Pre-Arbitration Reference To Adjudicator Is Only Directory, Not A Bar To The Appointment Of The Arbitrator: Himachal Pradesh High Court

The Single Bench of Chief Justice Mohammed Rafiq held that the respondent could not object to the maintainability of the petition, merely on the ground that the pre-condition of reference to adjudicator was not met if it also did not make efforts to settle the dispute but proceeded to terminate the agreement.

Facts

The parties entered into an agreement in the year 2018 wherein the petitioner was to develop the management software for the respondent. A dispute arose between the parties regarding the non-payment and non-completion of the work. Accordingly, the respondent terminated the agreement.

Aggrieved by the termination of the agreement and encashment of the performance bank guarantee, the petitioner invoked the dispute resolution clause and issued a notice of arbitration on the respondent. The respondent replied to the notice and did not concur with the name proposed by the petitioner, it further contended that the reference to arbitration is pre-mature as the agreement provides for pre-arbitration reference to adjudicator.

Thereafter, the petitioner filed a petition under Section 11 of the A&C Act for the appointment of the arbitrator.

The Contention Of The Parties

The petitioner sought the appointment of the arbitrator on the following grounds:

• The respondent failed to make the payment as provided under the agreement, therefore, a dispute has arisen.
• The respondent illegally terminated the agreement and encashed the bank guarantee.
• The unilateral appointment of the adjudicator as proposed by the respondent would be bad in law for want of impartiality and independence of the adjudicator.
• The reference to adjudicator is only a directory provision and the same cannot be a bar to the appointment of arbitrator.

The respondent objected to the maintainability of the petition on the following grounds:

• The petition is pre-mature as the petitioner has not complied with the requirement of making a reference to the adjudicator before invoking arbitration.
• The adjudicator if appointed, his appointment cannot be termed as unilateral as the petitioner had signed the contract containing the name of the adjudicator.
• The pre-arbitration reference is a mandatory requirement, non-compliance with which would result in the dismissal of an application for appointment of arbitrator.
• The petitioner did not fulfill its obligation under the contract, therefore, the termination was legal.

Analysis By The Court

The Court held rejected the argument of the petitioner that the appointment of the named adjudicator would be bad in law because the agreement clearly provided the name of the adjudicator.

However, the Court held that the requirement of pre-arbitration reference cannot be held to be a mandatory condition for the invocation of arbitration. The Court held that such a stipulation in a contract is only directory.

The Court further held that the respondent could object to the maintainability of the petition merely on the ground that pre-condition of reference to adjudicator was not complied with, if it also did not make efforts to settle the dispute but proceeded to terminate the agreement.

The Court further held that the petition is pending for more than 1.5 years, therefore, no useful purpose would be served by relegating the parties to adjudication.

Accordingly, the Court allowed the petition and appointed a sole arbitrator.

Case Title: Backend Bangalore Pvt. Ltd. v. Chief-Engineer-Cum-Project Director, HPRIDC, Arbitration Case No. 61 of 2022

Date: 01.04.2022

Citation: 2022 LiveLaw (HP) 14

Counsel for the Petitioner: Mr. Diwan Singh Negi

Counsel for the Respondent: Mr. J.S. Bhogal, Senior Advocate with Mr. Tarunjeet Singh Bhogal

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