UNION OF INDIA v. M-S. SINGH BUILDERS SYNDICATE

Citation: [2009] 3 S.C.R. 563

Court: Supreme Court of India

Bench: R.V. RAVEENDRAN, H.L. DATTU

Case summary

UNION OF INDIA v. M-S. SINGH BUILDERS SYNDICATE.pdf

Judgment text

[2009] 3 S. C. R. 563 ~ -~ UNION OF INDIA v. - MIS. SINGH BUILDERS SYNDICATE (Civil Appeal No. 3632 of 2007) FEBRUARY 26, 2009 [R. V. RAVEENDRAN AND H. L. DATTU, JJ. ] ,, In this appeal, the appellant has challenged the order f of High Court appointing a Retired Judge of High Court as sole arbitrator to decide the disputes in respect of construction contract. It was contended by the appellant that as per clause 64 of the general terms and conditions, two serving Gazetted Railway Officers of equal status from the panel ~ ¥ should be appointed, and they in turn would appoint an umpire. Dismissing the appeal, the Court . ·~ HELD: 1. It is true that the Arbitral Tribunal should be constituted in the manner laid down in the Arbitration agreement. Provisions for arbitration in contracts entered by governments, statutory authorities, and government companies, invariably require that the Arbitrators should 8 be their own serving officers.

Such a provision has to be given effect, subject to requirements of independence and impartiality. But there can be exceptions and this >. case which has a chequered history, falls under such exceptions. [Para 3] [568-A-C] 2. 1. The object of the alternative dispute resolution process of arbitration is to have expeditious and effective disposal of the disputes through a private forum of parties' choice. If the Arbitral Tribunal consists of serving officers of one of the parties to the dispute, as members ~ in terms of the arbitration agreement, and such Tribunal is made non-functional on account of the action or inaction or delay of such party, either by frequent transfers of such members of the Arbitral Tribunal or by failing to take steps expeditiously to replace the arbitrators in terms of the Arbitration Agreement, the Chief Justice or his designate, required to exercise power under section 11 of the Act, can step in and pass ~ appropriate orders. [Para 8] [570-F-H; 571-A] ~ 2. 2.

An effort should be made to ensure that officers who are likely to remain in a particular place are alone appointed as Arbitrators and that the Arbitral Tribunal consisting of serving officers, decides the matter expeditiously. Constituting Arbitral Tribunals with serving officers from different far away places should be avoided. There can be no hard and fast rule, but there should be 1' ~ a conscious effort to ensure that Arbitral Tribunal is constituted promptly and arbitration does not drag on for years and decades. [Para 8] [571-8-D] 2. 3. The matter has now been pending for nearly ten ~ -· years from the date when the demand for arbitration was first made with virtually no progress. Having regard to the passage of time, if the Arbitral Tribunal has to be reconstituted in terms of clause 64, there may be a need to change even the other two members of the Tribunal. The delays and frequent changes in the Arbitral Tribunal make a mockery of the process of arbitration.

Having regard to this factual background, the appointment of ,• retired Judge of the Delhi High Court as sole Arbitrator does not call for interference in exercise of jurisdiction under Article 136 of the Constitution of India. [Para 9] [571-D-F] Northern Railway Administration, Ministry of Railway, New Delhi VS. Patel Engineering Co. Ltd. 2008 (11) SCALE 500, . • relied on. .. Union of India vs. M. P. Gupta 2004 (10) SCC 504, referred to. 3. When a retired Judge is appointed as Arbitrator in place of serving officers, the government is forced to bear the high cost of Arbitration by way of private arbitrator's fee even though it had not consented for the appointment ~ of such non-technical non-serving persons as Arbitrator/ f s. There is no doubt a prevalent opinion that the cost of arbitration becomes very high in many cases where retired Judge/s are Arbitrators.

The large number of sittings and charging of very high fees per sitting, with several add-ons, without any ceiling, have many a time resulted in the cost of arbitration approaching or even exceeding the amount involved in the dispute or the . . # amount of the award. When an arbitrator is appointed by " a court without indicating fees, either both parties or at least one party is at a disadvantage. Firstly, the parties feel constrained to agree to whatever fees is suggested by the Arbitrator, even if it is high or beyond their capacity. Secondly, if a high fee is claimed by the Arbitrator and one party agrees to pay such fee, the other party, who is unable to afford such fee or reluctant to pay such high fee, is put to an embarrassing position.

He will not be in a position to express his reservation or objection to the high fee, owing to an apprehension that refusal by him to agree for the fee suggested by the arbitrator, may prejudice his case or create a bias in favour of the other party who readily agreed to pay the high fee. It is necessary to find an urgent solution for this problem to save arbitration from the arbitration cost. Institutional arbitration has provided a solution as the Arbitrators' fees is not fixed by the Arbitrators themselves on case to case basis, but is governed by a uniform rate prescribed by the institution under whose aegis the Arbitration is held. Another solution is for the court to fix the fees at the time of appointing the arbitrator, with the 0 consent of parties, if necessary in consultation with the arbitrator concerned.

Third is for the retired Judges offering to serve as Arbitrators, to indicate their fee structure to the Registry of the respective High Court so that the parties will have the choice of selecting an Arbitrator whose fees are in their 'range' having regard to the stakes involved. What is found to be objectionable is parties being forced to go to an arbitrator appointed by the court and then being forced to agree for a fee fixed by such Arbitrator. It is unfortunate that delays, high cost, frequent and sometimes unwarranted judicial interruptions at different stages are seriously hampering the growth of arbitration as an effective dispute resolution process. Delay and high cost are two areas where the Arbitrators by self regulation can bring about marked improvement. [Para 10) [571-H; 572-A-H; 573-A-B] 4.

