Arbitration Agreement Valid Without Specifying 'Applicable Law', 'Seat' Or 'Venue' If Intent To Refer Dispute To Private Tribunal Is Clear: Calcutta HC

Brief Facts

The petitioner filed the application for appointment of an Arbitrator to adjudicate disputes arising from a Memorandum of Understanding (MoU) with the respondent for executing a project under the Ministry of Rural Development, Government of India. Disputes arose when the respondent refused to pay for the second phase of the project due to alleged non-compliance with the MoU.

The petitioner filed a writ petition before the High Court, which was dismissed as not maintainable. The court held that adjudication required examining evidence, which was beyond its jurisdiction. It allowed the parties to seek recourse through arbitration or any other forum. The petitioner thus invoked the arbitration clause (clause 9.1) in the agreement.

Contention

Counsel for the respondent submitted that Clause 9.1 was not an arbitration clause as the applicable law, seat and venue had not been mentioned. The mere use of the expression 'Arbitrator' did not make the said clause an arbitration agreement between the parties. The counsel relied on a notification by which the project director PBSSD clarified that the use of the expression 'Arbitrator' would not cover the definition of arbitrator under the Arbitration and Conciliation Act, 1996 and the expression should be read as 'adjudicator'.

Observations

The court noted that the arbitration clause provided that if the parties were unable to resolve the disputes mutually, the disputes shall be referred to the Vice Chairman, PBSSD & Principal Secretary, TET & SD Department, Government of West Bengal, who will act as an Arbitrator for the purpose and whose decision shall be binding.

The court observed that having a named arbitrator does not make the clause invalid insofar as, the meeting of minds to refer a dispute to arbitration was concerned. It only resulted in failure of the mechanism under Section 12(5) of the 1996 Act.

The court also held that unilateral appointment of a named arbitrator by a party interested in the outcome of an arbitral proceeding was no more permissible in view of the decisions in Perkins Eastman Architects DPC and Another vs. HSCC (India) Ltd. and Central Organisation for Railway Electrification vs. ECI SPIC SMO MCML (JV) A Joint Venture Company. As such, the name arbitrator was incapable of functioning, but the clause did not lose its character of an arbitration agreement.

The court relied upon Jagdish Chander vs Ramesh Chander & Ors (2007) where it was observed:

“If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and a willingness to be bound by the decision of such tribunal on such disputes, it is an arbitration agreement.”

It further relied upon Solaris Chem Tech Industries Ltd Vs Assistant Executive Engineer Karnataka Urban Water Supply and Drainage Board & Anr. (2023) which held:

“The 1996 Act does not prescribe a certain form of an arbitration agreement. The use or the absence of the word 'arbitration' is not conclusive and the intention of the parties to resolve the disputes through arbitration should be clear from the terms of the clause.”

The court held that for an arbitration agreement to be a binding clause, neither the law nor the seat or venue has to be mentioned. As long as the clause indicated that the parties had agreed and there was a meeting of minds to refer any dispute to a private tribunal for adjudication of the disputes, the said clause would constitute an arbitration clause.

The court held that the named arbitrator, being a party interested in the outcome of the arbitration proceeding, cannot act as the Arbitrator being de jure ineligible.

The court thus appointed an arbitrator.

Case Title: ILEAD FOUNDATION Vs. STATE OF WEST BENGAL

Case Number: AP-COM/152/2025

Date: 05.03.2025

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