Dispute Regarding Non-Payment Of Dues Can’t Be Referred To Arbitration, If Liability Is Admitted: Punjab and Haryana High Court

While holding that it was a simple case of non- payment of the final amount due under the Contract, the bench of Justice Nidhi Gupta ruled that the Civil Judge had rightly dismissed the petitioner’s application under Section 8 of the Arbitration and Conciliation Act, 1996 (A&C Act) in a recovery suit filed before it. The Court added that in view of Section 8 of the A&C Act, the arbitration clause comes into operation only ‘in a matter which is the subject of an Arbitration Agreement’.

The petitioner- M/s Simplex Infrastructure Ltd., and the respondent- M/s J.P. Singla Engineers & Contractor, entered into a Construction Agreement. After the petitioner allegedly failed to clear the dues of the respondent for the construction work undertaken by it, the respondent filed a recovery suit before the District Court.

Disputing the maintainability of the civil suit, the petitioner filed an application under Section 8 of the A&C Act before the District Court, contending that the dispute must be referred to arbitration in view of the arbitration cause contained in the Agreement. The Civil Judge dismissed the petitioner’s application under Section 8, against which it filed a revision petition before the Punjab and Haryana High Court.

The petitioner Simplex Infrastructure submitted before the High Court that once the execution of an Agreement between the parties containing an arbitration clause is admitted, the dispute between them must be referred to arbitration

The respondent- J.P. Singla Engineers & Contractor, argued that it was not disputed by the petitioner that the respondent had completed the work as per the work order issued. It added that after the petitioner had failed to clear its bills within the stipulated period, despite numerous reminders, it was left with no alternative remedy but to file the civil suit.

While noting that the liability to clear respondent’s outstanding dues was not disputed by the petitioner, the Court perused the arbitration clause contained in the Agreement/ Work Order.

The bench observed that as per the relevant clause, any dispute arising out of or in connection with the work order or contract must be amicably settled, failing which the dispute shall be referred to arbitration.

Holding that the operation of the Agreement/Work Order ceased once the respondent had completed the work, the Court ruled that the dispute between the parties was simply a case of non-payment of dues. It added that it cannot be said that the said dispute arose ‘under’, ‘in connection with’, or even ‘with regard to’ the contract. Thus, the arbitration clause was not applicable, the Court said.

The bench referred to the decision of the Apex Court in UOI versus Birla Cotton Spinning & Weaving Mills Ltd. (1963), where the Supreme Court had ruled that a plea by the Union of India that though it was liable to pay the amount under the Contract, it would, however, not pay it, is not a dispute "under or in connection" with the Contract under which the liability is sought to be enforced.

Referring to Section 8 of the A&C Act, the Court reckoned that the arbitration clause comes into operation only ‘in a matter which is the subject of an Arbitration Agreement’. The Court took note that the dispute between the parties did not relate to the execution of the work or its completion under the Agreement/Work Order and thus, the dispute was not a subject of the Arbitration Agreement.

It added that since the liability under the Agreement/ Work Order was admitted by the petitioner, the respondent had legally filed the suit for recovery.

“As noticed above the present dispute relates to/ is a case of non-payment of dues simpliciter. The present dispute between the parties cannot be said to be a dispute ‘under’, ‘in connection with’, or even ‘with regard to’ the contract. Therefore, it cannot be held to be a case for reference to arbitration, and in the face of admitted liability respondent has legally filed the present suit for recovery”, the Court said.

Concluding that the parties cannot be referred to arbitration, the Court dismissed the revision petition.

Case Title: M/s Simplex Infrastructure Ltd. & Anr. versus M/s J.P. Singla Engineers and Contractor

Citation: 2023 LiveLaw (PH) 1

Dated: 09.12.2022 (Punjab & Haryana High Court)

Counsel for the Petitioner: Mr. Sanjeev Pabbi

Counsel for the Respondent: Mrs. M.S. Chauhan

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