08 March 2021, Monday

6 months ago

10. Appointing authority’s legal disability does not frustrate the arbitration clause (Delhi High Court)

08 March 2021 | TK Engineering Consortium Pvt. Ltd. v. Director (Projects) Rites Ltd. and another | Vibhu Bakhru J | 2021 SCC OnLine Del 1188

The arbitration clause stipulated that only a person appointed by the appointing authority (an Executive Director of RITES) would act as an arbitrator. If for any reason, this was not possible, there would be no arbitration at all.

It was common ground that the appointing authority lost the ability to appoint an arbitrator because of the change in the law. Was the arbitration clause frustrated? No, said the court because:

  1. The loss of ability was not absolute. It could still be waived by TK Engineering if it agreed in writing after the dispute arose that the authority could make an appointment. But in the absence of TKE’s consent, the clause was inoperative. It could be severed and did not invalidate the entire arbitration agreement.
  2. The no-arbitration part was not a standalone term but linked to the appointment clause, and it should also be considered inoperative rather than invalidating the agreement. The clause should be considered as only an adjunct clause. Once RITES agreed to arbitration, it could not say that the arbitration should be conducted by an impartial process or not at all,
  3. Also, RITES had in another round of litigation resisted TKE’s writ petition arguing that TKE should enforce contractual remedies.

Read the judgment here.


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