Case Note & Summary
The Supreme Court considered a batch of appeals arising from orders of the Rajasthan High Court appointing independent arbitrators under Section 11(6) of the Arbitration and Conciliation Act, 1996. The disputes involved construction contracts between the Union of India (appellant) and various contractors (respondents). The contracts contained an arbitration clause (Clause 64(3) of GCC) providing for appointment of an arbitrator by the railway authorities. The respondents had signed no claim certificates upon final payment but later raised disputes regarding escalated prices and withheld amounts. They sent notices invoking arbitration before the Amendment Act, 2015 came into force on 23rd October, 2015. When the appellants failed to appoint an arbitrator, the respondents filed applications under Section 11(6) before the High Court, which appointed retired High Court judges as independent arbitrators, relying on the amended provisions (Section 12(5) and Seventh Schedule) introduced by the Amendment Act, 2015. The Supreme Court held that since the requests for arbitration were received before the amendment, the pre-amended provisions applied. The High Court erred in applying the amended Act and in bypassing the mutually agreed procedure for appointment. The Court also noted that the mere signing of a no claim certificate does not necessarily discharge all disputes, but the High Court should have examined whether a dispute prima facie existed. The appeals were allowed, setting aside the High Court's orders and directing the appellants to appoint arbitrators in accordance with the contract within one month.
Headnote
A) Arbitration Law - Applicability of Amendment Act, 2015 - Section 21 read with Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 - Where the request to refer the dispute to arbitration was received by the other side before the Amendment Act, 2015 came into force (23rd October, 2015), the proceedings will commence in accordance with the pre-amended provisions of the Act, 1996 - The High Court erred in invoking Section 12(5) of the Amendment Act, 2015 for appointment of an independent arbitrator without resorting to the agreed procedure under clause 64(3) of GCC (Paras 7-8). B) Arbitration Law - No Claim Certificate - Discharge of Contract - Signing of no claim certificate and acceptance of final payment does not automatically extinguish all disputes - The validity of such certificate can be adjudicated by the arbitrator - However, the High Court must examine prima facie whether a dispute exists before appointing an arbitrator (Paras 6, 9). C) Arbitration Law - Appointment of Arbitrator - Section 11(6) of the Arbitration and Conciliation Act, 1996 - When parties have mutually agreed upon a procedure for appointment of arbitrator, the High Court should respect that agreement and not appoint an independent arbitrator unless there are allegations of bias or failure to act - The High Court must first attempt to enforce the agreed procedure (Paras 10-11).
Issue of Consideration
Whether the High Court was justified in invoking the amended provisions of the Arbitration and Conciliation (Amendment) Act, 2015; whether the arbitration agreement stands discharged on acceptance of the amount and signing no claim/discharge certificate; and whether it was permissible for the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (prior to the Amendment Act, 2015) to appoint a third party or an independent arbitrator when the parties have mutually agreed for the procedure vis-à-vis the authority to appoint the designated arbitrator.
Final Decision
The Supreme Court allowed the appeals, set aside the impugned orders of the Rajasthan High Court, and directed the appellants to appoint arbitrators in accordance with the arbitration clause (Clause 64(3) of GCC) within one month from the date of the judgment.
Law Points
- Applicability of Arbitration and Conciliation (Amendment) Act
- 2015 to pending proceedings
- Effect of no claim certificate on arbitral disputes
- Appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act
- 1996
