Jurisdiction - India
Reports and Analysis
India – In Exceptional Circumstances, Court Would Be Free To Deviate From The Terms Of The Contract While Appointing Arbitrators.

18 February, 2015


There appears to be a shift from classical notion that High Court while exercising Tits power under Section 11 of the Arbitration and Conciliation Act, 1996 (“Act”) must appoint the arbitrator as per the contract between the parties. The Supreme Court has held, in fair number of cases, that where the circumstances so warrant the court would be free to deviate from the terms of the contract and appoint an independent arbitrator by ignoring the procedure prescribed under the arbitration agreement between the parties.
The Hon’ble Supreme Court of India has, in a recent judgment passed in the case of Northern Railway Vs Tripple Engineering Works reported in 2014 SCC Online SC 620 (Civil Appeal No. 6275 of 2014) reaffirmed the said position. The Court upheld a decision of Patna High Court appointing a retired judge as an arbitrator to resolve the disputes and differences between the parties to the contracts which provided for appointment of railway officers as an arbitrator. The Hon’ble Apex Court took note of the fact that in the two contracts which were forming subject matter of the proceedings before the court, the arbitrators were appointed in the year 1996. Despite that, arbitration proceedings in one of the contracts were not concluded whereas the same had not even commenced in the other contract. The Apex Court, after taking cognizance of its earlier pronouncement in various cases, held that even if the arbitration agreement was to specifically provide for any particular qualifications of an arbitrator, the same would not denude the court of its power under Section 11(6) of the Act, inappropriate cases, to depart from such provision in the agreement. The Court also noted that in the case of Northern Railway Admiration Vs Patel Engineering Co. Ltd. (2008) 10 SCC 240, it has been held that provision of Section 11(8) are not mandatory but only embody the requirement of keeping the same in view at the time of exercise its jurisdiction u/s 11(6) of the Act. The Court also considered another decision in the case of Union of India Vs Singh Builders Syndicate (2009) 4 SCC 523 wherein a retired judge was appointed as an arbitrator as against the contractual requirement of appointment of specified officer, on the ground that arbitration proceedings had not concluded for a decade making a mockery of the process. Based on the precedence and the facts of the present case, the Court held that no interference was required with the decision of the Patna High Court that has appointed a retired judge as against the contractual requirement of railway officer to be appointed as an arbitrator. Expressing its concern over the inordinate delay in conclusion of the arbitration proceedings, theHon’ble Apex Court held as under:
“In the present case, admittedly the award in respect of disputes and differences arising out of the contract no. CAO/CON/722 is yet to be passed. Though the appellant-Railway has in its pleadings made a feeble attempt to contend that the process of arbitration arising out of the said Contract has been finalized, no material, whatsoever, has been laid before the Court in support thereof. The arbitration proceedings to resolve the disputes and differences arising out of Contract No. CAO/CON/738 has not even commenced. A period of nearly two decades has elapsed since the contractor had raised his claims for alleged wrongful termination of the two contracts. The situation is distressing and to say the least, disturbing. The power of the Court under the Act has to be exercised to effectuate the remedy provided thereunder and to facilitate the mechanism contemplated therein. In a situation where the procedure and process under the Act has been rendered futile, the power of the Court to depart from the agreed terms of appointment of arbitrators must be acknowledged in the light of the several decisions noticed by us. We are, therefore, of the view that no infirmity much less any illegality or failure of justice can be said to be occasioned by the order passed by the High Court so as to warrant any interference. We, therefore, unhesitatingly dismiss this appeal filed by the appellant-railways.”
One can therefore safely conclude that while it shall be the endeavor of the court to give due regard to the provisions in the arbitration agreement between the parties, court is not always bound to follow the same. Where circumstances so warrant, court can deviate from the requirements as agreed between the parties, and can appoint independent and impartial arbitrator.
For further information, please contact:
Vikas Goel, Partner, Rajani Singhania & Partners
Kunal Dutta, Rajani Singhania & Partners

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