A ‘No-Claim Declaration’ Given By Party Would Not Extinguish Its Remedy To Invoke Arbitration: Delhi High Court

While referring the parties to arbitration despite the fact that the claimant had not followed the pre-arbitral mechanism envisaged in the GCC, the Court ruled that since all the agreements executed between the parties must be construed harmoniously, the invocation of arbitration proceedings cannot be rendered void due to a mere discrepancy arising out of the relevant clauses contained in the agreements.

The bench of Justice Chandra Dhari Singh also remarked that a ‘No-Claim Declaration’ given by a party would not extinguish its remedy to invoke arbitration under the arbitration clauses contained in the agreements or render the arbitration agreement void, in view of the Doctrine of Severability.

The petitioner, M/s Kuldeep Kumar Contractor, and the respondent, Hindustan Prefab Ltd, entered into an Agreement for execution of a Construction Contract. The petitioner made a claim in terms of the said Agreement, including raising a final bill for the work performed by it and for refund of the security deposit.

The respondent denied the claims raised by the petitioner under the Agreement.

Subsequent to this, the petitioner submitted a ‘No-Claim Certificate’, as insisted by the respondent, for the purpose of release of the security deposit.

Since the respondent, Hindustan Prefab, failed to clear petitioner’s outstanding bills, the petitioner invoked the arbitration clause contained in the Special Conditions of Contract (SCC) and filed a petition under Section 11 of the A&C Act before the Delhi High Court, seeking appointment of arbitrator.

The respondent, Hindustan Prefab, argued before the High Court that since the petitioner, Kuldeep Kumar Contractor, had issued a ‘No-Claim Certificate’, there were no disputes between the parties that were required to be adjudicated through arbitration.

It added that though an arbitration clause is contained in both the General Conditions of Contract (GCC) and the SCC, however, as per relevant clause contained in the GCC, the pre-arbitration procedure contemplated under it was sine qua non for invoking arbitration. Since the petitioner failed to follow the pre-arbitration mechanism provided under the GCC, the Section 11 petition was pre-mature, it averred.

To this, the petitioner, Kuldeep Kumar Contractor, pleaded that pre-arbitration procedure was not mandated under the SCC. It thus averred that the pre-arbitration procedure provided under the GCC was redundant and superseded by the arbitration clause contained in the SCC.

Referring to the ‘Doctrine of Severability’, the bench reckoned that an arbitration agreement is undoubtedly independent from the principal agreement, and thus, the arbitration agreement continues to be in effect even if the main contract is invalidated, vitiated, or terminated for any reason.

The Court concluded that, in view of the Doctrine of Severability, the fact that the petitioner, Kuldeep Kumar Contractor, had issued a ‘No-Claim Certificate’ would not vitiate the arbitration clause contained in the SCC.

“In view of the foregoing discussions, this Court while adjudicating the Issue No. I finds that if a No-Claim Declaration has been given by a party it would not render the entire arbitration agreement void on the basis of Doctrine of Severability,” the Court said.

Referring to the facts of the case, the bench took note that as per the Agreement executed between the parties, the contract shall be performed in accordance with the terms and conditions of all the documents executed between them, including the GCC and the SCC.

It further referred to the principle of Kompetenz-Kompetenz, as per which the Arbitral Tribunal is empowered and has competence to rule on its own jurisdiction, including determining the existence or validity of the arbitration agreement.

The bench reckoned that an arbitration clause existed in both the SCC as well as the GCC. However, though a pre-arbitration procedure had to be followed, as stipulated in the GCC, the same was not mandated under the SCC, the Court noted.

The Court concluded that since all the agreements executed between the parties, including the GCC and the SCC, are to be construed harmoniously, the invocation of arbitration proceedings cannot be rendered void due to a mere discrepancy arising out of the two relevant clauses contained in the GCC and SCC.

While holding that the petitioner had complied with the procedure stipulated in the SCC enabling him to file the Section 11 petition before the Court, the Court said, “Since, the parties are in conflict with two different clauses of two separate agreements, this Court is of the view that the same requires interpretation of the said clauses to figure out the prevalence of one clause over another. Thus, this Court without adjudicating upon the interpretation finds it imperative to refer the same to an arbitrator in light of the precedent settled by the Hon’ble Supreme Court in Vidya Drolia (supra).”

The Court thus allowed the petition, appointed a Sole Arbitrator and referred the parties to arbitration.

Case Title: M/s Kuldeep Kumar Contractor vs. Hindustan Prefab Limited

Citation: 2023 LiveLaw (Del) 228

Counsel for the Petitioner: Mr. Aditya Dhawan and Ms. Kiran Dhawan, Advocates

Counsel for the Respondent: Mr. Varun Nischal, Mr. Vaibhav Mishra, Advocates with Mr. Mukesh Kumar (Legal In-charge)

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