Holding

The appointment of a retired High Court judge as sole arbitrator is valid and does not warrant interference.

Summary

The Union of India (Northern Railways) entered into a construction contract with Mis. Singh Builders Syndicate which contained Clause 64 requiring two serving Gazetted Railway officers as arbitrators who would appoint an umpire. The builder invoked arbitration in 1999, but repeated transfers and resignations of the appointed officers left the tribunal non‑functional for nearly a decade. The Delhi High Court, frustrated by the delays, appointed a retired Delhi High Court judge as sole arbitrator, a decision the appellant challenged. The Supreme Court held that while the arbitration agreement should be honoured, the court may deviate from it when the agreed tribunal cannot function, and that appointing a retired judge did not violate Section 11 of the Arbitration and Conciliation Act, 1996 nor Article 136 of the Constitution. The Court also highlighted the problems of delay and high costs in arbitration and suggested reforms, but declined to intervene on fee matters. Consequently, the appeal was dismissed.

Issues considered

Whether the appointment of a retired High Court judge as sole arbitrator, contrary to Clause 64 requiring serving Gazetted Railway officers, is permissible under the Arbitration and Conciliation Act, 1996.
Whether the High Court’s order appointing the retired judge can be set aside under Article 136 of the Constitution.
Whether a court may depart from the arbitration agreement when the designated tribunal is non‑functional.
Implications of delay and cost in arbitration proceedings involving government contracts.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11
Constitution of Indias. 136

Subjects

ArbitrationSection 11Appointment of ArbitratorServing OfficersRetired JudgeDelayCostIndependenceImpartialityArticle 136Construction ContractGovernment Contract

Judgment

[2009] 3 S.C.R. 563

-~
~

UNION OF INDIA A

-- v.
MIS. SINGH BUILDERS SYNDICATE
(Civil Appeal No. 3632 of 2007)
FEBRUARY 26, 2009
B
[R.V. RAVEENDRAN AND H.L. DATTU, JJ.]

,,<,
Arbitration and Conciliation Act, 1996:

Section 11 - Appointment of Arbitrator - Retired Judge c
of High Court - Appointment of - Challenged - Held: There
should be conscious effort to ensure that Arbitral Tribunal is
constituted promptly and arbitration does not drag for years
and decades - In the facts and circumstances of the case
:::- appointment of Retired Judge of High Court not interfered with D
" - Constitution of India, Article 136.

Arbitration - Delay and high costs - Discussed - Self
regulation could make marked improvement.

Professionalism in Arbitration - Suggestion for phasing E
out arbitration clauses providing for serving officers and to
encourage professionalism in arbitration .
.>
f
In this appeal, the appellant has challenged the order
of High Court appointing a Retired Judge of High Court
F
as sole arbitrator to decide the disputes in respect of a
construction contract.

It was contended by the appellant that as per clause
64 of the general terms and conditions, two serving
Gazetted Railway Officers of equal status from the panel G
~
¥ should be appointed, and they in turn would appoint an
umpire.

Dismissing the appeal, the Court
563 H
564 SUPREME COURT REPORTS (2009] 3 S.C.R.

·~
.
A HELD: 1. It is true that the Arbitral Tribunal should be
constituted in the manner laid down in the Arbitration
agreement. Provisions for arbitration in contracts entered
by governments, statutory authorities, and government
companies, invariably require that the Arbitrators should
8 be their own serving officers. Such a provision has to be
given effect, subject to requirements of independence
and impartiality. But there can be exceptions and this
>.
case which has a chequered history, falls under such
exceptions. [Para 3] [568-A-C]
c 2.1. The object of the alternative dispute resolution
process of arbitration is to have expeditious and effective
disposal of the disputes through a private forum of
parties' choice. If the Arbitral Tribunal consists of serving
officers of one of the parties to the dispute, as members ~

D in terms of the arbitration agreement, and such Tribunal
is made non-functional on account of the action or
inaction or delay of such party, either by frequent
transfers of such members of the Arbitral Tribunal or by
failing to take steps expeditiously to replace the
E arbitrators in terms of the Arbitration Agreement, the Chief
Justice or his designate, required to exercise power
under section 11 of the Act, can step in and pass
~
appropriate orders. [Para 8] [570-F-H; 571-A]
~

