Petition U/S 11 Of Arbitration Act Is Maintainable If Statutory Remedy Before Invoking Arbitration Clause Is Exhausted: J&K And Ladakh HC

Brief Facts

The instant petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') is for seeking appointment of an independent sole Arbitrator.

The petitioner-company is engaged in the business of construction of buildings and all connected services like roads, Electrification, water supply, Central heating, Air Conditioning etc. and is said to have successfully executed and completed various works.

In response to a NIT floated by the respondents for Provn. of KLP ACCN at Samba dated 29.03.2017 and subsequently amended and revised tender uploaded vide letter no. T-89125/78/E8 dated 04.08.2017), the petitioner was declared as a successful bidder and the order for execution of the work was issued in its favour.

The contract agreement for PROVIN of KLPACCN at Samba came to be executed between the petitioner, M/s Pardeep Electricals and Builders Pvt. Ltd., and the respondents on 14.10.2017. As per the terms and conditions of the contract, the period for completion of work was 30 months and project site was handed over on 24.10.2017 and the work at site commenced on 24.10.2017.

The said buildings, structures etc. were required to be constructed in accordance with the drawings and structures provided to the petitioner by the Chief Engineer. Out of 69 buildings to be constructed, the petitioner has completed 34 No's of buildings in all respects. Action/inaction on the part of the Respondents in granting of the extension of the work in a delayed and piece meal manner led to substantial delay in completion of the work.

The disputes and differences have arisen relating to and arising out of the Tender Notice in accordance with clause 70 of the IAFW 2249.

Contentions

The petitioners submitted that the petitioner served various notices upon the respondents seeking redressal of the grievances through Arbitration mode, but, no response was received from the respondents. The petitioner on 19.08.2023 issued notice seeking resolution of disputes through Disputes Resolution Board (hereinafter referred to as 'DRB') mechanism as provided under the Contract. The Respondents have failed to appoint the members of the DRB for adjudication of the disputes inter se the parties.

Per contra, the respondents submitted that in view of Condition 70 of IAFW 2249 unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the work or termination or determination of the contract.

That the petitioner abandoned the work on 12th Sep. 2023 and approached the Court. There is also a provision of DRB in the contract vide condition No.71 of IAFW-2249 and dispute, if any, during the execution of work is to be resolved through DRB.

That the extension of time was granted as requested by the petitioner. The petitioner stopped the work w.e.f. 12th Sep. 2023 and has taken legal course with an intention not to complete the work in near future. The contention of petitioner that he has undergone financial losses due to non-grant of advance extension is beyond facts. However, the claimant has not submitted his claim to the DRB till date and unnecessarily approached this court.

Court's Analysis

The first question before the court Whether petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, for appointment of arbitrator is maintainable in view of condition 71 of the Dispute Resolution Board (DRB).

The court after perusing the relevant clauses of the agreement noted that as per the relevant clause of Special Conditions of Dispute Resolution Board (DRB), the respondents were under an obligation to constitute a DRB and intimate the same to the petitioner-contractor within a specified period of time, i.e., one month.

Since time period for constitution and intimation of DRB was incorporated in the contract by way of amendment of 2018, therefore, it was an obligation upon the respondents to intimate the same within a period of one month from the date of incorporation of amendment, i.e., 26.09.2018. The respondents had to constitute a DRB by or before 26.10.2018 i.e. 30 days from 26.09.2018. Admittedly, neither the DRB was constituted nor the same was intimated to the claimant-contractor within stipulated period under the relevant clause, the court noted.

The court noted that in Pardeep Electricals and Building Pvt. Ltd. V/s Union of India, 2023 this court has held that once the respondents have failed to adhere to constitute and intimate the DRB, there is no alternative remedy for adjudication of the dispute, but, for the arbitration.

Based on the above, the court noted that the respondents have failed to fulfill their obligation, resultantly, reference of dispute to the DRB did not arise. Thus the petition can be considered by this Court in terms of the provisions of Section 11(6) of the Act.

The second issue before the court was whether invoking of arbitration clause 70 is permissible in view of the contract is incomplete, terminated or determined in view of the condition Nos. 55, 56 and 57.

The court noted that It is pertinent to mention here that original period of completion was 23.04.2020, and the last extension was also upto 04.09.2023 and extended period has also expired and there has been no extension thereafter.

The court further noted that this court in M/s Mohindra Bros versus Union of India & others, 2012 has held that even if there is a prohibition of seeking reference under the arbitration clause till the completion of the work, such condition would not come into play after the period of contract has expired.

Based on the above, the court came to the conclusion that the plea about bar for non-reference to the arbitration in terms of clause 70 of IAFW-2249 is also not applicable in the present case.

The court noted that in Ajay Madhusudan Patel and others vs. Jyotrindra S.Patel, 2024 and others the Supreme Court has held that when a plea of “accord and satisfaction” is taken by the defendant.In a scenario where the Courts delve into the domain of the arbitral tribunal at the Section 11 stage and reject the application, there is a risk of leaving the claimant forum-less for the adjudication of its claims. It was stated that a detailed examination at this stage would also be counterproductive to the objective of expediency in deciding a Section 11 application and simplification of pleadings.

The third question before the court was whether a petition under section 11(6) of the Arbitration and Conciliation Act, 1996 is maintainable, if the notice invoking arbitration clause is not served in terms of Section 11(4)(a).

The court noted that the reference of the notice invoking arbitration letter of the claimant in respondents' letter dated 20.01.2024 clearly demonstrate that a notice invoking arbitration was duly served upon and replied too. Therefore, the contention of respondents that there is non-compliance of the service of notice of invoking arbitration is also not borne out of the record, rather it is contrary to the same.

The court concluded that the petitioner had already approached the respondents for referring the matter to the Dispute Resolution Board (DRB) and therefore, has exhausted the statutory remedy well before approaching this Court. Thus, the petitioner cannot be relegated back to approach the DRB at this stage. The record clearly indicates that the work could not be progressed due to the inaction on the part of the respondents and the said inaction on the part of the respondents itself creates a dispute inter alia parties to the agreement and the same is liable to be referred to the arbitration. Accordingly, the petition was allowed and the arbitrator was appointed.

Case Title: M/s Pardeep Electricals and Building Pvt. Ltd. Vs. Union of India and Ors.

Case Reference: Arb P No. 47/2023

Judgment Date: 8/11/2024