Arbitration is a friend of conferences, foe in practice: Supreme Court

The Supreme Court has held that a High Court cannot review or recall an order passed under Section 11 of the Arbitration and Conciliation Act, 1996 after appointing an arbitrator, as it set aside a Patna High Court decision that had halted arbitral proceedings (Hindustan Construction Company Ltd (HCC) and Bihar Rajya Pul Nirman Nigam Ltd (BRPNNL).

A Bench of Justices Pardiwala and Mahadevan opened the judgment with the observation that “arbitration is often a friend in conferences but a foe in practice,” noting that its true advantage lies in “freedom and flexibility, with party autonomy as the cornerstone of the arbitral process.”

The Court added that parties “often embrace arbitration in good times, only to resist or manipulate it when disputes actually arise,” which makes judicial intervention “inevitable and rightly so to safeguard fairness and the integrity of the arbitral process.”

The Court reflected on the shift in judicial role, stating that the evolution from “a helicopter parent to that of a guardian angel of arbitration” has been uneven, and that despite statutory amendments designed to minimise court interference, “arbitration has at times become more cumbersome than civil litigation,” with parties exploiting procedural routes to delay proceedings before the tribunal, the High Court and even the Supreme Court.

The dispute in the present case arose from a 2014 contract under which BRPNNL awarded HCC work for construction of a bridge over the River Sone in Aurangabad and Rohtas districts. Clause 25 of the contract provided for settlement of disputes through arbitration. HCC first invoked arbitration for claims relating to the original contract period. As the Managing Director of BRPNNL did not appoint an arbitrator, the Patna High Court in Request Case No. 4 of 2019 appointed Justice P K Sinha (Retd) as sole arbitrator. An award was passed on 31 December 2021 and was accepted and paid by BRPNNL

HCC later invoked Clause 25 for claims arising during the extended period of contract performance. With no appointment forthcoming from the Deputy Chief Engineer or the Managing Director, HCC sent a notice of intention to commence arbitration on 10 January 2020 and subsequently moved the Patna High Court in Request Case No. 53 of 2020. By judgment dated 18 August 2021, the High Court appointed Justice Shivaji Pandey (Retd) as sole arbitrator

The arbitral proceedings progressed substantially. Pleadings were completed. More than seventy hearings took place. The mandate was extended under Section 29A by order dated 11 March 2023, and on 17 June 2023 the High Court granted liberty to the parties to seek further extension. The mandate was thereafter extended twice under Section 29A.

BRPNNL then sought review of the Section 11 appointment, relying on a later Patna High Court judgment in State of Bihar v Kashish Developers. On 9 December 2024, the High Court dismissed HCC’s Section 11 request and unravelled its earlier order appointing the arbitrator. This led to the present appeal

Addressing jurisdiction, the Court held unequivocally that “once the Section 11 order had attained finality, the only remedies available to the respondents were to approach this Court under Article 136 or to raise objections under Section 16 before the arbitral tribunal.” It added that “having chosen neither route, and having participated in the arbitral proceedings, including joint applications under Section 29A, they were estopped from reopening the matter through review.”

The Court also reiterated its earlier warning, quoting BSNL v Nortel, that courts must resist “attempts to re-enter through the back door what the statute has shut through the front door.” Section 11, it stressed, “is intended to trigger arbitration, not to create multiple stages of judicial reconsideration.”

Delivering its strongest criticism of the Patna High Court, the Supreme Court held:
“the High Court did not have the jurisdiction to reopen or review its earlier order passed under Section 11(6) of the A&C Act. Once the appointment was made, the court became functus officio and could not sit in judgment over the very issue it had already settled.”

The review order, it said, “cuts against the grain of the Act, undermines the principle of minimal judicial interference, and effectively converts the review into an appeal in disguise. Such an exercise cannot stand.”

On Clause 25, the Court noted that the arbitration clause had been successfully invoked earlier between the same parties, that the respondents had admitted its existence, and that a valid arbitration agreement also emerged from party conduct under Section 7(4)(c). The respondents, the Court said, could not challenge the clause after fully participating in the proceedings.

In conclusion, the Supreme Court held that where the originally appointed arbitrator became unable to act, “the proper course was to invoke Section 15(2) and appoint a substitute arbitrator to continue from the existing stage of the proceedings.” It accordingly set aside the Patna High Court’s judgment and directed initiation of the process for appointing a substitute arbitrator under Sections 15(1) and 15(2), ensuring continuation of the proceedings already conducted.

Delivering a warning to the State owned company, the Court said "Although this is a fit case for imposing costs, we refrain from doing so, but issue a stern warning to the then Managing Director of the respondent company, BRPNNL. Public Officers are custodians of public faith, not mere administrators. Any repetition of such neglect may invite adverse remarks or even personal accountability. The officer is advised to reflect upon the responsibilities of public office and ensure that such indifference does not recur."

The petitioners were represented by Senior Advocate Navin Pahwa with Advocates Senthil Jagdeesan, Mahesh Agarwal, Rishi Agrawala, Shruti Arora, Abhinabh Garg, and EC Agrawala.

The respondents were represented by Advocates Manish Kumar, Divyansh Mishra and Yoshit Jain.

[Read Judgment]