F 2.2. An effort should be made to ensure that officers
who are likely to remain in a particular place are alone
appointed as Arbitrators and that the Arbitral Tribunal
consisting of serving officers, decides the matter
expeditiously. Constituting Arbitral Tribunals with serving
officers from different far away places should be avoided.
G
There can be no hard and fast rule, but there should be 1' ~

a conscious effort to ensure that Arbitral Tribunal is
constituted promptly and arbitration does not drag on for
years and decades. [Para 8] [571-8-D]
H 2.3. The matter has now been pending for nearly ten
UNION OF INDIA v. MIS. SINGH BUILDERS SYNDICATE 565
~

-· years from the date when the demand for arbitration was A
first made with virtually no progress. Having regard to the
passage of time, if the Arbitral Tribunal has to be
reconstituted in terms of clause 64, there may be a need
to change even the other two members of the Tribunal.
The delays and frequent changes in the Arbitral Tribunal B
make a mockery of the process of arbitration. Having
,• regard to this factual background, the appointment of a
retired Judge of the Delhi High Court as sole Arbitrator
does not call for interference in exercise of jurisdiction
under Article 136 of the Constitution of India. [Para 9]
[571-D-F]
c
Northern Railway Administration, Ministry of Railway, New
Delhi VS. Patel Engineering Co. Ltd. 2008 (11) SCALE 500,
.•
. relied on .
D
Union of India vs. M.P. Gupta 2004 (10) SCC 504,
referred to.

3. When a retired Judge is appointed as Arbitrator in
place of serving officers, the government is forced to bear
the high cost of Arbitration by way of private arbitrator's E
fee even though it had not consented for the appointment
~ of such non-technical non-serving persons as Arbitrator/
f s. There is no doubt a prevalent opinion that the cost of
arbitration becomes very high in many cases where
retired Judge/s are Arbitrators. The large number of F
sittings and charging of very high fees per sitting, with
several add-ons, without any ceiling, have many a time
resulted in the cost of arbitration approaching or even
exceeding the amount involved in the dispute or the
. .# amount of the award. When an arbitrator is appointed by G
" a court without indicating fees, either both parties or at
least one party is at a disadvantage. Firstly, the parties
feel constrained to agree to whatever fees is suggested
by the Arbitrator, even if it is high or beyond their
capacity. Secondly, if a high fee is claimed by the H
566 SUPREME COURT REPORTS [2009] 3 S.C.R.

A Arbitrator and one party agrees to pay such fee, the other
party, who is unable to afford such fee or reluctant to pay
such high fee, is put to an embarrassing position. He will
not be in a position to express his reservation or
objection to the high fee, owing to an apprehension that
B refusal by him to agree for the fee suggested by the
arbitrator, may prejudice his case or create a bias in
favour of the other party who readily agreed to pay the
high fee. It is necessary to find an urgent solution for this
problem to save arbitration from the arbitration cost.
C Institutional arbitration has provided a solution as the
Arbitrators' fees is not fixed by the Arbitrators themselves
on case to case basis, but is governed by a uniform rate
prescribed by the institution under whose aegis the
Arbitration is held. Another solution is for the court to fix
the fees at the time of appointing the arbitrator, with the
0
consent of parties, if necessary in consultation with the
arbitrator concerned. Third is for the retired Judges
offering to serve as Arbitrators, to indicate their fee
structure to the Registry of the respective High Court so
that the parties will have the choice of selecting an
E Arbitrator whose fees are in their 'range' having regard
to the stakes involved. What is found to be objectionable
is parties being forced to go to an arbitrator appointed
by the court and then being forced to agree for a fee fixed
by such Arbitrator. It is unfortunate that delays, high cost,
F frequent and sometimes unwarranted judicial
interruptions at different stages are seriously hampering
the growth of arbitration as an effective dispute resolution
process. Delay and high cost are two areas where the
Arbitrators by self regulation can bring about marked
G improvement. [Para 10) [571-H; 572-A-H; 573-A-B]

4.Having regard to the emphasis on independence
and impartiality in the new Act, government, statutory
authorities and government companies should think of
H phasing out arbitration clauses providing for serving
UNION OF INDIA v. MIS. SINGH BUILDERS SYNDICATE 567

