Non-Response To Demands Invalidates Invocation of Mutual Negotiations Clause in Arbitration Agreements: Jammu & Kashmir High Court

Brief Facts:

Ramtech Software Private Limited (“Petitioner”) was granted a contract for "Modernization of Land Records" in the State of Jammu and Kashmir, pursuant to a Request For Proposal (RFP) document and a subsequent Letter of Award. Throughout the execution of the project, the Petitioner encountered numerous issues, which, despite its efforts to resolve through communication with the Government persisted due to the Government's non-responsive demeanour.

Further, despite completing all works under the project's scope as per the Service Level Agreement (SLA), the Petitioner contended that it did not receive payment for over six to seven years. Consequently, the Petitioner sent demand notices and sought arbitration to the Government but they went unanswered. Feeling aggrieved, the Petitioner approached the High Court and filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for the appointment of an arbitrator.

According to the petitioner, an SLA, including an arbitration clause (Clause 14) was executed between the parties which stipulated arbitration if disputes cannot be resolved through mutual negotiations.

On the petitioner's side, Justice Gita Mittal was appointed as arbitrator, while the Government did not appoint an arbitrator.

The Government argued that prior to arbitration, mutual negotiation attempts were obligatory, which, according to it, the Petitioner failed to undertake.

Clause 14 is reproduced below:

“In the event of any dispute or difference at any time arising between the parties relating to the construction, meaning or effect of this agreement or any other clause or any content of the rights and liabilities of the parties or other matters specified herein or with reference to anything arising out of or incidental to this agreement or otherwise in relation to the terms, whether during the continuance of this agreement or thereafter, such disputes or differences shall be endeavoured to be solved by the mutual negotiations. If, however, such negotiations are infructuous, these shall be decided by arbitration of two Arbitrators, one to be appointed by each party to the dispute or difference and to an Umpire to be appointed by Arbitrators in writing before taking upon the burden of arbitration. Such a reference shall be deemed to be a submission to arbitrators under the provisions of the J&K Arbitration and Conciliation Act, 1997 and of any modification or re-enactment thereof. The venue of arbitration shall be Jammu or Srinagar only and the expense of the arbitration shall be paid by either party as may be determined by the Arbitrators.”

Observations by the High Court:

The High Court held that if an arbitration clause sets forth certain conditions that must be met before initiating arbitration, these conditions must be fulfilled, as intended by the parties themselves. It held that the arbitration clause imposed a condition necessitating an attempt at resolving the dispute through mutual negotiations before resorting to arbitration.

While the clause mandated an attempt at resolving disputes through mutual negotiations, the High Court held that it lacked specificity regarding the modality of such negotiations. The term "endeavour" implies an attempt, while "mutual negotiations" encompasses a broad range of interactions. In the absence of a defined procedure in the agreement, the High Court interpreted these terms based on their ordinary meaning. It held that mutual negotiations may have various processes, including making demands and responding to them, thereby indicating mutual engagement in negotiation.

The Petitioner argued that it made repeated attempts to engage the Government in negotiations through written communications and sought payment and extensions due to various reasons affecting project completion. However, the Government remained unresponsive.

The High Court held that the lack of response from the Government does not invalidate the Petitioner's attempts at negotiation. While the Government argued that the Petitioner's demands were merely requests for payment and extensions, the High Court found that the Government's failure to respond cannot be construed as a lack of effort on the Petitioner's part to engage in mutual negotiations.

Therefore, the High Court directed the Government to appoint their arbitrator, as per the terms of the agreement.

Case Title: Ramtech Software Private Limited Vs Ut Of J&K And Another

Case Number: Arb P. No.41/2023

Advocate for the Petitioner: Mr. Nishant Kishore, Advocate with Mr. Sanjay Agnihotri, Advocate

Advocate for the Respondent: Mr Mohsin S. Qadri, Sr. AAG with Ms Maha Majeed, Assting Counsel Mr Syed Musaib, Dy. AG

Date of Judgment: 10.05.2024

Click Here To Read/Download Order or Judgment