SC Declares S.4(3)(b) Of BPWC Arbitration Tribunal Act Unconstitutional, Finds It Inconsistent With Rule of Law

The Supreme Court, has declared Section 4(3) (b) of the Bihar Public Works Contracts Arbitration Tribunal Act, 2008, unconstitutional, and has observed that a provision for tenure of the chairman and other members of the Arbitration Tribunal at the pleasure of the government is inconsistent with the constitutional scheme.
This decision was given by the Bench of of Justice AK Goel, Justice RF Nariman and Justice Navin Sinha.The bench gave this decision while they were hearing an appeal by the State of Bihar in which they had challenged the appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (the Central Act) on the ground that the said Act is excluded by the Bihar Public Works Contracts Arbitration Tribunal Act, 2008 (Bihar Act 21 of 2008) (the State Act).
The court while dismissing this appeal said that since in this case, arbitration agreement exists and stipulates applicability of the Central Act, the State Act will not apply.
During the hearing, the counsel for the respondent contended that Section 4(3)(b) of the State Act is patently unconstitutional. The said section reads as follows: “The Chairman and any other member shall hold the office at the pleasure of the Government, provided that; in case of premature termination; they shall be entitled to three months pay & allowances in lieu of compensation.”
The three judge bench, referring to Section 4(1) of the State Act which provides that provides for a three-year tenure or till the age of 70 years, observed: “Termination of the said tenure cannot be at pleasure within the term stipulated as the arbitration tribunal has quasi-judicial functions to perform. Any termination of the service of such member by a party to the dispute would interfere directly with the impartiality and independence expected from such member. The said provision is, thus, manifestly arbitrary and contrary to the Rule of Law.” They we’re of the view that the provision was directly in conflict with Article 14 of the Indian Constitution.
This decision was given by the Supreme Court in M/S Lion Engineering Consultants V. State of M.P. & Ors. on 22nd March, 2018.