Punatsangchhu – 1 Hydroelectric Project Authority, Bhutan vs Larsen & Toubro Ltd

Leave granted.

On 14.04.2009, a Contract Agreement was executed between the Appellant and the Respondent-Contractor for the Construction of Diversion

Tunnel, Dam, Intake and Desilting Arrangement including Hydro-mechanical Works of the Punatsangchhu-I Hydro-electric Project located in

Wangdue Phodrang District in Bhutan. The contract provided for resolution of disputes through arbitration. The relevant terms of the Contract are as

under :

Clause 5 (i) (b)

The law to which the Contract is to be subject and according to which the Contract is to be construed shall be the law for the time being in force in

Bhutan and within the jurisdiction of Thimphu courts.

Clause 67

(ii) Except where the decision has become final, binding and conclusive in terms of Sub Para (i) above disputes or differences shall be referred for

arbitration through to an Arbitral Tribunal of three arbitrators appointed jointly by the PHPA and the Contractor. Where the mandate of an arbitrator

terminates a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

In the absence of an Arbitration Act in Bhutan, the Arbitral Tribunal shall follow / be guided by the basic principles and procedures as contained in the

Indian Arbitration and Conciliation Act 1996. The parties shall be free to agree on a procedure for appointing the Arbitrators. Failing any agreement

for appointment of Arbitrators, each party shall appoint one Arbitrator and the two appointed Arbitrators shall appoint the third Arbitrator, who shall

act as the presiding Arbitrator.

Clause 67 (iv)

If either of the parties fail to appoint its arbitrators in pursuance of sub-clause

(ii) above, within 30 days after the receipt of the notice of the appointment of its arbitrators or the two appointed Arbitrators fail to agree on third

Arbitrator within thirty days from the date of their appointment then the appointment shall be made, upon request of a party, by the Chief Justice, Delhi

High Court, India/Thimphu High Court, Bhutan or any person or institutions designated by him.

Clause 67 (vii)(a)

All arbitration shall be held at New Delhi, India/ Thimphu, Bhutan.

On 25.02.2013, the Kingdom of Bhutan enacted the Alternative Dispute Resolution Act, 2013 (“the Bhutan Actâ€) to provide for settlement of

disputes through arbitration. The Act came into force w.e.f. 14.03.2013.

Disputes arose between the parties with respect to certain claims made by the Respondent-Contractor.

On 28.07.2020, the Respondent-Contractor sent a notice of arbitration to the Appellant-Authority under Clause 67 (ii) of the Contract, and nominated

a retired Judge of this Court as its nominee arbitrator.

In response to the Notice dated 28.07.2020, the Appellant replied vide Letter dated 04.08.2020, stating that it was agreeable for settlement of

disputes through arbitration. However, as per Clause 67 (ii) of the Contract, the arbitration would be governed by the Bhutan Act, 2013 and the place

of arbitration shall be at Thimphu, Bhutan as provided by Clause 67 (vii) (a).

In October, 2020, the Respondent-Contractor filed an application u/S. 11 (6) of the Arbitration & Conciliation Act, 1996 before the Delhi High

Court for appointment of an arbitrator on behalf of the Appellant-Authority.

The Delhi High Court vide Order dated 11.12.2020 held that Clause 67 (ii) of the Agreement did not indicate that the applicability of the 1996 Act

would cease on the enactment of the Bhutan Act. The enactment of the Bhutan Act, 2013 would not result in the 1996 Act becoming inapplicable.

The arbitration would be governed by the 1996 Act. Since the Hydro-electric Authority had failed to appoint its arbitrator, the Court exercised its

jurisdiction u/S.11, and made the appointment. It was further directed that the two arbitrators would proceed to appoint the presiding arbitrator, and the

arbitral proceedings would be governed by the provisions of the 1996 Act.

Aggrieved by the Order dated 11.12.2020, the Hydro-electric Authority filed the present special leave petition.

We have heard Mr. Tushar Mehta, learned Solicitor General of India and Mr. Ranjeet Kumar, Senior Advocate on behalf of the Appellant-Authority,

and Mr. Gourab Banerji, Senior Advocate on behalf of the Respondent-Contractor.

On 16.02.2021, the matter was taken up for admission hearing. We were informed by the Senior Counsel for the parties that in the meanwhile, the

arbitral tribunal had been constituted, as the two arbitrators had appointed Justice (Retd.) R.C. Lahoti, former Chief Justice of India, as the presiding

arbitrator.

The learned Solicitor General appearing on behalf of the Authority fairly submitted that the Appellant herein did not have an issue with respect to the

panel of arbitrators appointed for adjudication of the disputes. Their grievance was limited to the applicability of the Indian Arbitration & Conciliation

Act, 1996 and the seat of arbitration at New Delhi.

The matter was then taken up on 22.02.2021 for further hearing. Mr. Gourab Banerji, learned Senior Advocate for the Respondent-Contractor

submitted that his clients were agreeable to the arbitration being conducted in accordance with the Alternative Dispute Resolution Act, 2013 of

Bhutan, with the seat of arbitration at Thimphu.

In view of the consensus arrived between the parties, the Order of the High Court stands modified to the extent that all disputes arising out of the

Agreement dated 14.04.2009 shall be conducted in accordance with the Alternative Dispute Resolution Act of Bhutan, 2013 with the seat of

arbitration at Thimphu. The tribunal will, however, be at liberty to conduct some of the hearings, in consultation with the parties, at such venues as may

be convenient.

The Civil Appeal is disposed of, with no order as to costs.

Pending applications, if any, shall stand disposed of.