Dispute Resolution Clauses Have To Be Read In Pragmatic Manner And Not In Manner That Frustrates Purpose: Delhi High Court

Brief Facts:

The matter pertained to disputes arising from two Master Service Agreements entered into by the parties, each containing an arbitration clause outlining steps to be exhausted before resorting to arbitration. These steps include mutual talks, mediation, and appointment of an expert, as well as settlement through the Administrative Mechanism for Resolution of CPSC Disputes (AMRC). Thereafter, the Petitioner approached the Delhi High Court (“High Court”) and filed a Section 11 application for appointment of sole arbitrator.

The Petitioner argued that it consistently proposed settling disputes through mutual talks, mediation, and AMRC, and argued that the Respondent failed to participate in mediation. Additionally, it highlighted that it filed another petition under Section 9. The Respondent's limited response, including a communication, came only after the Petitioner served a notice under Section 21 of the Arbitration Act, and even then, the response was only from the Transport Department, with Respondent No. 2, DTC, remaining unresponsive.

Furthermore, the Petitioner notified the Respondent that since arbitration was invoked, the Transport Department's request for one Manoj Kumar to act as a mediator was declined. Instead, the Petitioner suggested three names, including two former High Court judges, for appointment as Sole Arbitrators, but received no response from the Respondent.

The Petitioner emphasized the substantial claim of around 27 crores, highlighting the importance and sensitivity of the matter, which involves designing, commissioning, and installing panic buttons and CCTV in DTC buses. Despite the High Court appointing Mr. Manoj Kumar as a Mediator and granting him liberty to engage an expert from IIT Delhi, the parties failed to reach an amicable settlement.

Observations by the High Court:

The High Court referred to clause 2.9 and observed that the escalation procedure outlined therein was duly followed by the parties. Furthermore, it was undisputed that the matter was referred to a mediator as stipulated in the clause. Subsequent sub-clauses of clause 2.9 elucidate that if mediation fails to resolve the dispute, the matter should then be referred to experts for advice. The High Court referred to the mediator's report that despite effort and noted that the parties could not agree on the composition of the expert panel.

While acknowledging the sanctity of contractual clauses, the High Court that there is a need to interpret them pragmatically to serve their intended purpose. It noted that the resolution mechanism outlined in clause 2.9 aimed to facilitate the amicable settlement of disputes before resorting to arbitration. However, given the parties' failure to reach a resolution even with the aid of a mediator, the High Court held it appropriate to refer the dispute to arbitration.

Considering the technical and commercial nature of the dispute, the High Court affirmed the parties' right to seek assistance from an expert before the arbitrator. Accordingly, the High Court directed that the disputes under the agreement be referred to an arbitral tribunal, with Justice Vipin Sanghi appointed as the sole arbitrator.

Case Title: Telecommunications Consultants India Ltd Vs Govt Of Nct Of Delhi & Anr.

Citation: 2024 LiveLaw (Del) 577

Case Number: ARB.P. 196/2024

Advocate for the Petitioner: Mr.Manish Sharma, Mr. A.S. Anand, Mr.Ninad Dogra, Ms.Adya Rao, and Mr.Antu Das, Advts.

Advocate for the Respondent: Mr.Mohit Bhardwaj, Adv. for R-1. Mr.Vibhor Garg and Mr.Keshav Tiwari, Advts. for R-2. Mr.Abhimanyu Garg (through VC)

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