In a packed courtroom on a slightly hectic Monday morning, the Supreme Court delivered a sharp correction to the Patna High Court’s handling of a long-running arbitration dispute between Hindustan Construction Company (HCC) and the Bihar Rajya Pul Nirman Nigam Ltd. The bench, led by Justice R. Mahadevan, made it clear that the High Court had crossed its limits by revisiting an earlier order appointing an arbitrator-an order that had already attained finality.
Background
The case traces its roots to a 2014 bridge construction contract over the Sone river. Disputes arose over additional costs and delays, leading HCC to invoke Clause 25-an arbitration clause embedded in almost every Bihar public works contract.
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One round of arbitration had already concluded successfully, with HCC getting an award in 2021. But when fresh disputes cropped up over the extended project period, the Patna High Court, in 2021, again appointed an arbitrator. Both parties participated for almost three years-over 70 sittings, in fact-before the State suddenly changed its stance.
In 2024, the State filed a review petition, arguing that the original clause no longer allowed arbitration because the Managing Director-the person authorised to appoint an arbitrator-had become legally ineligible after changes in the law. The High Court agreed, halted the proceedings, and then dismissed HCC’s arbitration request altogether.
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Court’s Observations
The Supreme Court didn’t mince words. Judicial review under the Arbitration Act, it stressed, is a tightly confined space, not a fresh playground to reexamine settled questions.
“The bench observed, ‘Once a court appoints an arbitrator, it becomes functus officio. It cannot reopen the issue merely because a later judgment takes a different view.’”
The Court emphasised that:
- The Arbitration Act is a “self-contained code” designed to reduce court interference.
- Review is allowed only for procedural mistakes or errors apparent on the face of the record-not for reinterpreting the contract.
- Parties had jointly sought extensions before the arbitrator multiple times, showing clear acceptance of the process.
- The State never objected during pleadings, never invoked Section 16 before the arbitral tribunal, and participated fully.
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At one point, Justice Mahadevan noted in a conversational tone, almost like speaking to counsel directly, that arbitration cannot be “embraced during good times and abandoned during bad ones.”
The Court also rejected the State’s argument that Clause 25 prevents arbitration if the Managing Director cannot make the original appointment. Such an interpretation, the bench said, would allow government bodies to “tilt the playing field” by drafting one-sided clauses and then using later legal changes to avoid arbitration altogether.
“There was a valid arbitration agreement, acted upon not once but twice,” the Court remarked, calling the sudden challenge after years of hearings “an attempt to derail the process.”
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Decision
In a decisive closing, the Supreme Court set aside the Patna High Court’s judgment dated 09.12.2024, restored the earlier 2021 order appointing an arbitrator, and allowed continuation of the stalled proceedings. The Court also directed that a substitute arbitrator be appointed to carry the case forward from the same stage, ensuring that the years of hearings and evidence already recorded do not go to waste. The matter, the bench held, must return to arbitration-not back to prolonged courtroom wrangling.
Case Title: Hindustan Construction Company Ltd. vs Bihar Rajya Pul Nirman Nigam Ltd. & Others
Case No.: Civil Appeal (Arising out of SLP (C) No. 4211 of 2025)
Case Type: Civil Appeal (Arbitration – Appointment of Arbitrator)
Decision Date: 09 December 2024
