Contract To Refer Disputes To Director Of Social Forestry Department Whose Finding Is Final And Binding Constitutes Valid Arbitration Agreement: J&K High Court

“A perusal of the said Clause 18, would show that it does not specifically mention that the dispute between the parties shall be referred to an arbitrator. What the aforesaid clause mentions is that the dispute shall be referred to the Director, Social Forestry Department Jammu and Kashmir, Srinagar Kashmir, whose decision shall be final and binding on the parties.”

Brief Facts:

The Petitioner approached the J&K High Court (“High Court”) under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) seeking appointment of an Arbitrator to resolve a dispute alleged by the Petitioner to have arisen between them and the respondents. However, the Respondents contested this claim.

The Petitioner asserted that the Department of Social Forestry, Jammu and Kashmir, Srinagar issued a Notice Inviting Tenders for the sale/felling of 2336 poplar trees. The Petitioner participated in the bidding process and was declared the successful bidder, offering the highest rate. It contended that due to certain difficulties, it requested permission to defer payment, which was granted. However, amid COVID-19 restrictions, work disruptions occurred, and the authority issued a notice threatening cancellation due to non-payment.

Displeased by the Respondents' actions, the Petitioner sought interim protection under Section 9 of the Arbitration Act, which was granted by the District Court. Subsequently, the Petitioner commenced execution of the contract, alleging that the officials manipulated records to show higher tree felling than actual. Furthermore, the Petitioner claimed to have deposited more than the tendered value due to court directives, alleging manipulation by the officials, and seek a refund. Having received no response from the authorities, the Petitioner approached the High Court for the appointment of an Arbitrator.

In response, the Respondents raised several preliminary objections. Firstly, it argued that the contract was not governed by the Jammu and Kashmir Arbitration and Conciliation Act, 1997, which was repealed in 2019. Secondly, it contended that the Arbitration and Conciliation Act, 1996, doesn't apply to this contract. Thirdly, it claimed there's no valid arbitration agreement or clause within the contract. The clause cited by the Petitioner was insufficient to qualify as an arbitration clause under Section 7 of the Arbitration Act.

Observations by the High Court:

The High Court noted that term of the contract that the Petitioner asserted as the arbitration clause is found in Clause 18 of the agreement. Upon examination of Clause 18, it became apparent that it did not explicitly state that disputes between the parties shall be referred to an arbitrator. Instead, it specified that disputes shall be referred to the Director of the Social Forestry Department, whose decision shall be final and binding.

The question before the High Court was whether Clause 18 can be construed as an arbitration clause within the meaning of Section 7 of the Arbitration Act.

This High Court held that Clause 18 of the contract constituted an arbitration clause. The intention of the parties was evidently to refer decisions to the Director of the Social Forestry Department, whose findings would be final and binding. Despite the absence of explicit arbitration language, the High Court held that the essential elements of arbitration were present.

Regarding the contention that the contract was devoid of any arbitration agreement, thus not subject to the Arbitration Act, the High Court held that such argument lacked merit in light. Furthermore, following the implementation of the Jammu and Kashmir Reorganization Act of 2019, the Arbitration Act, applied to arbitration matters within Jammu and Kashmir.

Consequently, the High Court held that the Petitioner had substantiated the case for referring the dispute to an arbitrator. Consequently, Justice Hakim Imtiyaz Hussain, a retired High Court Judge, was appointed as the arbitrator.

Case Title: Khursheed Ahmad Lone vs Director Social Forestry And Others

Citation: 2024 LiveLaw (JKL) 53

Case Number: Arb P. No.7/2023

Advocate for the Petitioner: Mr. Malik Mushtaq, Advocate.

Advocate for the Respondent: Mr. Syed Musaib, Dy. AG.

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