'Finality Of Decision And Non-Arbitrability' Clause In GCC Does Not Imply An Arbitration Agreement: Bombay High Court

The court pointed out that the title "Finality of Decision and Non-Arbitrability" of the clause clearly indicates the parties did not intend for it to serve as an arbitration agreement. The bench of Justice Firdosh P. Pooniwalla further opined that mere declaration of the adjudication committee's decision as "final and binding" did not inherently indicate an intention to arbitrate.

The court added that the clause does not even make any reference to arbitration or appointment of an arbitrator, therefore, this dispute resolution clause did not constitute a valid arbitration agreement.

Brief Facts:

In this case, Kalpataru Projects International Ltd. was awarded a contract by the Municipal Corporation of Greater Mumbai to construct the Ghatkopar-Mankhurd Link Road Flyover, which included additional structures like foot-over bridges and a vehicular underpass. The project faced numerous delays and required extra work, leading to extended deadlines and altered work scopes. Upon completion, Kalpataru raised several claims according to the contract terms, but these were rejected by the Municipal Corporation's Chief Engineer, sparking disputes. Kalpataru then initiated pre-arbitral steps as outlined in the dispute resolution clause, i.e Clause 96 of the General Conditions of Contract (GCC), but failing to achieve a resolution, they sought to invoke arbitration under the clause and filed an application before the court for the appointment of an arbitrator under section 11 of the Arbitration and Conciliation Act, 1996. The crux of the case lies in determining whether Clause 96 of the GCC indeed constitutes a valid arbitration agreement for resolving these disputes.

Clause 96 of the GCC is reproduced below:

“If any dispute, difference or claim is raised by either party relating to any matter arising out of the contract, the aggrieved party within a period of 7 days to the concerned Addl. Municipal Commissioner who shall constitute a committee comprising of three officers i.e. concerned D.M.C. or Director (E.S. & P.) Chief Engineer other than the Engineer of the Contract and concerned Chief Accountant. The Committee shall give its decision in writing within 60 days. Appeal from the order of the Committee may be referred to Municipal Commissioner within seven days. Thereafter the Municipal Commissioner shall constitute the Committee comprising of 3 Addl. Municipal Commissioners in charge of Finance Department. The decision given by this Committee shall be final and binding upon the parties.”

Arguments of Parties:

1.The petitioner asserted that Clause 96 of the GCC satisfies all these essential requirements of an arbitration agreement as outlined by the Supreme Court in the case of Bihar State Mineral Development Corporation and Another v.. Encon Builders (I)(P) Ltd.

“13:- The essential elements of an arbitration agreement are as follows:-

1. There must be a present or a future difference in connection with some contemplated affair.
2. There must be the intention of the parties to settle such difference by a private tribunal.
3. The parties must agree in writing to be bound by the decision of such tribunal.
4. The parties must ad idem.”

The respondent argued that the clause does not demonstrate a mutual intention to arbitrate, thus failing to fulfil the second requirement.

2. The petitioner also cited a judgement by a single judge of the same court in the case of Tatva Global Environment (Deonar) Ltd. v. The Municipal Corporation of Greater Mumbai where a clause nearly identical to the modified Clause 96 of the GCC was recognized as a valid Arbitration Agreement.

3. The petitioner also submitted that Clause 96 stated that the decision of the committee shall be final and binding upon the parties; this clearly showed that the modified Clause 96 of the GCC constituted an arbitration agreement between the parties.

Decision of the Court:

The court agreed with the respondents in their contention that Clause 96 of the GCC fails to demonstrate a mutual intention to arbitrate.

The court held that the judgement in Tatva Global is not directly applicable to the current case due to differences in facts. In Tatva Global, Clause 23, which referred to Clause 21 of the contract (which is similar to Clause 96 of the GCC), specifically made a reference to arbitration. However, in the present case, there is no equivalent to Clause 23 that explicitly references arbitration, and therefore the ratio in that case is not directly applicable to the present case.

The bench took the view that the fact that the decision of the committee is final and binding upon the parties is a tenuous ground to argue that the clause constitutes an arbitration agreement: such a clause is merely declaratory and clarificatory in nature (Food Corporation of India v/s. National Collateral Management Services Ltd.,). Merely because a decision of the Committee is made final and binding by the parties, it does not show intention to have their disputes resolved through Arbitration.

Therefore, the court held that modified Clause 96 of the GCC does not constitute an arbitration agreement between the parties because it lacked a mutual intention to arbitrate and dismissed the present arbitration application seeking the appointment of an arbitrator.

Citation: Commercial Arbitration Application No. 166 Of 2022 Bottom of Form

Cause Title: Kalpataru Projects International Ltd. v. Municipal Corporation of Greater Mumbai and Anr.

Advocate for the Petitioner: Mr. Naresh Thacker Bottom of Form

Advocate for the Respondent: Mr. P. G. Lad

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