Once Arbitration Agreement Is Confirmed, Court Should Refrain From Delving Into Other Issues: Delhi High Court

Brief Facts:

The Petitioner was awarded a contract for the rehabilitation and upgradation of a specific road section in Tripura by the Respondent under the terms of an EPC Contract. The Petitioner claimed that the Respondent failed to provide an encumbrance-free Right of Way (ROW) for at least 90% of the project length before the Appointed Date of 8th June 2021, which was a contractual obligation.

The Petitioner further alleged that the Respondent failed to correct its SAP system to facilitate the rightful payments based on Stage Payment Statements as per the contract's Schedule B. This non-payment allegedly caused financial strain which hindered the Petitioner's ability to mobilize resources and manpower. The Petitioner also contended that the Respondent delayed approving bills and technical designs. Consequently, the Petitioner struggled to meet the project milestones, and despite their efforts, faced accusations from the Respondent of slow progress and non-completion of milestones. The Respondent, in turn, sent cure notices and letters blaming the Petitioner for these delays.

Subsequently, the Petitioner was declared a Non-Performer and barred from participating in future tenders. The Respondent issued a notice of intention to terminate the contract on 24th February 2022. The Petitioner responded and continued working under the contract and extension.

On 14th February 2023, after the EPC Contract's initial period expired, the Petitioner requested and was granted an extension. However, later without prior notice, the Respondent abruptly terminated the contract. The Petitioner invoked conciliation under Clause 26.2 of the EPC Contract but the Respondent ignored this and issued a new Notice inviting Bids for the project. Consequently, the Petitioner approached the Delhi High Court (“High Court”) for the appointment of a Sole Arbitrator.

Observations by the High Court:

The High Court referred to Clause 26 in the EPC Contract which provided that in the event conciliation between the parties fails, disputes may be referred to arbitration. This interpretation aligned with Clause 26.3 (i) of the EPC Contract, which specifically provided for unresolved disputes to be referred to arbitration. Since the Petitioner exhausted the conciliation process as per Clause 26.2, the High Court held that it was entitled to seek the appointment of an independent Sole Arbitrator to adjudicate the disputes arising from the contract, in accordance with the Arbitration Act and the terms of the EPC Contract.

The High Court referred to the amendments made to the Arbitration Act by the Arbitration and Conciliation (Amendment) Act, 2015 which introduced Section 11(6A). It held that the effect of this amendment was to limit the court's role in verifying the existence of a valid arbitration agreement. The court's intervention is thus restricted to this verification, leaving all other issues to be decided by the arbitral tribunal (referred to BSNL v. Nortel Networks Private Ltd. (2021) 5 SCC 738).

The High Court held that once the arbitration agreement is established, the court should refrain from examining any other issues, which are instead left for the arbitral tribunal or sole arbitrator to decide.

Consequently, the High Court appointed Mr. Amiet Andlay, Advocate, as the sole arbitrator to adjudicate the disputes between the parties.

Case Title: M/S Kld Creation Infrastructure Pvt.Ltd Vs National Highways And Infrastructure Development Corporation Limited

Case Number: ARB.P. 321/2024

Advocate for the Petitioner: Ms Anurita Panda

Advocate for the Respondent: Ms. Rajdipa Behura, Mr. Philomon Kani, Ms. Neha Dobriyal, Ms. Simrat Kaur Sareen

Date of Judgment: 20th May, 2024