S.12(5) Of A&C Act Provides For Agreement In Writing, Novation Can't Be Allowed Only Because Of Appointment Of Arbitrator At First Instance: Patna HC

Brief Facts:

The present dispute arose with respect to an agreement entered by the petitioner pursuant to a successful bid in the tender process initiated by the respondent. In the agreement, a dispute resolution clause was mentioned in Clause-25. So, the petitioner requests the court for an appointment of an arbitrator under Clause-25 read with the provisions of the Arbitration and Conciliation Act, 1996. The respondent relied on the judgment of The State of Bihar v. Kashish Developers Limited (2024), wherein Clause-25 was interpreted to find that after the amendment of 2016 of the Arbitration and Conciliation Act, 1996, there would be no question of arbitration, going by the language employed in Clause-25. Also, it was mentioned in Clause-25 that no person other than the person appointed by the Engineer-in-Chief or administrative head should act as Arbitrator. And if that is not possible, the matter shall not be referred for arbitration at all.

.Observation of the court:

The court noted that the objection now raised is that the arbitration clause itself is rendered otiose, for reason of the amendments brought in Section 12 of the act. There is also no waiver by express agreement in writing as required by the proviso to Section 12(5) of the act. In the present case, the Arbitrator appointed under Section 11 had recused and in those circumstances, there was a review application filed and on resumption of the request case, this objection was raised. The review was allowed on the short ground of the recusal of the Arbitrator appointed under Section 11.

Additionally, the court noted that Clause-25 was dealt with in extenso, and it was also contended that while the appeal of the petitioner was pending before the Managing Director, without giving any opportunity to the Managing Director to consider the appeal, this Court was moved for the appointment of an Arbitrator. It was the contention of the respondent that the appeal having not been considered, the appellant should have presumed that it was rejected and applied to the Managing Director for appointment of an Arbitrator. The court held that this Court could have been approached for appointment only after the expiry of thirty days from the issuance of such notice.

Further, the court held that the proviso to Section 12(5) specifically provided for a waiver by an express agreement in writing. When the statute provides for an express agreement in writing there can be no novation of the agreement found, by reason only of the appointment of an Arbitrator at the first instance. Finally, the request was dismissed by the court.

Case Title: Hindustan Construction Company Ltd. v. Bihar Rajya Pul Nirman Nigam Limited

Case Number: REQ. CASE No.53 of 2020

Counsel for the Petitioner: Mr. Umesh Prasad Singh, Sr. Advocate Ms. Aditi Hansaria, Advocate Ms. Nivedita Chaudhary, Advocate

Counsel for the Respondent: Mr. P.K. Shahi, AG Dr. Anand Kumar, Advocate

Date of Judgment: 09.12.2024

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