The Delhi High Court in the of Consolidated Construction Consortium Limited v. South Delhi Municipal Corporation [ARB. P.319/2017 decided on 02.11.2022], held that while constructing a contractual clause, the substance of the agreement shall be considered rather than the nomenclature employed to the clause.
A Concession Agreement (hereinafter referred to as the “Agreement”) was signed between Consolidated Construction Consortium Limited (hereinafter referred to as ‘Petitioner’) and South Delhi Municipal Corporation (hereinafter referred to as ‘Respondent’) on 14.03.2011, for the development of Multilevel Automated Parking-cum- Commercial Complex.
Due to the disputes arising during the course of the Agreement, the Petitioner sent a legal notice to the Respondent for the payment of Rs. 41,88,50,435 (Rupees Forty-One Crores Eighty-Eight Lakhs Fifty Thousand Four Hundred Thirty-Five) along with the interest. The notice also referenced the Arbitration Clause of the Agreement to adjudicate the dispute in case the Respondent failed to pay the amount.
The Respondent replied on 29.08.2016 disputing the existence of the Arbitration Clause in the Agreement. The Petitioner again requested for the appointment of an Arbitrator, and as the Respondent did not accede to the request, the Petitioner approached this Hon’ble Court under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”).
ISSUE BEFORE THE DELHI HIGH COURT
Whether the arbitrability of a dispute is decided upon on the characteristics of the clause or the nomenclature?
CONTENTIONS OF THE PARTIES
The Petitioner contended that the Arbitration Clause is envisaged in Article 20 of the Agreement entitled as “Disputes”. The Petitioner submitted that the present clause in essence is similar to that in the case of South Delhi Municipal Corporation v. SMS Ltd. [ SLP (C) 16913/2017].
The Respondent claimed that case of South Delhi Municipal Corporation v. SMS Ltd. As relied upon by the Petitioner was different than the present case in as much as there is no arbitration agreement between the parties and Article 20 of the Agreement merely refers to “Mediation” by the Commissioner that the Respondent has nominated.
DECISIONS AND FINDINGS
The Delhi High Court examined Article 20 of the Agreement and held that the word “Arbitration” was not mentioned in the Clause, but the word “Mediation” was used. The High Court relied upon the decision in Jagdish Chander v. Ramesh Chander and Ors. [ (2007) 5 SCC 719] and KK Modi v. KN Modi & Ors [(1998) 3 SCC 573] and held that the substance of the Agreement shall be considered over the nomenclature employed.
The High Court also examined the features of Article 20 of the Agreement and held that even though the clause is referred to under “Mediation” the wordings are inconsistent under the label of Mediation. It was further held that recording of evidence, determination of rights, and irrelevance of mutual agreement to the final resolution of dispute are features of an Arbitration Agreement.
The High Court held that though the clause in issue in the present case is different from the case of South Delhi Municipal Corporation vs. SMS Ltd. the Arbitration Clause was envisaged under Article 20 of the Agreement and hence, the disputes have to resolve through Arbitration.
The High Court also observed that the Arbitration shall be conducted under the aegis of the Delhi International Arbitration Center.
The Delhi High Court in the present case has observed the features of the clause will decide about the arbitrability, and the nomenclature does not decide the arbitrability of the clause. The Court has upheld that the intention of the parties under the Agreement would decide whether an Arbitration Clause exists or not, even when covered under mediation, as per the expressed nomenclature under the Agreement.
The intention of the parties to settle the disputes in a way it is final and binding on both parties is upheld by the Court. This may also create unnecessary disputes regarding the intention of the parties to arbitrate or not. Hence, the intention of the clause is to be preferred over the nomenclature. The meaning and intention of the clause are unaffected by the absence of usage of an appropriate word.
– Team AMLEGALS assisted by Ms. Ishita Jaiswal (Intern)
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