Disputes Predominantly Civil But Involving Elements Of Criminality Not Automatically Excluded From Arbitration: Jammu and Kashmir High Court

The bench noted that unless there is a specific allegation of the parties engaging in an agreement amounting to criminal conspiracy, there should be no blanket prohibition on referring such disputes to arbitration.

Brief Facts:

M/s Tata Power Solar (Petitioner) successfully won an E-tender issued by UT of J&K (Respondent) for the installation of Off-Grid Solar PV Power Plants in Jammu & Kashmir. After acceptance of the letter of intent and execution of the contract, the Petitioner claimed it fulfilled all contractual obligations. However, the Respondent allegedly failed to make full payments despite repeated requests and legal notices. Thereafter, the Petitioner approached the High Court for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

The Respondent argued that the Petitioner didn't approach the court with clean hands and stated that there were ongoing investigations by the Anti-Corruption Bureau into alleged irregularities related to the tender. It contended that due to these investigations, which were not disclosed earlier, the matter should not proceed to arbitration.

Observations by the High Court:

The High Court held that issues like the timeliness of claims or the nature of the dispute (e.g., criminal investigations, non-arbitrable matters like family disputes) may affect the arbitrability of the dispute.

The High Court held that its role under Section 11 is limited to determining the presence of a dispute and an arbitration clause. Detailed examination and factual disputes are generally left for the arbitrator unless there is clear evidence negating the existence of a dispute.

The bench held that:

“the Court while exercising jurisdiction under Section 11 of the Arbitration and Conciliation Act is primarily concerned with a settlement as to whether there exist any dispute between the parties and whether there is any arbitration clause which would enable the Court to appoint arbitrator to resolve the dispute and whether such dispute cannot be referred for reasons like stale claims etc. While undertaking the aforesaid exercises the Court obviously will not enter into detailed examination of these issues and would ordinarily refer to arbitration if the necessary conditions are fulfilled and if there been any doubt on any of these aspects it would be better left to be decided by the arbitrator”

Addressing the appointment of the arbitrator, the High Court discussed the statutory requirement of independence and impartiality under Section 12(5). It noted that an arbitrator appointed by the Administrative Secretary of the Rural Development Department would not be impartial due to their relationship with the subject matter. Therefore, the High Court appointed an independent arbitrator, Mr. Ali Mohammad Magray, Retd. Chief Justice, to resolve the dispute.

Regarding objections raised about criminal investigations affecting arbitrability, the High Court held that the dispute's primary nature was civil which involved payment for executed work. The High Court noted that allegations of inflated prices, even if investigated criminally, do not inherently preclude arbitration.

The bench held that:

“This Court fails to understand how the investigation will come in the way of the claim made by the petitioner for payment of dues for the work executed in terms of the tender unless there are specific allegations that the bidders or tenderers had colluded the employer or the authority in determining the estimated cost mentioned in the tender document. In the event, these are aspects which can be also looked into by the arbitrator as these will require proper leading of evidence.”

Therefore, the High Court rejected the contentions raised by the Respondent.

Case Title: M/s Tata Power Solar vs UT of J&K and Ors.

Case Number: Arb P No. 36/2023

Advocate for the Petitioner: M/s Tata Power Solar

Advocate for the Respondent: UT of J&K and Ors.

Date of Judgment: 16.07.2024

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