2023 Supreme(SC) 1108

SUPREME COURT OF INDIA
DHANANJAYA Y. CHANDRACHUD, CJI., J.B. PARDIWALA, MANOJ MISRA, JJ.
Lombardi Engineering Limited - Petitioner
Versus
Uttarakhand Jal Vidyut Nigam Limited – Respondent
Arbitration Petition No. 43 Of 2022
Decided On : 06-11-2023

IMPORTANT POINTS
(1) Arbitral tribunal is preferred first authority to determine and decide all questions of non arbitrability – Court should and need only look into one aspect, existence of an arbitration agreement – Concept of “party autonomy” cannot be stretched to an extent where it violates fundamental rights under Constitution.
(2) In field of international arbitration, neutrality is generally related to nationality of Arbitrator – Courts have appointed Arbitrators, giving a go-by to agreed arbitration clause in certain contingencies and situations.
(3) Norm of Grundnorm (Fundamental norm) – Grundnorm is starting point in a legal system and from this base a legal system broadens down in gradation becoming more and more detailed and specific as it progresses.

Headnote:

(A) Arbitration and Conciliation Act, 1996 – Section 11(6) – Appointment of Arbitrator – Arbitral tribunal is preferred first authority to determine and decide all questions of non arbitrability – Court should and need only look into one aspect, existence of an arbitration agreement – Concept of “party autonomy” cannot be stretched to an extent where it violates fundamental rights under Constitution – For an arbitration clause to be legally binding it has to be in consonance with “operation of law” which includes Grundnorm i.e. Constitution – There can be no consent against law and there can be no waiver of fundamental rights – If circumstances exist giving rise to justifiable doubts as to independence and impartiality of person nominated or if other circumstances warrant appointment of an independent arbitrator by ignoring procedure prescribed, Chief Justice or his designate may, for reasons to be recorded ignore designated arbitrator and appoint someone else. (Paras 29, 83, 84, 85 and 87)

(B) Arbitration and Conciliation Act, 1996 – Section 11(6) – Appointment of Arbitrator – Dispute arising from contract of providing Consultancy Services – Termination of contract alleging non-compliance of work and non-fulfilment of contractual obligation – In field of international arbitration, neutrality is generally related to nationality of Arbitrator – Courts have appointed Arbitrators, giving a go-by to agreed arbitration clause in certain contingencies and situations – Purpose of arbitration is to ensure that contracting parties have access to “a ‘good and accessible method of seeking resolution for many kinds of disputes’ that ‘can be more expedient and less costly than going to court – Former Chief Justice of High Court of Sikkim appointed as sole Arbitrator. (Paras 90, 92, 98 and 104)

(C) Constitution of India – Article 13 – Norm of Grundnorm (Fundamental norm) – Grundnorm is starting point in a legal system and from this base a legal system broadens down in gradation becoming more and more detailed and specific as it progresses – This is a dynamic process – At the top of pyramid is Grundnorm which is independent – Subordinate norms are controlled by norms superior to them in hierarchical order – System of norms proceeds from downwards to upwards and finally closes at Grundnorm – Our Constitution is paramount source of law in our country – All other laws assume validity because they are in conformity with Constitution – Constitution itself contain provisions that clearly provide that any law which is in violation of its provisions is unlawful and is liable to be struck down – Constitution is basic and ultimate source of law. (Paras 78 and 79)

Facts of the case:

This is a petition under Section 11(6) of Arbitration and Conciliation Act, 1996 filed at instance of a company based in Switzerland and engaged in business of design consultancy seeking appointment of an Arbitrator for adjudication of disputes and claims emanating from Contract dated 25.10.2019 entered into between petitioner and respondent i.e., Uttarakhand Vidyut Nigam Limited (a wholly owned corporation of Government of Uttarakhand). Petitioner is a design consultancy firm based in Switzerland. Respondent is a wholly owned corporation of Government of Uttarakhand.

Findings of Court:

We should ignore two conditions contained in Clause 55 of the GCC, one relating to 7% deposit of total amount claimed and second one relating to stipulation empowering Principal Secretary (Irrigation) Government of Uttarakhand to appoint a sole Arbitrator and proceed to appoint an independent Arbitrator.

Result : Application allowed.