.......
officers and encourage professionalism in arbitration. A
[Para 11] [573-C-D]

5.As far as this case is concerned, this Court does
not propose to issue any directions in regard to the fees,
as the High Court has fixed the fee at Rs.10,000/- per
B
hearing subject to a maximum of Rs.150,000f- plus
clerkage, to be shared equally by the parties. [Para 12]
,<.
[573-D-E]

Case Law Reference:
2008 (11) SCALE 500 relied on Para 7
c
2004 (1 O) sec 504 referred to Para 7

CIVIL APPELLATE JURISDICTION : Civil Appeal No.
.,. 3632 of 2007 .
D
From the Judgment & Order dated 27.03.06 of the High
Court of Delhi at New Delhi, Arbitration Petition No. 256/2005.

K. Radha Krishna, Asha G. Nair and D.S. Mahra for the
Appellants. E

Ajay Kumar and Arun Kumar Beriwal for the Respondent.
~
The following Order of the Court was delivered :

ORDER F

R.V. RAVEENDRAN, J.1. The appellant challenges the
order of the Delhi High Court dated 27.3.2006 appointing a
Retired Judge of the High Court as sole Arbitrator to decide
the disputes arising in respect of a construction contract
G
:::. ~ between the Northern Railways (appellant) and the respondent.
~

2. The appellant contends the appointment of arbitrators
should be only in accordance with Clause 64 of the general
terms and conditions contract which requires two serving
Gazetted Railway officers of equal status being appointed as H
~

568 SUPREME COURT REPORTS [2009) 3 S.C.R.

A Arbitrators. one by the contractor from a panel made available
t .- ..
by the General Manager of Northern Railways and the other by ,..
the Northern Railways, and the two arbitrators so appointed,
in turn appointing an Umpire.

3. It is true that the Arbitral Tribunal should be constituted
B
in the manner laid down in the Arbitration agreement. Provisions
for arbitration in contracts entered by governments, statutory
authorities, and government companies, invariably require that ""
the Arbitrators should be their own serving officers. Such a
provision has to be given effect, subject to requirements of
c independence and impartiality. But there can be exceptions and
this case which has a chequered history, falls under such
exceptions.
4. Let us refer to the facts briefly. The respondent made a
D request for arbitration in the year 1999. As the appellant failed ~

to take necessary steps as mandated by clause 64, the
respondent filed an application under Section 11 of the
Arbitration and Conciliation Act, 1996 ('Act' for short) in AA No.
202/2000. In pursuance of the directions issued on 11.11.2002
E by the designate of the Chief Justice of the Delhi High Court,
an Arbitral Tribunal was constituted in terms of clause 64,
consisting of Shri AK. Mishra, (Chief Engineer/TPS) nominated
by the contractor, Shri S.P. Virdi (Dy.F.A. & CEO) nominated
by the appellant, and Shri H.K. Jaggi (Chief Bridge Engineer) "'
as the Umpire. But even before the proceedings could
F
commence before the Arbitral Tribunal, Shri A.K. Mishra, one
of the Arbitrators, was transferred and consequently he •.
~<..:;
-

tendered resignation in May, 2004. As the appellant failed to
provide a fresh panel to enable the respondent to make a fresh
nomination, the respondent again approached the High Court
G by filing AA No.240/2004. A fresh panel was made available
thereafter from which the respondent nominated Shri Ashok
~ -....
~

Gupta as its Arbitrator. Hardly after one sitting of the Arbitral "'
Tribunal, Shri Ashok Gupta was also transferred and he
tendered his resignation on 21.7.2005. As appellant again
H failed to take steps for filling the vacancy, the respondent
t
UNION OF INDIA v. MIS. SINGH BUILDERS SYNDICATE 569
[RV. RAVEENDRAN, J.]
'
-·. approached the Court again by filing IA No. 6511/2005 in AA A
240/2004. In pursuance of an order dated 24.8.2005 passed
by the High Court, again a panel was made available and the
respondent made its choice on 9.9.2005. As no steps were
taken in pursuance of it by the appellant, the respondent sent
a reminder on 14.10.2005. There was no response. In this B
background, the respondent again approached the High Court
on 10.11.2005 in Arb. Petn. No. 256/2005 for appointment of
~
an independent sole arbitrator. During the pendency of the said
petition, the General Manager of Northern Railways appointed
Sri Ved Pal as the contractor's nominee arbitrator on c
22.11.2005.

