Settlement Process By Chairman And Managing Director Doesn't Involve Adjudication, Not Final And Binding: Calcutta High Court

Relevant Clause of the Agreement:

“8. Arbitration and Applicable laws –

8.1. The parties hereby agree that any dispute arising in connection with this MoU shall first be addressed mutually by the Parties. If the said Parties are unable to resolve the dispute mutually, the dispute shall be referred to the Secretary, Rural Development Department, Government of Bihar, whose decision shall be final and binding on all parties.

8.2. In case an aggrieved party seeks judicial remedy, the petition shall be filed in the jurisdiction of (Bihar) High Court.”

Brief Facts:

The matter pertained to Bihar Rural Livelihoods Promotion Society, the Respondent in the appeal, seeking to overturn ex parte orders dated 18th August 2023, 6th September 2023, and 12th September 2023. The applicant-respondent, argued against referring the matter to the lower court, contending the absence of a valid arbitration agreement between the involved parties. Citing a single bench judgment of the High Court of Chhattisgarh in Shri Om Prakash Bansal Educational and Social Welfare Trust vs. Union of India and Ors. on 19th December 2023, it highlighted an identical clause in the agreement under consideration, asserting that it did not constitute an arbitration clause according to the court's interpretation in the referenced case.

Observations by the High Court:

The High Court, in considering the argument put forth by applicant-respondent, expressed its inability to accept the viewpoint due to the presentation of at least three judgments of the Supreme Court, which were in direct contradiction to her position. The High court referred to the case of Mallikarjun vs. Gulbarga University (2004) 1 SCC 372, where a similar clause (clause 30) was interpreted as an arbitration clause. Additionally, it highlighted Punjab State and Others vs. Dina Nath (2007) 5 SCC 28 and Vishnu (dead) by LRs. vs. State of Maharashtra and Others (2014) 1 SCC 516, where similar clauses were deemed arbitration clauses.

In response to applicant-respondent's reference to the case of Food Corporation of India vs. National Collateral Management Services Limited (NCMSL) (2020) 19 SCC 464, the High Court observed that the clause under consideration in that case differed significantly from the clauses examined in the aforementioned judgments. The clause in question referred to a settlement process overseen by the Chairman and Managing Director, distinct from an adjudication process. The High Court emphasized that a settlement process does not entail adjudication and that the termination of such an attempt doesn't invariably result in a "final and binding" decision. Considering a failed settlement as such would potentially deprive a party of their legal remedies, contravening Section 28 of the Indian Contract Act, 1872, and individual rights enshrined in the Constitution.

Case Title: M/s. Mainak Engineering Private Limited vs Bihar Rural Livelihoods Promotion Society.

Case Number: CAN No.3 of 2023 in CAN No.2 of 2023 in FMAT(ARBAWARD) No.40 of 2023

Advocate for the CANs/respondent: Ms. Amrita Pandey Ms. Vaishnari Sonkar

Advocate for the respondent/appellant: Mr. Debnath Ghosh Mr. Sarosij Dasgupta Mr. Pourush Bandyopadhyay Mr. Samrat Mukherji Mr. Dakshayani Basu Mr. Rik Mukherji …for the respondent/appellant.