Court Acquires Jurisdiction Under Section 11(6) Of Arbitration Act Immediately On Default Of Pre-Arbitral Or Arbitral Procedure: Delhi High Court

Section 11(6) provides that if a party fails to appoint an arbitrator, or if the two appointed arbitrators fail to agree on the third arbitrator, or if the parties or arbitrators do not agree on the procedure for appointing the arbitrator(s), a party may request the Chief Justice or a designated person or institution to appoint an arbitrator.

Brief Facts:

Bksons Infrastructure Pvt. Ltd (Petitioner) filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 and sought the appointment of an arbitrator to adjudicate disputes arising from an Engineering, Procurement, and Construction (EPC) Contract. The contract, executed between the Petitioner and NHAI (Respondent), involved the transformation of a two-lane stretch of NH 117 into a four-lane road. The contract contained an arbitration clause under Article 26, which outlined the procedures for resolving disputes including attempts at amicable settlement through conciliation before resorting to arbitration.

Disputes arose between the parties which prompted the Petitioner to write to the Respondent's Managing Director stating that referring the matter to the Authority Engineer (AE) would be futile, as the AE already disagreed with the Petitioner's claim in writing. The Petitioner requested the appointment of a Conciliator to resolve the disputes. Despite sending follow-up letters, suggesting the names of three experts for the Conciliator, the Respondent remained silent. Consequently, the Petitioner approached the Chairman of the Respondent seeking a mutual meeting under Clause 26.2 of the contract. A meeting was held on 27 December 2023, but the Respondent, through a letter, rejected the Petitioner's claims.

Following this, the Petitioner issued a notice under Section 21 of the Arbitration Act requesting the disputes be referred to arbitration. The Respondent replied instructing the Petitioner to approach the Conciliation Committee of Independent Experts as per Clause 26.2. Instead of doing so, the Petitioner filed the petition in High under Section 11(6) of the Arbitration Act.

The Respondent argued that the Petition was not maintainable because the Petitioner had not exhausted the mandatory pre-arbitral protocol outlined in Clause 26.2 read with Clause 26.1 of the contract. According to the Respondent, after the Petitioner's claims were rejected by the Chairman, the Petitioner was required to approach the Committee of Conciliators before resorting to arbitration.

Observations by the High Court:

The High Court focused on Clause 26.2 of the contract, which outlined a three-stage dispute resolution process. Initially, the contractor was required to seek a decision on its claim either from the Authorized Engineer (AE) or an independent Conciliator. If the Conciliator either failed to render a decision or issued one unfavorable to the contractor, the second stage required the contractor to approach the Chairman of the respondent organization. The Chairman was then obliged to arrange a joint meeting within seven business days to review the contractor's claim. Should this step also fail to resolve the issue, the final stage mandated that the contractor seek recourse to the Conciliation Committee of Independent Experts. Only after these stages were exhausted would the matter be eligible for arbitration.

The High Court then addressed its jurisdiction under Section 11(6) of the Arbitration Act. The High Court held that the court's authority is triggered when one party fails to comply with the agreed-upon procedure for appointing an Arbitral Tribunal, including any pre-arbitral steps outlined in the contract. It noted that the Respondent failed to act in accordance with Stage 1 of the procedure despite receiving three reminders from the petitioner to appoint an independent Conciliator.

The High Court held that this failure on the part of the Respondent effectively concluded the matter. By not adhering to the pre-arbitral process as mandated by Clause 26.2, the Petitioner automatically gained the right to invoke arbitration. The High Court noted that the Petitioner's subsequent approach to the Chairman, which also proved unfruitful, could not negate the initial default by the Respondent in failing to appoint a Conciliator. This failure amounted to a breach of the agreed procedure for dispute resolution.

Therefore, the High Court appointed Mr. A.K. Behera, Senior Advocate, as the Arbitrator to resolve the disputes between the parties. The High Court also acknowledged the Petitioner's claim that the amount due from the Respondent was approximately ₹18 Crores, although this figure had yet to be precisely quantified.

Case Title: M/S Bksons Infrastructure Pvt. Lt Vs Managing Director, National Highways And Infrastructure Development Corporation

Citation: 2024 LiveLaw (Del) 942

Case Number: ARB.P. 498/2024

Advocate for the Petitioner: Mr. K.G. Gopalakrishnan and Mr. Rakesh Kumar Singh, Advocates.

Advocate for the Respondent: Mr. Balendu Shekhar, Mr. Raj Kumar Maurya and Mr. Krishna Chaitanya, Advocates.

Date of Judgment: 12.08.2024

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