5. The High Court was of the view that no useful purpose
will be served by again reconstituting a Three Member Arbitral
Tribunal in accordance with clause 64. The High Court found
that the matter has been pending from 1999 when the D
respondent first made the request for reference to Arbitration
and that the cumbersome process of constituting an Arbitral
Tribunal in terms of the Arbitration agreement and the delays
on the part of Railways in complying with the provisions of the
arbitration agreement, led to the arbitration becoming virtually E
a non-starter. Therefore, the High Court allowed the petition on
27.3.2006 and appointed Justice Jaspal Singh, a retired Judge
,,. of the Delhi High Court as the arbitrator. Justice Jaspal Singh
._ recused himself and the High Court on 19.7.2006, appointed
Justice R.C. Chopra, another retired Judge of the Delhi High F
Court as the arbitrator.

6. The said order is challenged in this appeal by special
leave. On 6.11.2006, this Court stayed the arbitration
proceedings before the sole Arbitrator. The question that arises
for consideration in this appeal by special leave is whether the G
~ .. appointment of a the retired Judge of the High Court as sole
/
Arbitrator should be set aside and an Arbitral Tribunal should
again be constituted in the manner provided in terms of clause
64.
H
570 SUPREME COURT REPORTS [2009] 3 S.C.R.

A 7. Dealing with a matter arising from the old Act
(Arbitration Act, 1940), this Court, in Union of India v.
MP.Gupta [2004 (10) SCC 504], held that appointment of a
retired Judge as sole Arbitrator contrary to clause 64 (which
requiring serving Gazetted Railway Officers being appointed)
B was impermissible. The position after the new Act came into
force, is different, as explained by this Court in Northern
Railway Administration, Ministry of Railway, New Delhi v. Patel
Engineering Company Ltd. [2008 (11) SCALE 500]. This
Court held that the appointment of arbitrator/s named in the
c arbitration agreement is not mandatory or a must, but the
emphasis should be on the terms of the arbitration agreement
being adhered and/or given effect, as closely as possible. It was
further held that the Chief Justice or his designate should first
ensure that the remedies provided under the arbitration
agreement are exhausted, but at the same time also ensure
0
that the twin requirements of sub-section (8) of section 11 of
the Act are kept in view. This would mean that invariably the
court should first appoint the Arbitrators in the manner provided
for in the arbitration agreement. But where the independence
and impartiality of the Arbitrator/s appointed/nominated in terms
E of the arbitration agreement is in doubt, or where the Arbitral
Tribunal appointed in the manner provided in the arbitration
agreement has not functioned and it becomes necessary to
make fresh appointment, the Chief Justice or his designate is
not powerless to make appropriate alternative arrangements
F to give effect to the provision for arbitration.

8. The object of the alternative dispute resolution process
of arbitration is to have expeditious and effective disposal of
the disputes through a private forum of parties' choice. If the
G Arbitral Tribunal consists of serving officers of one of the parties
to the dispute, as members in terms of the arbitration >- •

agreement, and such Tribunal is made non-functional on
account of the action or inaction or delay of such party, either
by frequent transfers of such members of the Arbitral Tribunal
H or by failing to take steps expeditiously to replace the
UNION OF INDIA v. MIS. SINGH BUILDERS SYNDICATE 571
[R.V. RAVEENDRAN, J.)

arbitrators in terms of the Arbitration Agreement, the Chief A
Justice or his designate, required to exercise power under
section 11 of the Act, can step in and pass appropriate orders.
We fail to understand why the General Manager of the Railways
repeatedly furnished panels containing names of officers who
were due for transfer in the near future. We are conscious of B
the fact that a serving officer is transferred on account of
exigencies of service and transfer policy of the employer and
that merely because an employee is appointed as arbitrator,
his transfer cannot be avoided or postponed. But an effort
should be made to ensure that officers who are likely to remain C
in a particular place are alone appointed as Arbitrators and that
the Arbitral Tribunal consisting of serving officers, decides the
matter expeditiously. Constituting Arbitral Tribunals with serving
officers from different far away places should be avoided. There
• can be no hard and fast rule, but there should be a conscious
effort to ensure that Arbitral Tribunal is constituted promptly and D
arbitration does not drag on for years and decades.

