Kiran Raj

The Supreme Court of India Division Bench of Justice J.B. Pardiwala and Justice R. Mahadevan has allowed an appeal arising from a highway construction dispute between a public sector undertaking of the State of Bihar and its contractor, holding that an order appointing an arbitrator under Section 11 of the Arbitration and Conciliation Act cannot be subjected to review or appeal by the High Court. Clarifying that once an arbitrator is appointed the arbitral process must continue without judicial interruption and that Parliament has not provided any remedy against such orders, the Court set aside the Patna High Court’s decisions recalling its earlier appointment and dismissing the contractor’s request for arbitration, after the public entity had actively participated in the proceedings and sought review nearly three years later.

The dispute arises from a works contract dated 04.03.2014 between a state undertaking and a contracting agency, governed by Clause 25 providing for settlement of disputes through arbitration. The contractor first raised claims in September 2018 before the Deputy Chief Engineer for additional costs and losses during the original contract period, then appealed to the Managing Director and issued a notice in December 2018 expressing its intention to commence arbitration when no response was received. An application under Section 11 of the Arbitration and Conciliation Act, 1996 led to appointment of an arbitrator, who made an award in December 2021 that was accepted and paid.

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Subsequently, the contractor raised further claims under Clause 25 relating to extension of time for completion and additional costs during the extended period, again receiving no decision from the employer. A fresh Section 11 petition resulted in appointment of a new sole arbitrator in August 2021. The parties completed pleadings, participated in the proceedings and jointly sought multiple extensions of the arbitrator’s mandate under Section 29A before the High Court.

Before the Supreme Court, the contractor relied on Clause 25 and its earlier admission by the employer, contending that a valid arbitration agreement existed and that unilateral appointment was impermissible, invoking Sections 7, 11, 12(5), 29A and 4 of the Act. The employer argued that the arbitration agreement had become inoperative, emphasizing a negative covenant in Clause 25 and contending that courts cannot rewrite the contract, also referring to subsequent policy changes and institutional arbitration under state legislation.

The Court first addressed the allocation of jurisdiction, noting that "This issue should be left to be decided by the Arbitral Tribunal in view of the doctrine of competence-competence. The Arbitral Tribunal is competent to rule on its jurisdiction, including the issue of validity of the arbitration clause for violating the equality principle under the Arbitration Act."

Explaining the statutory framework, the Court observed that "Thus, the entire scheme of the Act strongly discourages any mid-way judicial intervention, especially by way of review, as it would run contrary to both the text and the spirit of the statute." It further stated that "Although the power exercised by the High Court under Section 11 is judicial in nature post - SBP & Co. case, its scope remains narrow. Once an arbitrator is appointed, the arbitral process must proceed unhindered. There is no statutory provision for review or appeal from an order under Section 11, which reflects a conscious legislative choice."

On the nature of review jurisdiction, the Bench clarified that "While High Courts, as courts of record, do possess a limited power of review, such power is extremely circumscribed in matters governed by the Arbitration Act. It may be exercised only to correct an error apparent on the face of the record or to address a material fact that was overlooked. It cannot be used to revisit findings of law or reappreciate issues already decided."

The Court noted the narrow circumstances in which review had earlier been permitted and contrasted them with the present case, recording that "By contrast, in the present case, the High Court reopened the issue of interpretation of the arbitration clause based solely on a subsequent judgment. Such an exercise falls squarely outside the scope of review jurisdiction. Even assuming that a review was maintainable, it was filed after an unexplained delay of nearly three years and was not founded on any error apparent on the face of the record or any suppression of material fact."

On consequences of finality, the Court stated that "Once the Section 11 order had attained finality, the only remedies available to the respondents were to approach this Court under Article 136 or to raise objections under Section 16 before the arbitral tribunal. Having chosen neither route, and having participated in the arbitral proceedings, including joint applications under Section 29A, they were estopped from reopening the matter through review. A later judgment cannot revive a concluded cause of action."

The Court held that "the High Court did not have the jurisdiction to reopen or review its earlier order passed under Section 11(6) of the A&C Act. Once the appointment was made, the court became functus officio and could not sit in judgment over the very issue it had already settled. 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."

Turning to the arbitration agreement, the Bench recorded that "Accordingly, it is held that a valid and subsisting arbitration agreement exists between the parties. Clause 25, when read in its entirety and construed in accordance with the doctrine of severability, satisfies the statutory requirements of an arbitration clause under Section 7 of the Act." It further noted that "Applying these principles to the present case, the record unequivocally demonstrates the existence of an arbitration agreement between the parties. Pursuant to Clause 25 of the contract, arbitral proceedings were formally commenced on 13.09.2021. More than seventy hearings were conducted before the sole arbitrator, during which both parties actively participated, filed pleadings, paid fees, and incurred substantial costs."

On waiver and party conduct, the Court stated that "Waiver is a foundational principle of arbitration, rooted in party autonomy and fairness in conduct." and that "A party who has actively participated or consented to continuation of the proceedings cannot later challenge the same process merely because the result is adverse. The legislative design thus discourages tactical objections and multiplicity of proceedings."

The Court directed: “On the facts of this case, restarting the arbitral process de novo would be both inequitable and inefficient. It is just and proper that the progress already made be preserved. Therefore, the High Court is directed to appoint a substitute arbitrator within two weeks from the date of receipt of this judgment. The newly appointed arbitrator shall continue the proceedings from the stage at which they were interrupted and endeavour to conclude them within one year, subject to any further extension under Section 29A by mutual consent.”

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“Although this is a fit case for imposing costs, we refrain from doing so, but issue a stern warning to the then Managing Director of the respondent company, BRPNNL. Public Officers are custodians of public faith, not mere administrators. Any repetition of such neglect may invite adverse remarks or even personal accountability. The officer is advised to reflect upon the responsibilities of public office and ensure that such indifference does not recur.”

“With the aforesaid directions and observations, this appeal is allowed. There shall be no order as to costs. Pending application(s), if any, stand disposed of.”

Advocates Representing the Parties

For the Petitioners: Mr. Navin Pahwa, Sr. Adv. Mr. Senthil Jagdeesan, Sr. Adv. Mr. Mahesh Agarwal, Adv. Mr. Rishi Agrawala, Adv. Ms. Shruti Arora, Adv. Mr. Abhinabh Garg, Adv. Mr. E. C. Agrawala, AOR

For the Respondents: Mr. Manish Kumar, AOR Mr. Divyansh Mishra, Adv. Mr. Yoshit Jain, Adv.

Case Title: Hindustan Construction Company Ltd. v. Bihar Rajya Pul Nirman Nigam Limited and Others
Neutral Citation: 2025 INSC 1365
Case Number: Civil Appeal No. of 2025; SLP (C) No. 4211 of 2025
Bench: Justice J.B. Pardiwala, Justice R. Mahadevan