Authored By Kiran Raj

In Hindustan Construction Co. Ltd. v. Bihar Rajya Pul Nirman Nigam Ltd. (Request Case No. 53 of 2020), the Patna High Court, heard by Chief Justice K. Vinod Chandran, examined the enforceability of an arbitration clause in light of the amendments to the Arbitration and Conciliation Act, 1996. The petitioner sought the appointment of an arbitrator under Clause 25 of the agreement executed pursuant to a successful tender bid. The Court dismissed the request, holding that the clause was rendered inoperative due to the statutory disqualifications introduced by Section 12(5) of the Act.

The petitioner invoked Clause 25 of the agreement, which restricted the appointment of an arbitrator to the Engineer-in-Chief or administrative head of the respondent. The clause explicitly stated that if such appointment was not feasible, arbitration could not proceed. The petitioner sought arbitration to resolve disputes arising from the agreement, while the respondent contested its maintainability. The respondent argued that Section 12(5) of the Act, introduced by the 2016 amendments, disqualified the Engineer-in-Chief and administrative head from acting as arbitrators due to their relationship with the parties. Further, the clause’s provision barring arbitration when such appointments were not possible rendered the arbitration agreement unenforceable.

The Court recorded that the statutory framework under Section 12(5) explicitly prohibits certain relationships between parties and arbitrators to ensure independence and impartiality. The judgment noted: “Clause 25 specifically indicates that no person other than a person appointed by the Engineer-in-Chief or administrative head should act as Arbitrator and for any reason if that is not possible, the matter shall not be referred for arbitration at all.”

The petitioner contended that the respondent had failed to act within the timeframe prescribed under the Act and had thereby waived its right to object. The Court rejected this argument, emphasizing that statutory disqualifications under Section 12(5) cannot be waived unless expressly agreed upon in writing by both parties after the dispute arises. It held: “The proviso to Section 12(5) specifically provided for a waiver by an express agreement in writing. When the statute provides for an express agreement in writing, there can be no novation of the agreement found, by reason only of the appointment of an Arbitrator at the first instance.”

The judgment relied on established precedents, including Perkins Eastman Architects DPC v. HSCC (India) Ltd. and TRF Ltd. v. Energo Engineering Projects Ltd., which held that unilateral appointment clauses in contracts are incompatible with the principles of fairness and equality. The Court observed: “A clause that allows one party to unilaterally appoint a sole Arbitrator gives rise to justifiable doubts as to the independence and impartiality of the Arbitrator.”

The Court concluded that Clause 25 of the agreement, as framed, contravened the statutory mandate and the amended provisions of the Arbitration and Conciliation Act. The clause, by precluding arbitration when the designated authority could not appoint an arbitrator, was held inconsistent with the principles governing arbitration post-amendment. It stated: “The agreement does not provide for arbitration in circumstances where the designated appointing authority is disqualified by law.”

Consequently, the Court dismissed the request for appointment, upholding the statutory rigor introduced by the amendments to the Arbitration and Conciliation Act.

Case Title: Hindustan Construction Co. Ltd. v. Bihar Rajya Pul Nirman Nigam Ltd.
Case Number: Request Case No. 53 of 2020
Bench Details: Chief Justice K. Vinod Chandran

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