9. As noticed above, the matter has now been pending for
nearly ten years from the date when the demand for arbitration
was first made with virtually no progress. Having regard to the E
passage of time, if the Arbitral Tribunal has to be reconstituted
in terms of clause 64, there may be a need to change even the
other two members of the Tribunal. The delays and frequent
changes in the Arbitral Tribunal make a mockery of the process
of arbitration. Having regard to this factual background, we are F
of the view that the appointment of a retired Judge of the Delhi
High Court as sole Arbitrator does not call for interference in
exercise of jurisdiction under Article 136 of the Constitution of
India.

10. Another aspect referred to by the appellant, however G
requires serious consideration. When the arbitration is by a
Tribunal consisting of serving officers, the cost of arbitration is
very low. On the other hand, the cost of arbitration can be high
if the Arbitral Tribunal consists of retired Judge/s. When a retired
H
572 SUPREME COURT REPORTS [2009) 3 S.C.R.

' ..
A Judge is appointed as Arbitrator in place of serving officers,
the government is forced to bear the high cost of Arbitration
by way of private arbitrator's fee even though it had not
consented for the appointment of such non-technical non-
serving persons as Arbitrator/s. There is no doubt a prevalent
B opinion that the cost of arbitration becomes very high in many
cases where retired Judge/s are Arbitrators. The large number
of sittings and charging of very high fees per sitting, with _._

several add-ons, without any ceiling, have many a time resulted
in the cost of arbitration approaching or even exceeding the
amount involved in the dispute or the amount of the award.
c When an arbitrator is appointed by a court without indicating
fees, either both parties or at least one party is at a
disadvantage. Firstly, the parties feel constrained to agree to
whatever fees is suggested by the Arbitrator, even if it is high
or beyond their capacity. Secondly, if a high fee is claimed by
D
the Arbitrator and one party agrees to pay such fee, the other
party, who is unable to afford such fee or reluctant to pay such
high fee, is put to an embarrassing position. He will not be in a
position to express his reservation or objection to the high fee,
owing to an apprehension that refusal by him to agree for the
E fee suggested by the arbitrator, may prejudice his case or
create a bias in favour of the other party who readily agreed to
pay the high fee. It is necessary to find an urgent solution for
this problem to save arbitration from the arbitration cost. .. •.

Institutional arbitration has provided a solution as the
F Arbitrators' fees is not fixed by the Arbitrators themselves on
case to case basis, but is governed by a uniform rate
prescribed by the institution under whose ciegis the Arbitration
is held. Another solution is for the court to fix the fees at the
time of appointing the arbitrator, with the consent of parties, if
G necessary in consultation with the arbitrator concerned. Third .,_ ~
~

is for the retired Judge offering to serve as Arbitrators, to
indicate their fee structure to the Registry of the respective High
Court so that the parties will have the choice of selecting an
Arbitrator whose fees are in their 'range' having regard to the
H
UNION OF INDIA v. M/S. SINGH BUILDERS SYNDICATE 573
[R.V. RAVEENDRAN, J.]
... to-

stakes involved. What is found to be objectionable is parties A
being forced to go to an arbitrator appointed by the court and
then being forced to agree for a fee fixed by such Arbitrator. It
is unfortunate that delays, high cost, frequent and sometimes
unwarranted judicial interruptions at different stages are
seriously hampering the growth of arbitration as an effective 8
dispute resolution process. Delay and high cost are two areas
where the Arbitrators by self regulation can bring about marked
improvement.

11. We find that a provision for serving officers of one party
being appointed as arbitrator/s brings out considerable c
resistance from the other party, when disputes arise. Having
regard to the emphasis on independence and impartiality in the
new Act, government, statutory authorities and government
companies should think of phasing out arbitration clauses
providing for serving officers and encourage professionalism D
in arbitration.

12. As far as this case is concerned, we do not propose
to issue any directions in regard to the fees, as the High Court
has fixed the fee at Rs.10,000/- per hearing subject to a E
maximum of Rs.150,000/- plus clerkage, to be shared equally

... /<
by the parties .

13. In view of the above, the appeal is dismissed.

G.N. Appeal dismissed. F