The Cost of Appointing a Retired Judge as an Arbitrator: A Comment on Union of India V. Singh Builders Syndicate

Article excerpt

The Supreme Court of India has given a much-deserved boost to institutional arbitration. However, in Union of India v. Singh Builders Syndicate1 the Court alluded to cost problems with the process when it said that it is necessary to find an urgent solution to save arbitration from arbitration costs.

In Singh Builders, appellant Northern Railways (a Union of India undertaking) challenged the order of the Delhi High Court appointing a retired judge of the High Court as the sole arbitrator in a dispute over a construction contract between the appellant and the respondent. Northern Railways contended that the appointment of arbitrators should comply with Clause 64 of the general terms and conditions of contract, which requires two "gazetted" railway officers of equal status to be appointed from a panel made available by Northern Railways, one of whom is appointed by the contractor and the other by Northern Railways, and the third by the two party-appointed arbitrators.

The respondent made a request for arbitration in 1999. When Northern Railways failed to take necessary steps to appoint the arbitrator under Clause 64, respondent filed an application under the Arbitration and Conciliation Act, 1996 (1996 Act) seeking appointment of the tribunal by the court. In 2002, the court constituted a tribunal under Clause 64, appointing the serving officers of Northern Railways as arbitrators. But before the proceedings could commence one of the arbitrators was transferred and consequently resigned in May 2004.

The same process began all over again, twice. Therefore the respondent approached the High Court seeking the appointment of a sole arbitrator. The High Court, taking into account the conduct of Northern Railways, decided that no useful purpose would be served by again reconstituting a three-member panel under Clause 64. After all, the matter had been pending since 1999 and each time a panel was appointed an arbitrator resigned. Accordingly, the High Court appointed a retired Judge of the Delhi High Court as the arbitrator.

Northern Railways challenged the appointment of the retired judge as a sole arbitrator before India's Supreme Court. It argued that when a retired judge is appointed as the arbitrator in place of serving officers, the government is forced to bear the high cost of the retired judge's fee even though it had not consented to his appointment.

The question before the Supreme Court was whether the retired judge's appointment as sole arbitrator by a court should be set aside and a tribunal be constituted under Clause 64.

Reasoning of the Supreme Court

In a decision under the 1940 Arbitration Act, the Supreme Court had held that the court is not allowed to appoint a retired judge as sole arbitrator contrary to Clause 64. However, under the 1996 Arbitration Act, the Court reached a different conclusion. It held in Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Co. Ltd.,2 that the appointment of arbitrators named in the arbitration agreement was not mandatory, but the terms of the agreement should be adhered to as closely as possible. Thus, Patel Engineering required the court to first appoint the arbitrators in the manner provided in the arbitration agreement. If the independence and impartiality of an appointed or nominated arbitrator is then put in doubt, or the tribunal fails to function and it becomes necessary to make fresh appointments, the court could make appropriate alternative arrangements to give effect to the arbitration provision. The Supreme Court observed:

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 make a mockery of the process of arbitration. Having regard to this factual background, we are of the view that the appointment of a retired Judge of the Delhi High Court as sole Arbitrator does not call for interference. …