Pre-Arbitral Resolution Clauses Are Directory, Not Mandatory, Especially in Cases Requiring Urgent Adjudication: Delhi High Court

Additionally, the court held that the disputes between the parties require urgent adjudication, it would be wholly untenable to compel the parties to go through the motions of conciliation/DAB proceedings before referring the disputes to arbitration.

Brief Facts:

The petitioner filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 with respect to the appointment of the sole Arbitrator. The dispute arose from a contract agreement between the parties for the construction of a railway line of 39.906 km from Penukonda to Dharmavaram (Andhra Pradesh), including telecommunication and electrical works. The completion period of the Contract was 608 days, but several delays occurred due to the respondent's failure in providing important technical documents and timely site clearance. The issues aggravated after the respondent attempted to impose penalty on the petitioner and also withheld significant payments.

Then, the petitioner invoked the dispute resolution clause and requested the respondent to appoint a conciliator to adjudicate the disputes. The respondent contended that the petition filed under Sec 11(6) is not maintainable because the petitioner has failed to refer the dispute to Conciliator and then to the Dispute Adjudication Board (“DAB”). Additionally, the respondent argued that constitution of the arbitral tribunal should be based on the contract.

Observation of the court:

The court noted that the respondent has failed to nominate a Conciliation within the time mentioned in the contract and, the DAB was also not formed within the timeframe stipulated. Further, the court held that any pre-condition in an arbitration agreement obliging one of the contracting parties to either exhaust the pre-arbitral amicable resolution avenues or to take recourse to Conciliation are directory and not mandatory.

The court relied on the judgments in Oasis Projects Ltd. v. National Highway & Infrastructure Development Corporation Limited, Kunwar Narayana v. Ozone Overseas Pvt. Ltd and Subhash Infraengineers (P) Ltd. v. NTPC Ltd. And, held that the disputes between the parties require urgent adjudication, it would be wholly untenable to compel the parties to go through the motions of conciliation/DAB proceedings before referring the disputes to arbitration.

Moving further, the court held that the appointment procedure of the arbitrator mentioned in the contract doesn't meet the requirements of law, relying on the judgment in Margo Networks Pvt. Ltd. & Anr. v. Railtel Corporation of India Ltd. Finally, the court appointed a sole arbitrator to adjudicate the disputes.

Case Title: JHAJHARIA NIRMAN LTD. v. SOUTH WESTERN RAILWAYS

Case Number: ARB.P. 1493/2024

Counsel for the Petitioner: Mr. Ashish Dholakia, Sr. Adv. alongwith Mr. Rakesh Kumar, Ms. Preeti Kashyap, Mr. Ankit Sharma, Mr. Varun Pandit, Mr. Yash Dhaway and Mr. Yash Tiwari, Advocates.

Counsel for the Respondent: Mr. Anurag Ahluwalia, CGSC alongwith Mr. Tarveen Singh Nanda, GP.

Date of Judgment: 07.10.2024

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