Hindustan Construction Company Ltd. Through its Authorised Signatory Yogesh Dalal vs. Bihar Rajya Pul Nirman Limited and Other [Decided on 28th November 2025]
The Supreme Court sets aside a Patna High Court decision whereby the High Court ordered the suspension of the arbitration proceedings upon the arbitrator becoming de facto unable to perform his function. The Court ruled that once a court accepts the existence of a valid arbitration agreement and appoints an arbitrator, it cannot, later on, interfere on the same question, as it would amount to an appeal disguised as supervisory review.
In the present case, there was an agreement between the appellants and the respondents (PSU) for a construction project. Clause 25 of the agreement provided for the settlement of disputes through arbitration, also containing a negative covenant that if the appointing authority, i.e., Managing Director, fails to appoint an arbitrator, the arbitration will be excluded as a means of settlement.
Upon the emergence of a dispute, the appellant, after trying for pre-arbitral dispute settlement, invoked arbitration and subsequently filed a petition under Section 11 of the A&C Act. The Patna High Court appointed Justice (Retd.) Shivaji Pandey was the sole arbitrator to resolve the dispute, following which the arbitral proceedings commenced and both parties led evidence. On three separate occasions, the parties jointly sought extensions of the arbitrator’s mandate under Section 29A(3), all of which were granted by the Patna High Court.
Subsequently, after the appellant had concluded its arguments, the respondents moved a civil review application seeking a stay on the arbitral proceedings, contending that, as the arbitrator had been appointed as President of the Meghalaya State Consumer Protection Commission, therefore, it had rendered him ineligible under the Seventh Schedule of the Arbitration and Conciliation Act, 1996. By its order dated 09.12.2024, the Patna HC directed the arbitrator not to proceed any further with the arbitration and also denied the request of the appellant to substitute a new arbitrator under Section 15(2) of the Act.
Aggrieved by the impugned decision of the Patna HC, the appellant filed the Special Leave Petition before the Supreme Court. The Division Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan, after considering the submissions advanced by the counsels for both sides, identified three central issues for consideration – (i) Whether the HC has power to review or recall its order under Section 11(6) of the A&C Act. (ii) Whether there exists a valid arbitration agreement between parties and whether clause 25 satisfies the statutory requirement of a binding arbitration agreement. (iii) Whether a joint application under Section 29A seeking extension of mandate constitutes a waiver under Section 12(5) proviso r.w. Section 4 of the Act.
The court adjudicating upon the first issue observed that the Patna HC erred in exercising its power to recall its earlier decision when it had no jurisdiction. The court placed reliance on a litany of Supreme Court decisions holding that there is no statutory provision for review or appeal from an order under Section 11, which reflects a conscious legislative choice. The court further added that, having Section 11 attained finality, the respondent could have approached the court under Article 136 or the arbitral tribunal under Section 16 of the Act, but having chosen neither route and applying for an extension under Section 29A, the respondents have been estopped from reopening the matter through review.
Addressing the respondents’ argument that the arbitration clause was invalid in light of the negative covenant in Clause 25 of the agreement, the court reaffirmed the settled position of law in on CORE II v. ECI SPIC SMO MCML (2025) 4 SCC 641, that unilateral appointment clauses in public-private contracts violate Article 14 and offend the principles of natural justice. Accordingly, the court held that the appointment power mentioned in clause 25 must be severed as void, and by applying the doctrine of severability, the substantive agreement to arbitrate will survive.
The Court also, while referring to Article 7(2) of the UNCITRAL Model Law, underscored that the real test for the existence of an arbitration agreement does not hinge on technical formalities but on the parties’ intention to submit their disputes to arbitration. In the present case, the court remarked that the fact that the respondents have actively participated in more than seventy hearings, filed pleadings, paid fees, and incurred substantial costs, unequivocally demonstrates the existence of a valid arbitration agreement.
Finally, while deciding the last issue, the Court distinguished that the present case does not attract any grounds in the Seventh Schedule, hence, the HC erred in its reliance on the rigours of Section 12(5). However, the conduct of the respondents by participation and consent amounted to a waiver of their right to challenge the continuation of the arbitral process through the lens of Section 4 of the Act.
Allowing the petition, the court directed that, instead of restarting a de novo arbitral process, the newly appointed arbitrator is to recommence the proceedings from the stage it was interrupted and endeavour to complete it within one year. With respect to the appointment of the substitute arbitrator, the HC was given the task to appoint one within two weeks from the date of receipt of this judgment.
Appearances:
For Petitioner(s): Mr. Navin Pahwa, Sr. Adv., Mr. Senthil Jagdeesan, Sr. Adv., Mr. Mahesh Agarwal, Adv,. Mr. Rishi Agrawala, Adv., Ms. Shruti Arora, Adv., Mr. Abhinabh Garg, Adv, Mr. E. C. Agrawala, AOR
For Respondent(s): Mr. Manish Kumar, AOR, Mr. Divyansh Mishra, Adv., Mr. Yoshit Jain, Ad
