Once Parties Explore Settlement Of Dispute Through Arbitration, It Can't Be Said That Pre-Condition To Invoke Arbitration Was Not Fulfilled: Telangana High Court

Brief Facts:

The Ministry of Road Transport & Highways floated a tender for widening an existing road in Arunachal Pradesh. M/s ECI Engineering & Construction Company (“Respondent No. 2”) and M/s SREI Infrastructure Finance jointly participated and secured the tender. M/s Potin Pangin Highway (“Respondent No. 1”), a private limited company, was incorporated as a Special Purpose Vehicle (“SPV”) to carry on the work.

Later, a concession agreement was entered into by Respondent No.3 with Respondent No.1, who then entrusted the work to Respondent No.2. Respondent No. 1 and Respondent No. 2 contracted with the Applicant to start the construction of the road.

Following these agreements, a dispute arose, resulting in the termination of the contract awarded to the Applicant, and the encashment of bank guarantees. Feeling aggrieved, the Applicant approached the Telangana High Court (“High Court”) and filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for the appointment of an arbitrator.

The Applicant contended that the contract contained an arbitration clause (Clause 22.4) and that attempts were made to seek an amicable settlement as per Clause 22.3. However, as no resolution was reached, the Applicant was compelled to file the application under Section 11(6) due to the impending limitation period. The Applicant nominated Justice Manohar Lal Mehta, Former Judge of Delhi High Court, as its arbitrator.

In contrast, Respondent No.1 argued that the Applicant failed to follow the condition precedent for invoking the arbitration clause by not attempting an amicable settlement as per Clause 22.3. It contended that the Applicant cannot benefit from its wrong. Respondent No.1 nominated Justice N. Ravi Shankar, Former Judge of the High Court of Andhra Pradesh, as its arbitrator.

Observations by the High Court:

The High Court emphasized the necessity for a written agreement between parties to refer disputes to a private tribunal whose decision would be binding. It acknowledged that the parties entered into a contract containing an arbitration clause. The primary contention raised by Respondent No.1 against the application was the alleged failure of the applicant to fulfil the condition precedent for invoking the arbitration clause.

The High Court analyzed the correspondence (communication and exchanges) between the parties to assess whether the condition precedent for invoking the arbitration clause had been satisfied. It noted that the Applicant sent a notice to Respondent No.1 explicitly referring to Clause 22 of the Engineering, Procurement, and Construction contract, which pertained to dispute resolution. Despite subsequent communications indicating a willingness to engage in an amicable settlement, the parties failed to resolve.

Upon examining the correspondence and the parties' attempts at amicable settlement, the High Court concluded that both parties explored the possibility of settling the dispute amicably in Hyderabad. However, the same could not materialize. This showed that the Applicant did fulfil the pre-condition under Clause 22.3 of the contract.

The contract stipulated the constitution of an arbitral tribunal comprising three arbitrators, with each party nominating one arbitrator, who would then appoint the presiding arbitrator with mutual consent. Therefore, the High Court appointed Justice Manohar Lal Mehta, Former Judge of Delhi High Court, and Justice N. Ravi Shankar, Former Judge of the High Court of Andhra Pradesh, as arbitrators.

Case Title: M/s T.K. Engineering Consortium vs M/s Potin Pangin Highway Pvt. Ltd. and Ors.

Case Number: Arbitration Application No. 70 of 2023

Advocate for the Applicant: Mr S. Ravi Shankar, representing Mr Vakiti Vineeth Reddy.

Advocate for the Respondent: Mr. M.Ravindranath Reddy, representing Mr. B.Srinarayana.

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