Government employees may be arbitrators

It is common for bidders who are keen to secure commercial contracts from the government, statutory bodies or public sector undertakings to agree to arbitration clauses that provide for employee-arbitrators. However, when disputes subsequently arise, contractors tend to baulk at the idea of arbitration by employee-arbitrators, instead litigating to secure an independent arbitrator.

The Supreme Court has addressed this recurring issue in its recent ruling in Indian Oil Corporation (IOC) v Raja Transport (Raja), holding that there is no bar against arbitration agreements in government contracts under the Arbitration and Conciliation Act, 1996, providing that an employee of the government department (usually a high official unconnected with the work or the contract) is appointed as the arbitrator.

The case dealt with a challenge that Raja had made before Dehradun civil court to the termination of its dealership for the retail of petroleum products by IOC. IOC opposed this move on the ground that, according to the contract between the two parties, disputes should be referred to IOC’s director of marketing. Raja then took its challenge to Uttarakhand High Court, which appointed a retired judge as the sole arbitrator. IOC opposed this before the Supreme Court, contending that the high court’s order was against the terms of the contract. For its part, Raja contended that any provision enabling one of the parties or its employee to act as an arbitrator was contrary to the fundamental principle of natural justice that no person can be a judge in his own cause.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in, lbhasin@vsnl.com or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.