconducted himself by proceeding further with the arbitration proceedings.

After considering the arbitration agreement, the Top Court found that the only qualification for appointment as an arbitrator is that he should be the officer of the rank of the Superintending Engineer or higher.

Once such an officer is appointed as an Arbitrator, he continues to be the Sole Arbitrator till the arbitration proceedings are concluded unless he incurs the disqualification under the provisions of the Indian Arbitration Act, 1940, added the Court.

The Division Bench further found that even after retirement of Sole Arbitrator, the arbitration proceedings have to be continued by the same Arbitrator and the agreement does not provide at all that on the retirement of such an officer, he shall not continue as a Sole Arbitrator and/or the mandate to continue with the arbitration proceedings will come to an end.

Therefore, the Apex Court concluded that the judgment passed by the High Court setting aside the award as well as the order passed by the Civil Judge making the award Rule of the Court, deserved to be quashed.  

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