Compliance With Pre-Arbitration Formalities Not Mandatory; Can Be Waived By Consensus: Calcutta High Court

The Calcutta High Court bench comprising Justice Sabyasachi Bhattacharyya has held that compliance of the pre-arbitration stages can be waived by consensus. The court observed that forcing the petitioner back to the rigmarole of pre-arbitration formalities would be an unnecessary and futile exercise.

Brief Facts:

The petitioner, Jayashree Electromech Private Limited, was awarded six letters of contract by the respondent, West Bengal State Electricity Transmission Company Limited for the construction of various electrical transformers and allied projects. The contracts were executed between 26.05.2016 and 06.04.2018.

The petitioner sought an increase in the contract amount due to GST implementation and requested a waiver of liquidated damages, but the respondent rejected these requests.

The petitioner, on 20.02.2023, appointed an Adjudicator unilaterally. An award was passed on 27.03.2023, which the respondent challenged under Section 34 of the Arbitration and Conciliation Act, 1996. A co-ordinate Bench of the Calcutta High Court, by an order dated 26.06.2023 observed that the challenge did not fall within the contours of an application under Section 34 as the impugned order had not been passed by an Arbitrator but by an Adjudicator.

The petitioner thereafter issued a notice invoking the arbitration clause on 22.05.2024. The respondent by an e-mail dated 26.06.2024, raised objections to one of the names suggested by the petitioner and insisted upon compliance of the pre-arbitration stages in terms of Clause 6 of the General Conditions of Contract (GCC). A second invocation notice under Section 21 of the Act was issued on 26.06.2024. The respondent refused to accede to the request for the appointment of an Arbitrator. Thus, the application under Section 11 had been filed.

Observations:

The issue before the court was whether the application u/s.11 of the Act was premature because of the petitioner non-compliance with pre-arbitral formalities.

The court observed that:

“The law does not mandate the compliance of prior formalities as a pre-condition of reference to arbitration. Such prior conditions emanate entirely from agreement between the parties. Thus, by necessary implication, what is agreed on consensus can also be waived by consensus.”

The court noted that by opposing the present application u/s. 11 and insisting that the petitioner be relegated to pre-arbitral formalities, there was an obvious and implied refusal to agree to the appointment of an Arbitrator, which provides sufficient ground to appoint an Arbitral Tribunal u/s. 11 of the Act.

It was noted that all efforts of the Petitioner to resolve disputes by mutual discussion and appoint an adjudicator were met with resistance by the Respondent, who did not take any steps despite being aware of the dispute raised by the petitioner.

Relying on the case of Demerara Distilleries Private Limited and another v. Demerara Distillers Limited [(2015) 13 SCC 610], the court observed that since multiple correspondences yielded no result, it would be an “empty formality'' to relegate the parties back to the rigmarole of pre-arbitration formalities. Reference was also made to the case of Backend Bangalore Private Limited [2022 SCC OnLine HP 1044], which held that since the respondent had failed to refer the dispute to an Adjudicator, an Arbitrator could be appointed even if there was no prior reference to the Adjudicator.

The court remarked that “it would be a useless formality to force the petitioner to return to the paraphernalia of red-tapism by re-starting the dispute resolution exercise from any prior stage than arbitration.”

The court observed that the section 11 notice sufficiently disclosed the nature of the disputes. In the regard, it was further observed that a request for appointment of an Arbitrator u/s. 11 differs from a notice initiating the arbitral process u/s. 21. A request for appointment of an Arbitrator u/s. 11 is a pre-arbitral formality and should be interpreted in a lenient compared to a notice u/s. 21, which marks the commencement of the arbitral process.

The court held that there had been a valid invocation of the arbitration clause. Thus, the application was allowed.

Case Title: Jayashree Electromech Private Limited v. The West Bengal State Electricity Transmission Company Limited

Case Number: AP-COM No. 751 of 2024

Date of Judgment: 23.09.2024

Counsel for the Petitioner: Mr. Debdut Mukherjee, Adv., Mr. Debartha Chakraborty, Adv., Mr. Saptarshi Kar, Adv.

Counsel for the Respondent: Mr. Pranit Bag, Adv.

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