Power Grid Corporation Of INDIA LTD vs. M/S Jugendra Singh And Company

Facts

Power Grid Corporation of India Ltd. (Appellant) entered into a contract with M/s. Jugendra Singh and Company (Respondent) for construction work. The contract was terminated due to non-completion, and the Appellant sought to recover the balance risk and cost amount. The Appellant invoked arbitration, appointing a Sole Arbitrator as the Respondent failed to nominate its arbitrator within the stipulated time. The arbitral proceedings were conducted ex-parte as the Respondent remained unrepresented or failed to provide proper authorization. The Sole Arbitrator partially allowed the Appellant's claims, including an award for balance works and liquidated damages, but denied GST on these amounts. The Respondent challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, before the Commercial Court, which set aside the award. The Appellant has now appealed this decision.

Held

The Court held that the Sole Arbitrator was not appointed in terms of the Contract Agreement. The Appellant's action of unilaterally appointing its nominee as the Sole Arbitrator was found to be contrary to the arbitration clause, making the appointment unsustainable and the impugned award liable to be set aside. Furthermore, the Court found merit in the contention that the Sole Arbitrator failed to make the requisite disclosures under Section 12(1) of the Arbitration and Conciliation Act, 1996. While the format of disclosure might be directory, the obligation to disclose circumstances that could give rise to justifiable doubts as to independence and impartiality is mandatory. The Sole Arbitrator did not disclose any past or present relationship with the Appellant, and the Appellant's counsel could not confirm the absence of such a relationship. This failure to disclose, as highlighted by the judgment and supported by precedent, is a necessary safeguard for the integrity of arbitration. Therefore, the learned Commercial Court's conclusion that the award is liable to be set aside under Section 34 of the A&C Act was upheld.

Key Issues

1. Whether the Sole Arbitrator was appointed in accordance with the arbitration agreement, specifically Clause 69 of the GCC, and if not, whether this vitiates the arbitral award? The Respondent argued that the Appellant unilaterally appointed the arbitrator as the Sole Arbitrator, contrary to the arbitration agreement, rendering the appointment unsustainable and the award liable to be set aside. The Appellant's counsel's submissions on this point are not explicitly recorded, but the judgment implies the Appellant contested this ground. 2. Whether the Sole Arbitrator failed to make the requisite disclosures under Section 12(1) of the Arbitration and Conciliation Act, 1996, and if so, does this warrant setting aside the award? The Respondent contended that the Sole Arbitrator did not make the mandatory disclosures regarding potential conflicts of interest or relationships with the parties. The Appellant's counsel conceded they could not state that the arbitrator had no past relationship or engagement with the Appellant, underscoring the lack of disclosure.