Supreme Court of India
Punatsangchhu I Hydroelectric … vs Larsen And Toubro Limited on 22 February, 2021Author: Hon’Ble Ms. Malhotra

Bench: Hon’Ble Ms. Malhotra, Ajay Rastogi





(Arising out of SLP (C) No. 2544 / 2021)

Punatsangchhu – 1 Hydroelectric Project
Authority, Bhutan …APPELLANT


Larsen & Toubro Ltd. … RESPONDENT


Leave granted.

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.

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.
Signature Not Verified

Digitally signed by Dr.
Mukesh Nasa
In the absence of an Arbitration Act in Bhutan, the Arbitral Tribunal shall
Date: 2021.02.24
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
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

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

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.

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.



New Delhi;
February 22, 2021.


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