Clause Of 'Amicable Resolution' Cannot Prevent Invocation Of Arbitration After Sincere Efforts At Settlement: Delhi High Court

Brief Facts:

Continuum Power Trading (Tn) Private Limited (“Petitioner”) and Solar Energy Corporation Of India Limited (“Respondent”) entered into a Power Purchase Agreement (PPA) which included an arbitration clause under Clause 60. The Petitioner invoked arbitration through a notice. The Petitioner filed an application in the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for the appointment of an arbitral tribunal. However, the Respondent objected and argued that the petition was premature because the Petitioner did not follow the procedure outlined in Article 16.1 of the PPA.

The Respondent contended that the notice for arbitration was issued on 4th October 2023, the same day the petitioner filed a petition under Section 9. It argued that the Petitioner failed to adhere to the procedural requirements set forth in the PPA, which necessitates following a specific protocol before invoking arbitration. The Respondent, being a government company, emphasized the need to comply with these protocol procedures at all levels.

On the other hand, the Petitioner argued that there was no dispute regarding the fact that the notice of dispute was served to the Respondent. It pointed out that as per Clause 16.2.1 of the agreement, the notice included a description of the dispute and supporting written material for the claim. It argued that the Respondent did not respond within 30 days as required under Clause 16.2.1(ii), nor did it submit any counterclaims or defences or provide any supporting material for its position.

The Dispute Resolution clause is reproduced below:

“16.3.2 Dispute Resolution through Arbitration

If the Dispute arising as per Article 16.2.1 is not amicably resolved & such dispute is not covered in Article 16.3.l(i), such Dispute shall be resolved by arbitration under the Indian Arbitration and Conciliation Act, 1996 as provided below:

i) The Arbitration Tribunal shall consist of three (3) Arbitrators. Each party shall appoint one Arbitrator within 30 days of the receipt of request for settlement of dispute by Arbitration. The two appointed Arbitrators shall within 30 days of their appointment, appoint a third Arbitrator who shall act as presiding Arbitrator. In case the party fails to appoint an Arbitrator within 30 days from the date of receipt of the request or the two appointed Arbitrator fails to agree on a third Arbitrator within 30 days of their appointment, the appointment of Arbitrator, as the case may be, shall be made in accordance with the Indian Arbitration and Conciliation Act, 1996

ii) The place of arbitration shall be Delhi. The language of the arbitration shall be English.”

Observations by the High Court:

The High Court noted that its jurisdiction under Section 11 of the Arbitration Act is highly limited. It referred to the decision of the Supreme Court in Vidya Drolia and Others v. Durga Trading Corporation, where it was held that judicial review at the Section 11 stage is extremely limited and restricted. It held that the Court's role is primarily to ascertain whether an arbitration agreement exists and whether there is an arbitrable dispute. It held that the detailed examination of these elements should be deferred to the arbitral tribunal.

The High Court addressed whether the reference to arbitration could be denied on the grounds that the petitioner had filed a petition under Section 9 of the Act on the same date the dispute notice was served. The High Court held that such an interpretation would undermine the purpose of the Arbitration Act. It noted that the Arbitration Act allows a Section 9 petition to be filed at any point—before, after, or during arbitration proceedings—indicating that procedural mechanisms in the agreement cannot prevent parties from seeking judicial intervention under Section 9.

The High Court further held that the agreement's requirement for an amicable resolution before invoking arbitration is intended to encourage dispute resolution outside of formal arbitration. However, this requirement should not be construed to block arbitration if parties have genuinely attempted to resolve their issues amicably.

The bench held that:

“…..these mechanisms cannot be read as to prevent the parties from invoking the arbitration, if the parties have sincerely tried to resolve the disputes amicably.”

The High Court noted that the Petitioner already nominated an arbitrator, Justice Bada Durrez Ahmed, the Former Chief Justice of the High Court of Jammu and Kashmir, while the Respondent failed to nominate its arbitrator. The High Court held that the Respondent's procedural objections did not warrant denial of the arbitration process. Consequently, the High Court appointed R. K. Gauba, Former Judge of the Delhi High Court, as the second arbitrator.

Case Title: Continuum Power Trading (Tn) Private Limited Vs Solar Energy Corporation Of India Limited

Citation: 2024 LiveLaw (Del) 717

Case Number: ARB.P. 562/2024

Advocate for the Petitioner: Mr. Sandeep Sethi, Sr. Adv. with Mr. Samrow Borkataky, Mr. Ikshvaaku Marwh, Ms. Sanskrit Shrimali, Advs.

Advocate for the Respondent: Mr Sumer Dev Seth, Ms Riya Kumar, Advs

Date of Judgment: 17.05.2024

Click Here To Read/Download Order or Judgment