The Supreme Court has set aside a judgment of the Patna High Court which had reviewed and recalled its own earlier order appointing an arbitrator. The Apex Court held that the High Court exceeded its jurisdiction by revisiting the validity of an arbitration agreement under the guise of review, contrary to the scheme of the Arbitration and Conciliation Act, 1996 (A&C Act).
The Bench, comprising Justice J.B. Pardiwala and Justice R. Mahadevan, allowed the appeal filed by Hindustan Construction Company Ltd. against Bihar Rajya Pul Nirman Nigam Ltd., ruling that once an arbitrator is appointed under Section 11(6), the Court becomes functus officio, and any subsequent challenge to the validity of the arbitration clause must be addressed by the Arbitral Tribunal or under Section 34, not through a review petition.
Case Background
The dispute arose from a contract awarded by the Respondent, Bihar Rajya Pul Nirman Nigam Ltd. (BRPNNL), to the Appellant on March 4, 2014, for the construction of a bridge over River Sone in the Districts of Aurangabad and Rohtas. The contract contained Clause 25 providing for the settlement of disputes through arbitration.
Disputes emerged regarding compensation for additional costs during the original contract period, which were settled via an arbitral award dated December 31, 2021. Subsequently, fresh disputes arose concerning the extended period of the contract. After the Managing Director of BRPNNL failed to appoint an arbitrator, the Appellant approached the Patna High Court under Section 11 of the A&C Act.
By an order dated August 18, 2021, the High Court appointed Justice Shivaji Pandey (Retd.) as the sole arbitrator. The parties participated in the proceedings for over three years, with the mandate of the arbitrator being extended multiple times by the High Court and by mutual consent under Section 29A.
However, on October 4, 2024, the High Court allowed a review petition filed by the Respondents, directing the arbitrator not to proceed. Subsequently, by the impugned judgment dated December 9, 2024, the High Court dismissed the Appellant’s request for arbitration, effectively nullifying the ongoing proceedings.
Arguments of the Parties
The Appellant, represented by learned senior counsel, argued that the High Court lacked jurisdiction to review its order dated August 18, 2021, as the A&C Act is a self-contained code conferring no such power. It was submitted that the order had attained finality and the Respondents had actively participated in the arbitration, thereby waiving their right to object. The Appellant contended that the “very act of entertaining a review petition was without jurisdiction.”
The Respondents argued that Clause 25 of the contract contained a “negative covenant” stipulating that if the Managing Director could not appoint the arbitrator, “there shall be no arbitration at all.” They relied on the Supreme Court’s decision in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), contending that since unilateral appointment is unenforceable, the entire arbitration clause failed. They asserted that the High Court rightly concluded that no valid arbitration agreement existed.
Court’s Analysis
The Supreme Court examined three core issues: the jurisdiction of the High Court to review its Section 11 order, the validity of the arbitration agreement, and the question of waiver.
1. Jurisdiction to Review Section 11 Orders
The Court reiterated the principle of “minimal judicial intervention” enshrined in Section 5 of the A&C Act. Referring to the seven-Judge Bench decision in Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, In re (2024), the Court observed that the scope of Section 11 is confined to a prima facie examination of the existence of an arbitration agreement.
Justice Mahadevan, writing for the Bench, stated:
“The review order 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.”
The Court held that once the appointment was made, the High Court became functus officio. The only remedies available to the Respondents were to approach the Supreme Court under Article 136 or raise objections under Section 16 before the Tribunal.
2. Validity of Arbitration Agreement and Severability
The Court analyzed Clause 25, which mandated arbitration but vested exclusive appointment power in the Managing Director, stating that if such appointment was not possible, the matter shall not be referred to arbitration.
Citing TRF Ltd., Perkins Eastman Architects DPC, and the Constitution Bench decision in CORE II v. ECI SPIC SMO MCML (JV) (2025), the Court affirmed that unilateral appointment clauses in public-private contracts violate Article 14. However, the Court applied the doctrine of severability.
The Bench observed:
“The sub-clause in Clause 25 which provides that ‘if for any reason the matter shall not be referred to arbitration’ is vague, uncertain, and arbitrary. The expression ‘for any reason’ confers an unguided and absolute veto… Such a clause fails the test of manifest arbitrariness and violates Section 18 of the Act.”
The Court severed the invalid exclusionary portion, holding that the “substantive agreement to arbitrate survives.”
3. Waiver and Section 29A
The Court addressed whether the joint applications for extension of time under Section 29A constituted a waiver of objections. The Court distinguished between the “express agreement in writing” required to waive ineligibility under Section 12(5) (Seventh Schedule) and the general waiver by conduct under Section 4.
The Court clarified:
“A joint application under Section 29A amounts to a valid waiver under Section 4, save in cases of statutory ineligibility under Section 12(5).”
Since no Seventh Schedule disqualification was attracted in this specific context (as the Court had appointed the arbitrator), the Respondents’ participation and joint request for extension amounted to a valid waiver under Section 4.
Decision
The Supreme Court allowed the appeal and set aside the impugned judgment of the Patna High Court dated December 9, 2024.
Key Directions:
- Arbitration Restored: The Court held that restarting the process de novo would be inequitable.
- Appointment of Substitute Arbitrator: The High Court was directed to appoint a substitute arbitrator within two weeks to continue proceedings from the stage where they were interrupted.
- Timeline: The new arbitrator is to endeavour to conclude proceedings within one year.
- Conduct of Respondents: The Court took serious note of the conduct of the Managing Director of BRPNNL.
“Public Officers are custodians of public faith, not mere administrators. Any repetition of such neglect may invite adverse remarks or even personal accountability.”
While refraining from imposing costs, the Court issued a “stern warning” to the officer regarding the apathy shown towards contractual obligations.
