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 (appellants) and various contractor respondents. The contracts contained an arbitration clause (Clause 64(3) of the General Conditions of Contract) providing for appointment of an arbitrator by the railway authorities. The respondents had completed work but alleged that final bills were not cleared unless they signed no claim certificates under protest. They sent notices invoking arbitration before 23rd October, 2015, but the appellants failed to appoint arbitrators. The respondents then filed applications under Section 11(6) before the High Court, which appointed retired High Court judges as independent arbitrators, relying on the amended Section 12(5) introduced by the Arbitration and Conciliation (Amendment) Act, 2015. The appellants challenged these orders, arguing that the amended provisions did not apply as the requests for arbitration were made before the amendment came into force, and that the High Court should have respected the agreed procedure. The Supreme Court held that since the requests to refer disputes to arbitration were received by the appellants before 23rd October, 2015, the proceedings were governed by the pre-amended provisions of the Act, 1996, and the High Court erred in applying Section 12(5) of the Amendment Act, 2015. The Court also noted that the mere signing of no claim certificates does not automatically discharge the contract if there is evidence of coercion, but in these cases, no such prima facie evidence was placed. Further, the Court held that the High Court should have first respected the mutually agreed procedure for appointment of arbitrator under Clause 64(3) and could only appoint an independent arbitrator if there were allegations of bias or failure to act. The appeals were allowed, the impugned orders set aside, and the matters remitted to the High Court for fresh consideration in accordance with law.
Headnote
A) Arbitration Law - Applicability of Amendment Act, 2015 - Section 21 read with Section 26 of the Amendment Act, 2015 - Where request to refer dispute to arbitration was received before 23rd October, 2015, proceedings are governed by pre-amended provisions of the Act, 1996 - High Court erred in applying Section 12(5) of the Amendment Act, 2015 for appointment of independent arbitrator (Paras 2, 7-8). B) Arbitration Law - No Claim Certificate - Discharge of Contract - Mere signing of no claim certificate does not automatically extinguish arbitral disputes if there is prima facie evidence of coercion or undue influence - However, in absence of such evidence, contract stands discharged and no dispute subsists (Paras 6, 9). C) Arbitration Law - Appointment of Arbitrator - Section 11(6) of the Arbitration and Conciliation Act, 1996 - When parties have mutually agreed on a procedure for appointment, the court must first respect that procedure and only deviate if there are allegations of bias or failure to act - High Court cannot appoint an independent arbitrator without adhering to clause 64(3) of GCC (Paras 2, 10).
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 upon acceptance of 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 an independent arbitrator when the parties had mutually agreed on a procedure for appointment.
Final Decision
The Supreme Court allowed the appeals, set aside the impugned orders of the Rajasthan High Court, and remitted the matters to the High Court for fresh consideration in accordance with law, directing that the High Court shall first examine whether the requests for arbitration were made before or after the Amendment Act, 2015 came into force and then proceed accordingly.
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 Act
- 1996 when parties have agreed on a procedure
