Consent to re-reference bars a belated challenge to the resulting arbitral award under Section 34.

The Union of India awarded M/s ANS Construction Ltd. a contract for construction of residential quarters and allied development works at Balrampur, Uttar Pradesh, with the stipulated completion date of 28 December 2011.

The contractor furnished various fixed deposits and bank guarantees towards earnest money, performance security and security deposit.

Disputes arose and were initially referred to a sole arbitrator, who passed an award dated 26 July 2017 in favour of the contractor, after adjusting the Union’s counter-claim for mobilisation advance.

The first award was subsequently settled between the parties, and the settlement amount was paid by the Union.

Six additional claims concerning release of bank guarantees, fixed deposits and related amounts were not adjudicated in the first arbitration.

A second arbitrator terminated those proceedings under Section 25(a) of the Arbitration and Conciliation Act, 1996, owing to the contractor’s failure to file its statement of claim.

Thereafter, by consent of the parties, the High Court appointed Ms. Justice Pratibha Rani (Retd.) as arbitrator to adjudicate the six additional claims and any claim for reimbursement of interest or charges incurred in keeping the bank guarantees alive.

The arbitrator passed the impugned award dated 5 April 2019, permanently restraining encashment of the specified bank guarantees and FDR, directing their release, and awarding Rs.7,08,375 towards bank charges, besides arbitral costs and post-award interest.

The Union challenged the award under Section 34 of the Act.

Whether the High Court-appointed arbitrator could validly adjudicate the six additional claims after the earlier arbitral proceedings concerning those claims had been terminated under Section 25(a) of the Act?

Whether the arbitrator exceeded the scope of reference by awarding reimbursement of interest and bank charges incurred for keeping the bank guarantees alive?

Whether the impugned award disclosed perversity, violation of the fundamental policy of Indian law, or any other ground warranting interference under Section 34 of the Act?

The Court applied Section 34 of the Arbitration and Conciliation Act, 1996, under which judicial interference with an arbitral award is limited to the statutory grounds, including violation of the fundamental policy of Indian law and perversity.

Section 25(a) permits termination of arbitral proceedings where the claimant fails to communicate its statement of claim, but such termination did not preclude the subsequent consensual reference of the claims in the circumstances of this case.

The Court also applied the principles of waiver, consent and acquiescence: a party that consented to a reference and failed to object to the jurisdiction at the relevant stage could not raise the objection belatedly.

It further relied on the principle that concluded disputes should not be reopened through inconsistent proceedings, consistent with the doctrines of res judicata and constructive res judicata, and held that once the underlying contractual disputes had been finally adjudicated and settled, the corresponding performance securities could not be retained or invoked without an outstanding contractual liability.

The Court considered, but found no basis to apply, the petitioner’s reliance on M/s Tantia Constructions Ltd. v. Union of India, SLP (Civil) No.10722 of 2022, order dated 15 July 2022.

The Court rejected the Union’s objection that the second reference was legally impermissible because the earlier arbitrator had declined to adjudicate the six claims and the subsequently appointed arbitrator had terminated proceedings under Section 25(a).

The decisive circumstance was that, on 4 September 2018, the High Court appointed another arbitrator by consent to adjudicate the very same six claims and related bank-charge claims.

The Union neither objected to that reference on the ground of the prior termination nor challenged the order of appointment; consequently, its belated jurisdictional objection was held unsustainable.

On the merits, the first award had determined the parties’ reciprocal contractual liabilities and had thereafter been settled and acted upon.

The arbitrator therefore reasonably concluded that no subsisting liability remained which could justify encashment or retention of the performance guarantees, security deposits or FDR.

The award of bank charges was also within the reference because the High Court’s order expressly authorised adjudication of claims for interest and charges incurred in maintaining the bank guarantees.

The Court found the arbitrator’s reasoning consistent with settled legal principles and detected neither perversity nor any violation of the fundamental policy of Indian law.

It upheld the impugned award permanently restraining encashment of the specified bank guarantees and FDR, directing their return/release, awarding Rs.7,08,375 towards bank charges, granting arbitral costs to the extent of the tribunal fee, and providing for interest at 12% per annum if the awarded amount was not paid within three months of the award.

The Court held that the Union, having consented to the subsequent reference and having settled the first award, could not belatedly challenge the arbitrator’s jurisdiction or retain the securities in the absence of any surviving contractual liability.