Having regard to the emphasis on independence and impartiality in the new Act, government, statutory authorities and government companies should think of phasing out arbitration clauses providing for serving ....... officers and encourage professionalism in arbitration. [Para 11] [573-C-D] 5. As far as this case is concerned, this Court does not propose to issue any directions in regard to the fees, as the High Court has fixed the fee at Rs. 10,000/- per hearing subject to a maximum of Rs. 150,000f- plus clerkage, to be shared equally by the parties. [Para 12] , - • agreement, and such Tribunal is made non-functional on account of the action or inaction or delay of such party, either by frequent transfers of such members of the Arbitral Tribunal or by failing to take steps expeditiously to replace the arbitrators in terms of the Arbitration Agreement, the Chief Justice or his designate, required to exercise power under section 11 of the Act, can step in and pass appropriate orders.

We fail to understand why the General Manager of the Railways repeatedly furnished panels containing names of officers who were due for transfer in the near future. We are conscious of the fact that a serving officer is transferred on account of exigencies of service and transfer policy of the employer and that merely because an employee is appointed as arbitrator, his transfer cannot be avoided or postponed. But an effort should be made to ensure that officers who are likely to remain in a particular place are alone appointed as Arbitrators and that the Arbitral Tribunal consisting of serving officers, decides the matter expeditiously. Constituting Arbitral Tribunals with serving officers from different far away places should be avoided. There • can be no hard and fast rule, but there should be a conscious effort to ensure that Arbitral Tribunal is constituted promptly and arbitration does not drag on for years and decades. 9.

As noticed above, the matter has now been pending for nearly ten years from the date when the demand for arbitration was first made with virtually no progress. Having regard to the passage of time, if the Arbitral Tribunal has to be reconstituted in terms of clause 64, there may be a need to change even the other two members of the Tribunal. The delays and frequent changes in the Arbitral Tribunal make a mockery of the process of arbitration. Having regard to this factual background, we are of the view that the appointment of a retired Judge of the Delhi High Court as sole Arbitrator does not call for interference in exercise of jurisdiction under Article 136 of the Constitution of India. 10. Another aspect referred to by the appellant, however requires serious consideration. When the arbitration is by Tribunal consisting of serving officers, the cost of arbitration is very low.

On the other hand, the cost of arbitration can be high if the Arbitral Tribunal consists of retired Judge/s. When a retired ' .. Judge is appointed as Arbitrator in place of serving officers, the government is forced to bear the high cost of Arbitration by way of private arbitrator's fee even though it had not consented for the appointment of such non-technical nonserving persons as Arbitrator/s. There is no doubt a prevalent opinion that the cost of arbitration becomes very high in many cases where retired Judge/s are Arbitrators. The large number of sittings and charging of very high fees per sitting, with _. _ several add-ons, without any ceiling, have many a time resulted in the cost of arbitration approaching or even exceeding the amount involved in the dispute or the amount of the award. When an arbitrator is appointed by a court without indicating fees, either both parties or at least one party is at a disadvantage.

Firstly, the parties feel constrained to agree to whatever fees is suggested by the Arbitrator, even if it is high or beyond their capacity. Secondly, if a high fee is claimed by the Arbitrator and one party agrees to pay such fee, the other party, who is unable to afford such fee or reluctant to pay such high fee, is put to an embarrassing position. He will not be in a position to express his reservation or objection to the high fee, owing to an apprehension that refusal by him to agree for the fee suggested by the arbitrator, may prejudice his case or create a bias in favour of the other party who readily agreed to pay the high fee. It is necessary to find an urgent solution for •. this problem to save arbitration from the arbitration cost. ..

Institutional arbitration has provided a solution as the Arbitrators' fees is not fixed by the Arbitrators themselves on case to case basis, but is governed by a uniform rate prescribed by the institution under whose ciegis the Arbitration is held. Another solution is for the court to fix the fees at the time of appointing the arbitrator, with the consent of parties, if necessary in consultation with the arbitrator concerned. Third . ,_ ~~ is for the retired Judge offering to serve as Arbitrators, to indicate their fee structure to the Registry of the respective High Court so that the parties will have the choice of selecting an Arbitrator whose fees are in their 'range' having regard to the UNION OF INDIA v. M/S. SINGH BUILDERS SYNDICATE 573 ... tostakes involved. What is found to be objectionable is parties being forced to go to an arbitrator appointed by the court and then being forced to agree for a fee fixed by such Arbitrator.

It is unfortunate that delays, high cost, frequent and sometimes unwarranted judicial interruptions at different stages are seriously hampering the growth of arbitration as an effective 8 dispute resolution process. Delay and high cost are two areas where the Arbitrators by self regulation can bring about marked improvement. 11. We find that a provision for serving officers of one party being appointed as arbitrator/s brings out considerable resistance from the other party, when disputes arise. Having regard to the emphasis on independence and impartiality in the new Act, government, statutory authorities and government companies should think of phasing out arbitration clauses providing for serving officers and encourage professionalism in arbitration. 12. As far as this case is concerned, we do not propose to issue any directions in regard to the fees, as the High Court has fixed the fee at Rs. 10,000/- per hearing subject to maximum of Rs.

150,000/- plus clerkage, to be shared equally by the parties. .. /< 13. In view of the above, the appeal is dismissed. G. N. Appeal dismissed.