Case Note & Summary
The Supreme Court heard 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 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 contractors had completed work, submitted final bills, and signed no claim certificates. Subsequently, they raised disputes regarding unpaid amounts and sought arbitration. The appellants failed to appoint an arbitrator, leading the contractors to file applications under Section 11(6) before the High Court. The High Court, relying on the amended provisions of the Arbitration and Conciliation (Amendment) Act, 2015 (effective from 23rd October, 2015), appointed retired High Court judges as independent arbitrators, disregarding the agreed procedure. The Supreme Court examined three issues: (1) applicability of the Amendment Act, 2015; (2) effect of no claim certificates on arbitrability; and (3) validity of appointing an independent arbitrator contrary to the agreed procedure. The Court held that since the requests for arbitration were made before the amendment came into force, the pre-amended provisions applied. It further held that signing of no claim certificates and acceptance of final payment may discharge the contract, and without evidence of coercion, no arbitrable dispute subsists. Finally, the Court held that the High Court should have respected the mutually agreed procedure for appointment of arbitrator under Clause 64(3) and could not appoint an independent arbitrator without first allowing the appellants to appoint as per the agreement. 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, the pre-amended provisions of the Arbitration and Conciliation Act, 1996 apply - High Court erred in applying Section 12(5) of the Amendment Act, 2015 to appoint an independent arbitrator (Paras 2, 7-8). B) Arbitration Law - Discharge of Contract - No Claim Certificate - Signing of no claim certificate and acceptance of final payment may discharge the contract and extinguish arbitrable disputes unless evidence of coercion or undue influence is shown - Mere financial duress is insufficient without prima facie evidence (Paras 6, 9). C) Arbitration Law - Appointment of Arbitrator - Section 11(6) of the Arbitration and Conciliation Act, 1996 - Where parties have mutually agreed upon a procedure for appointment of arbitrator, the court must respect that procedure and cannot appoint an independent arbitrator unless there are allegations of bias or failure to act - High Court failed to consider the agreed 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 Act, 1996 introduced by the Amendment Act, 2015; whether the arbitration agreement stands discharged upon acceptance of the amount and signing of no claim/discharge certificate; and whether it was permissible for the High Court under Section 11(6) of the Act (prior to amendment) to appoint an independent arbitrator when the parties had mutually agreed upon a procedure for appointment.
Final Decision
The Supreme Court allowed the appeals, set aside the impugned orders of the High Court, and remitted the matters to the High Court for fresh consideration in accordance with law, directing that the High Court shall consider the applicability of the pre-amended provisions and the effect of no claim certificates, and shall respect the mutually agreed procedure for appointment of arbitrator unless there are allegations of bias or failure to act.
Law Points
- Arbitration agreement
- Discharge of contract by no claim certificate
- Applicability of amended arbitration act
- Appointment of arbitrator under Section 11(6)
- Mutually agreed procedure
