Invocation of Arbitration Beyond Stipulated Period In Clause Does Not Frustrate Parties' Intent To Arbitrate: Calcutta High Court

The bench held that the outer limit stipulated in the arbitration clause for invocation of arbitration if failed by the claimant, does not constitute a waiver or a deliberate relinquishment of the claim by the claimant.

Brief Facts:

Incoda (Petitioner) approached the High Court for the appointment of an arbitrator due to the lack of consensus between it and the General Manager, of Metro Railway. The Petitioner relied on Clause 64. (1)(i) of the General Conditions of Contract (GCC) which included the arbitration clause. According to the Petitioner, Clause 63.1 of the GCC required the dispute to be referred to the General Manager of the Railways. There was initially a delay by the General Manager in deciding the dispute which prompted the Petitioner to file a writ petition. The court directed the General Manager to decide on the disputes and issue a reasoned order, which was eventually done on June 20, 2021. Subsequently, the Petitioner sent a reminder and invoked the arbitration clause with a notice under Section 21 of the Arbitration and Conciliation Act, 1996.

On the other hand, the Railways argued that the application was premature because the Petitioner didn't comply with Clause 63.1 of the GCC. It contended that the Petitioner failed to fulfill the necessary prerequisites outlined in the contract before seeking the appointment of an arbitrator.

The Railways argued that Clause 63.1 of the contract required the General Manager of the Railway Authority to determine whether the disputes fell within the exception clauses. According to it, after this determination, the Petitioner needed to make a final claim in accordance with Clause 64. (1)(i). It contended that the Petitioner failed to make a final claim following the General Manager's decision and thus did not exhaust the pre-arbitration remedy stipulated in the contract.

The relevant clause is reproduced below:

“64.(1)(i) : In the event of any dispute or difference between the parties hereto as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the Contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such case, but except in any of the “excepted matters” referred to in Clause 63.1 of these Conditions, the Contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters shall demand in writing that the dispute or difference be referred to arbitration.”

Observations by the High Court:

The High Court noted that the Clause 63.1 did not limit the General Manager's decision solely to the applicability of exception clauses. It noted that the language of Clause 63.1 encompassed all disputes and differences arising out of or in connection with the contract, including those during the work's progress or after its completion. The clause required the contractor to refer all disputes to the General Manager, who then had 120 days to make and notify decisions on all matters referred in writing.

The bench noted that the Petitioner complied with Clause 63.1 by referring the disputes exhaustively to the General Manager. Although there was a delay in the General Manager's decision, the Petitioner obtained an order from the writ court which led to the General Manager's written decision.

The High Court examined whether Clause 64.(1)(i) was adhered to by the Petitioner before invoking arbitration. Clause 64.(1)(i) allowed for disputes or differences to be referred to arbitration in specific situations, including disputes about the contract's construction or operation and the respective rights and liabilities of the parties. The clause required the contractor to demand in writing that the dispute be referred to arbitration within 120-180 days after presenting the final claim on the disputed matters.

The High Court noted that the reference to arbitration was made on June 22, 2022, beyond the 180-day limit after the General Manager's decision. However, since the Petitioner reiterated its claims at different times, it was unclear when the final claim was crystallized.

The bench that even if the invocation was beyond the 180-day limit, the intention of the parties to refer disputes to arbitration should not be frustrated. It held that The 180-day limit did not constitute a waiver or deliberate relinquishment of the claim.

The High Court held that no additional limitations beyond those provided by law could be read into the arbitration clause. The 180-day limit was not an absolute bar to arbitration, and the parties' intent to arbitrate disputes should be honoured.

Therefore, the High Court appointed Justice Prasenjit Mandal (retired) as the sole Arbitrator to resolve the disputes.

Case Title: The Incoda Vs The General Manager, Metro Railway And Anr.

Case Number: AP/611/2022

Advocate for the Petitioner: Mr. Sanjib Kumar Mal, Adv. Mr. Atanu Raychaudhuri, Adv. Mr. Pushan Majumdar, Adv.

Advocate for the Respondent: Mr. Swatarup Banerjee, Adv. Mr. Rivu Dutta, Adv. Mr. Rhitam Chatterjee, Adv.

Date of Judgment: 16th July, 2024.

Click Here To Read/Download Order or Judgment