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Supreme Court of India
Punatsangchhu I Hydroelectric … vs Larsen And Toubro Limited on 22 February, 2021
Author: Hon’Ble Ms. Malhotra
Bench: Hon’Ble Ms. Malhotra, Ajay Rastogi
1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.693 OF 2021 (Arising out of SLP (C) No. 2544 / 2021) Punatsangchhu – 1 Hydroelectric Project Authority, Bhutan …APPELLANT Versus Larsen & Toubro Ltd. … RESPONDENT ORDER
1. 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.
(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.
Signature Not Verified
Digitally signed by Dr.
In the absence of an Arbitration Act in Bhutan, the Arbitral Tribunal shall
17:07:26 IST 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
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
Clause 67 (vii)(a)
All arbitration shall be held at New Delhi, India/ Thimphu, Bhutan.
2. On 25.02.2013, the Kingdom of Bhutan enacted the Alternative
Dispute Resolution Act, 2013 (“the Bhutan Act”) to provide for settlement
of disputes through arbitration. The Act came into force w.e.f. 14.03.2013.
3. 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.
4. 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).
5. 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.
6. 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.
7. 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
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
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.
8. 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.
9. 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.
February 22, 2021.