Arbitration In IndiaJurisdiction of Courts immediately commence on breach of pre-arbitration mandate

The  Delhi High Court in M/S BKSONS Infrastructure Pvt. Ltd. v. Managing Director, National Highways and Infrastructure Development Corporation, [ARB.P. 498/2024 decided on 12.08.2024],  held that the jurisdiction of the Courts in Arbitration under Section 11(6) of the A&C Act commences once either of the parties have breached the pre-arbitration mandate.

FACTS

M/S BKSONS Infrastructure Pvt. Ltd. (hereinafter referred to as the “Petitioner”), entered into an Engineering, Procurement, and Construction Contract on 01.06.2020 (hereinafter referred to as the “Agreement”) with National Highways and Infrastructure Development Corporation (hereinafter referred to as the “Respondent”) for the conversion of a two-lane stretch of NH 117 into a four-lane stretch. The Article 26 of the Agreement included a dispute resolution clause that required the parties to follow a three-stage pre-arbitral process. Firstly, attempt  an amicable resolution through a Conciliator appointed by the Respondent. In case of failure of first stage,

refer the matter to the Chairman of the Respondent for a joint meeting to resolve the dispute. Further, the parties shall

 seek conciliation through a Conciliation Committee of Independent Experts. On occasion of failure of all three stages, the dispute may be referred to arbitration.

Disputes arose between the parties, leading the Petitioner to request the appointment of a Conciliator on 02.01.2023. The Respondent did not respond to the request even after reminders by the Petitioner. Hence, the Petitioner requested a meeting with the Chairman of the Respondent, which was held on 27.12.2023.

However, the claims of the Petitioner were rejected by the Petitioner on 11.01.2024. Further, the Petitioner  issued a notice invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “A&C Act”).

 The Respondent vide reply dated 05.02.2024, informed the Petitioner to  approach the Conciliation Committee of Independent Experts. Instead of complying with the Respondent’s suggestion, the Petitioner has filed a Petition under Section 11(6) of the A&C, seeking the appointment of an Arbitrator.

ISSUES BEFORE THE DELHI HIGH COURT

Whether the present application under Section 11(6) of the A&C Act is maintainable before this Hon’ble Court?

Whether the arbitration clause can be invoked before exhausting the mandatory pre-arbitration stages envisaged in the Agreement?

CONTENTIONS OF THE PARTIES

The Petitioner relied upon Oasis Projects Ltd v. M.D. National Highway and Infrastructure Development Corporation Ltd [2023 SCC OnLine Del 645] submitted that the Conciliation Clause in Clause 26.2 of the Agreement was voluntary and directory in nature and not mandatory for invoking Arbitration.

The Respondent contended that the present Petition was not maintainable as the Petitioner had exhausted the mandatory three-stage pre-arbitral process provided  in Clause 26.2 of the Agreement to seek recourse of Arbitration.

• The respondent contended that the petitioner should have approached the Conciliation Committee of Independent Experts, as outlined in Stage 3 of the pre-arbitral procedure, before seeking arbitration.

DECISION AND FINDINGS

The Delhi High Court observed that the Clause 26.2 of the Agreement categorically provides three stage pre-arbitration procedure, which has to be mandatorily followed before institution of an Arbitral Tribunal. Furthermore, the provision of Section 11 (6) of the A&C Act can be invoked when either of the parties fail to act as per the Agreement.

It was further observed that on default of either of the parties in following the pre-mandatory process, the jurisdiction of the Courts under Section 11(6) of the A&C Act commences. The Respondent had failed to participate and appear before the Independent Conciliator even after several reminders from the Petitioner. Therefore, the Petitioner is ipso facto entitled to invoke Arbitration.

It was further held that the Petitioner was justified in approaching this Court for appointment of Arbitrator. Mr. A.K. Behera, Senior Advocate was appointed as an Arbitrator and the arbitration proceedings would be in accordance to Delhi International Arbitration Centre (DIAC). Hence, allowed the petition.

AMLEGALS REMARKS

The Delhi High Court in the present case has signified the importance of party autonomy as decided in the Agreement. However, once breach of the pre-arbitration mandate has been committed by one of the parties, the other party can approach the Courts for appointment of Arbitrator under Section 11 (6) of the A&C Act.

– Team AMLEGALS