Appointment Of Arbitrator When Claims Not Covered By GCC Would Cause Wastage Of Resources And Time: Gauhati High Court Dismisses S. 11 Application

“To appoint an Arbitrator, even though there is no doubt in the view of this Court that the present dispute is not arbitrable, would lead to wastage of resources, besides being a sheer waste of time.”

Brief Facts:

The Petitioner approached the Gauhati High Court (“High Court”) under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), seeking the referral of a dispute between the parties to a sole arbitrator appointed by the Court. The Petitioner contended that it was awarded a contract for Detailed Design and Construction Supervision for a tunnel and cut-and-cover work as part of the New BG Railway Line Project. The Petitioner argued that it completed the contract work satisfactorily but encountered disputes regarding the settlement of their final bill and additional claims for extra work done. Despite multiple claims and notices, the Respondents did not settle the matter, leading the Petitioner to invoke arbitration.

The Petitioner argued that the contract agreement contained an Arbitration Clause (Clause No. 10.0) referring to Clauses 63 & 64 of the General Conditions of Contract (GCC) for dispute resolution through arbitration. Despite invoking this clause, the Respondents did not respond to the Petitioner's arbitration request.

Additionally, the Petitioner's contentions were based on Clause 10.1 of the contract agreement. The clause stated that claims or disputes exceeding 20% of the contract value would not fall under the purview of the GCC arbitration clauses. The Petitioner argued that this clause was void as per Section 11(6A) of the Arbitration Act, which mandates the court's examination to be limited to the existence of an arbitration clause in the contract. It contended that the validity and applicability of Clause 10.1 should be determined by the appointed arbitrator under Section 16 of the Arbitration Act.

On the other hand, the Respondents argued that Clause 10.1, read in conjunction with Clause 10.0 incorporating Clauses 63 & 64 of the GCC, limited the applicability of GCC arbitration clauses to claims below or equal to 20% of the contract value. Claims exceeding this threshold, according to them, did not fall under the purview of the GCC arbitration clauses.

Observations by the High Court:

The High Court noted that Clause 10.1 of the contract agreement introduced a limitation to Clause 10.0, stipulating that when the claim or dispute value exceeds 20% of the contract work's value, the GCC arbitration provisions are not invoked.

The High Court referred to Duro Felguera, S.A. vs Gangavaram Port Limited, 2015 Amendment of the Arbitration Act, and subsequent cases like Vidya Drolia vs Durga Trading Corporation, and highlighted the narrow pre-referral jurisdiction of the Court under Section 11(6) of the Arbitration Act.

It held that while the primary authority to determine non-arbitrability lies with the Arbitral Tribunal, the Court may intervene in manifestly non-arbitrable claims to prevent resource wastage. This duty of scrutiny, albeit limited, is essential to protect parties from being compelled to arbitrate in cases non-arbitrable.

The High Court referred to the decision in M/s BCC Monalisha (JV) vs. Container Corporation of India Limited [ARB.P. 933/2022 & I.A. 5219/2023], where the Delhi High Court addressed a provision similar to Clause 10.1, namely Clause 34 of the Special Conditions of Contract (SCC). The Court noted that the petitioner did not contest that the aggregate value of their claims exceeded 20% of the contract value. Their only contention was that the Arbitral Tribunal should determine the arbitrability of the claims. Despite this, the Delhi High Court conducted a preliminary inquiry into the arbitrability of the claims under Clause 34 of the SCC, which allowed arbitration if the claim value was less than or equal to 20% of the contract value. The Delhi High Court emphasized that it is not merely a post office and has the authority to scrutinize requests for the appointment of an arbitrator.

The High Court held that Section 11 confines power to the court to examine the existence of an arbitration agreement. The High Court emphasized that a claim must meet the minimum threshold for arbitration under Clause 10.1 of the contract agreement. Failure to do so would result in the dismissal of the petition, as appointing an arbitrator for a dispute deemed non-arbitrable would be wasteful. Therefore, the High Court dismissed the petition, granting the parties the freedom to pursue alternative remedies for resolving their dispute.

Case Title: Beaver Infra Consultants Pvt. Ltd Vs the Union of India and 2 Ors.

Case Number: Arb.P./48/2023.

Advocate for the Petitioner: R Hussain

Advocate for the Respondent: H Gupta

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