Court Not Mere Post Office U/s 11(6) A&C Act, Has Power To Decide Arbitrability By Prima Facie Analysis: Gauhati HC

Brief Facts:

M/s Atw (India) Pvt. Ltd. (“Petitioner”) was awarded a contract for earthwork in formation as part of a gauge conversion project. The contract, executed on 27.01.2003, had a total cost of Rs.5,09,69,700, with a stipulated completion time of 18 months by 30.06.2004. Despite successful completion and several extensions, a dispute arose due to the non-settlement of the Final Bill amounting to Rs.1,86,23,336.78 by Union of India (“Respondent”). The Petitioner approached the Gauhati High Court (“High Court”) and filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for a reference of the dispute between the parties before a sole Arbitrator to be appointed by the High Court.

The Petitioner argued that the contract agreement included an Arbitration Clause (Clause 10.0), which incorporated relevant Clauses 63 & 64 of the General Conditions of Contract (GCC), stipulating arbitration for dispute resolution. The Petitioner, having invoked the Arbitration Clause through notice, argued that the Respondent did not reply. It argued that Sub-Section 6A of Section 11 of the Arbitration Act limits the Court's examination to the existence of an Arbitration Clause when appointing an Arbitrator. The validity and interpretation of Clause 10.1, including its impact on the Arbitrator's authority, should be decided by the appointed Arbitrator under Section 16 of the Arbitration Act.

In response, Respondent maintained that Clause 10.1, read alongside Clause 10.0 and Clauses 63 & 64 of the GCC, limits the applicability of the latter for claims/disputes below or equal to 20% of the contract value. Claims exceeding 20% would not trigger the arbitration clauses. Consequently, it argued for dismissal of the Petitioner's application.

Observations by the High Court:

The High Court noted that Clause 63 & 64(1)(i) of the GCC clearly mandated the resolution of disputes through arbitration. However, it noted the introduction of a limitation in Clause 10.1, stating that when the claim or dispute value exceeds 20% of the contract work value, the provisions of Clause 63 & 64 of the GCC would not be attracted. The Petitioner a claim amounting to Rs. 1,86,23,336.78, which constituted approximately 36.6% of the total contract value as per the contract agreement.

The High Court held that the court's examination under Section 11(6) of the Arbitration Act includes the validity of an arbitration agreement, applying a prima facie test at the referral stage. It referred to the decision of the Supreme Court in NTPC Limited vs. SPML Infra Limited (2023) 9 SCC 385, emphasizing that the pre-referral jurisdiction of the Courts under Section 11(6) is narrow and involves two inquiries. The first inquiry pertains to the existence and validity of an arbitration agreement, while the secondary inquiry at the reference stage addresses the non-arbitrability of the dispute. It held that, as a general rule, the Arbitral Tribunal is the preferred authority for determining non-arbitrability. However, the Referral Court may reject claims that are manifestly non-arbitrable, applying a prima facie test.

Therefore, the High Court held that appointing an arbitrator, despite the dispute being deemed non-arbitrable due to Clause 10.1, would be a waste of resources and time. Accordingly, the petition was dismissed, allowing the parties to pursue alternative jurisdictional remedies for dispute resolution.

Case Title: M/s Atw (India) Pvt. Ltd. vs Union Of India And Anr

Case Number: Arb.P./34/2023.

Advocate for the Petitioner: R. Hussain.

Advocate for the Respondent: H. Gupta.

Click Here To Read/Download Order