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| M J Antony: Babu in umpire's hat |
| M J Antony / New Delhi Sep 02, 2009, 00:15 IST |
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Officials doubling up as arbitrators violate the principle of neutrality in decision making.
In the scramble for government contracts, the bidders often overlook certain terms of the agreements. These may later turn out to be legal traps. One of the oppressive conditions often inserted is that when there is a dispute, it shall be referred to an arbitrator who is one of the officers of the government itself. Only when a disagreement crops up do the contractors realise the inequity of the provision.
This recurrent issue arose once again in the Supreme Court last month in the case, Indian Oil Corporation vs Raja Transport. When the dealership of the latter firm was terminated, it took IOC to a civil court. The public sector undertaking argued that according to the contract, disputes should be referred to its marketing director. The contractor moved the Uttarakhand high court. It appointed a retired judge as the sole arbitrator. IOC moved the Supreme Court contending that this order was against the terms of the contract. The Supreme Court allowed its appeal and appointed the director as the sole arbitrator.
One of the cardinal principles of jurisprudence is ‘natural justice’. According to it, no person can be a judge in his own cause. In government contracts, the arbitrator is usually the executive engineer or someone delegated by him. On the face of it, this is unfair. So the number of appeals by contractors seeking independent arbitrators is rising. Recognising this ‘vexed problem’, the Supreme Court in this case asked the government/statutory authorities/PSUs to change the norms.
The judgment said: “It will be appropriate if they reconsider their policy providing for arbitration by employee-arbitrators in deference to the specific provisions of the new Arbitration and Conciliation Act reiterating the need for independence and impartiality in arbitrators. A general shift may in future be necessary for understanding the word ‘independent’ as referring to someone not connected with either party. That may improve the credibility of the arbitration as an alternative dispute resolution process.”
The judgment makes two distinctions. If the employee-arbitrator is the controlling authority in the matter involved in the dispute, the apprehensions of the contractor may be justifiable. However, if the arbitrator is a senior government officer who had nothing to do with the execution of the contract, his independence or impartiality cannot be doubted in the absence of any specific evidence.
Secondly, employees of a non-government organisation stand differently. For example, a director of a private company which is a party to the arbitration agreement may not be suitable to act as an arbitrator. In such cases, the court has the discretion to not appoint such a person as arbitrator even if the contract provides so.
It is not just the clouds over the impartiality of the government nominee which upsets the contractors. Lethargy or delay-tactics also cause heartburn. Five months ago, the court decided such a case, Union of India vs Singh Builders Syndicate. According to the arbitration clause, two gazetted officers will be the arbitrators in the dispute with the railways. The two will chose another bureaucrat as the umpire. The dispute started in 1999. The railways did not nominate the arbitrators. The contractor had to move the Delhi High Court to get them appointed. But then one of them was transferred, leaving the post vacant for a long time. A new panel was appointed, but after one sitting, the members were transferred wholesale. This process was repeated three times in as many years as officials on the point of transfer were nominated as arbitrators.
The patience of the high court was exhausted and it appointed a retired judge as the arbitrator. Then the government appealed to the Supreme Court pointing out that the order was against the terms of the contract. However, the Supreme Court dismissed the appeal in the facts and circumstances of the case.
In another case, when the government failed to nominate the arbitrator, the Supreme Court recently appointed a retired registrar of the high court as the arbitrator (Kailash Store vs Union of India).
In view of the repetitive nature of the problem, the Supreme Court has laid down a few principles in the IOC judgment. The two important ones are: The court should try to give effect to the appointment procedure prescribed in the arbitration clause; and secondly, if circumstances point to likelihood of bias, the chief justice or his designate may depart from the above rule and appoint someone else, but he should record the reasons for ignoring the rule. The court might seem to have contained the flow of litigation for the moment, but unless the norms of government contracts are brought in consonance with the new arbitration law on impartiality of the arbitrator, contractors will continue to find their position insecure.
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