Government corporations insist on appointing their own officials as arbitrators in disputes with contracting parties.
Arbitration clauses in contracts between corporations have contributed to an unending stream of litigation, requiring the skill of the judges to interpret the terms. Though the phrases are chosen by masters of the legalese, there could still be some loose points which could be argued out in the courts.
When one party is a government corporation, there is no level playing field. Often the opposite party has to agree to unfair stipulations. One of the most unfair conditions insisted upon by the government, public authorities and undertakings is regarding the choice of the arbitrator. The public entities insist on choosing a serving officer to arbitrate disputes. In one case, a government organisation insisted on appointing even a retired officer to mediate. The opposite party has little choice in the matter.
In two judgements delivered by the Supreme Court in recent weeks, arbitrators were serving officers. The court called for a change in this model. In Union of India vs Singh Builders Syndicate, the court said: “We find that a provision for serving officers of one party being appointed as arbitrators brings out considerable resistance from the other party, when disputes arise. Having regard to the emphasis on independence and impartiality in the Arbitration and Conciliation Act, the government, statutory authorities and government companies should think of phasing out arbitration clauses providing for serving officers and encourage professionalism in arbitration.”
Government corporations generally hand out a “general terms and conditions of contract” for private parties to sign on the dotted line. In this case, the arbitration clause insisted that the disputes will be arbitrated by two gazetted officers. One will be chosen by the government entity (the railways in this case) itself, the other will be chosen from a panel of officers by the private contractor and the two officers will chose an umpire.
What happens when bureaucrats are compulsorily appointed arbitrators in their cause is evident in this case and in similar ones. In this case, the dispute arose in 1999. But the railways did not nominate its arbitrator for a long time. So the contractor moved the Delhi high court. It appointed an officer as arbitrator in 2002. But then he was transferred to another place. There was no successor for a long time. So the contractor moved the high court again. Then a new panel was selected. After one sitting, the new officer was also transferred. This process was repeated three more times in as many years as officers on the point of transfers were appointed as arbitrators, arousing the suspicion of the court.
Even the patience of the high court was exhausted as all its efforts proved abortive. So it appointed a retired judge as arbitrator. The government moved the Supreme Court arguing that it could not be done according to the arbitration clause. The Supreme Court rejected its contention and allowed the retired judge to start the arbitration process, now in its second decade.
In another appeal (Kailash Store vs Union of India), the Supreme Court appointed a retired registrar of the Delhi High Court as arbitrator when the government failed to nominate its officer.
In an earlier case, Godavari Marathwada Irrigation Development Corporation vs Pawar & Co, the public authority insisted on naming a retired superintendent engineer as sole arbitrator whereas the contract spoke only of serving superintending engineer. The Supreme Court asked the corporation to name a serving officer.
One of the most oppressive arbitration clauses ever seen was in BSNL vs Motorola India (2007). It read in part: “There will be no objection to any such appointment on the ground that the arbitrator is a government servant or that he has to deal with the matter to which the agreement relates or that in the course of his duties as a government servant he has expressed his views on all or any of the matters in dispute.” The Supreme Court dismissed the BSNL’s appeal.
The Singh Builders decision has tried to break the hold of the bureaucrats by giving power to the Chief Justice to name the arbitrators in such inequitable situations. The court ruled that the terms of the contract must be adhered to as far as possible. However, if the independence or impartiality of the nominated member is in doubt and if the panel has been dysfunctional, the Chief Justice can step in and make alternative arrangements.
The object of arbitration is to provide for an expeditious and effective alternative mechanism for resolution of disputes. If one party puts hurdles, the Chief Justice now has the power to rectify the situation. This ruling should deter the mandarins from their habit of waving stock clauses before contracting parties and even before the court to perpetuate their hold on arbitration forums.
