Safiya Malik

The Uttarakhand High Court appointed Justice B.S. Verma (Retired) as the sole arbitrator to adjudicate a contractual dispute between M/s SPDD VDPPL JV and the State of Uttarakhand. The dispute arose from the termination of a contract related to the Jummagad Small Hydro Project in Chamoli district. The court relied on judicial precedents to rule that the agreement’s arbitration clause, which named a state official as arbitrator, was invalid due to potential bias.

The case involved a contract dated December 31, 2016, awarded to M/s SPDD VDPPL JV for constructing and renovating the Jummagad Small Hydro Project, a turnkey project with a capacity of 2 x 600 kW, along with three months of post-commissioning operation and maintenance. The project was to be completed within 15 months of the agreement signed on February 23, 2017.

The petitioners contended that delays in the project were caused by geological and climatic conditions and an alleged lack of support from the respondent department. They argued that the termination of the contract was unjustified and sought arbitration to resolve the dispute. The agreement contained an arbitration clause (Clause 28.0), which stipulated that the Principal Secretary or Secretary, Department of Energy, Government of Uttarakhand, would act as the sole arbitrator or appoint a nominee.

The petitioners relied on the Supreme Court's judgment in Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760, to argue that an arbitration clause allowing a party with an interest in the dispute to unilaterally appoint an arbitrator violated principles of impartiality. They submitted that the appointment of a state official or their nominee would create a conflict of interest, rendering the clause invalid.

The respondents, represented by their counsel, countered by citing S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh (2019) 2 SCC 488, arguing that the arbitration clause was binding. However, the court noted that the Perkins Eastman decision, being a later ruling, had clarified the legal position on such clauses and was binding.

The court agreed with the petitioners’ submissions, holding that the arbitration clause violated principles of neutrality. It observed: “The law declared by the Hon’ble Apex Court in Perkins Eastman Architects DPC (supra) is subsequent to the pronouncement in S.P. Singla Constructions Private Limited (supra). That apart, the law, as declared by the Coordinate Bench of the Hon’ble Apex Court, continues to hold the field.”

The bench, led by Chief Justice G. Narendar, stated that allowing a party to the dispute to appoint the arbitrator undermines the impartiality required in arbitration proceedings. The court relied on judicial principles establishing that independence and neutrality are fundamental to the arbitration process.

The court allowed the application for the appointment of an arbitrator and, with the consent of both parties, appointed Justice B.S. Verma (Retired), a former judge of the Uttarakhand High Court, as the sole arbitrator. It directed: “Mr. Justice B.S. Verma (Retired) is, hereby, appointed to act as an Arbitrator to adjudicate the dispute that has arisen between the parties.”

The court ordered that a copy of the order be communicated to Justice Verma and directed him to proceed with the arbitration in accordance with the law. The application and all related pending applications were disposed of without costs.

Case Title: M/s SPDD VDPPL JV & Anr. v. State of Uttarakhand & Ors.
Case Number: Arbitration Petition No. 78 of 2023
Bench: Chief Justice G. Narendar

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