Claims Cannot Be Referred To Arbitration When The Requirement To Mandatorily Notify Such Claims Was Not Followed: Delhi High Court

The bench of Justice Manoj Kumar Ohri held that the Court can conduct a preliminary enquiry to find out if the dispute is arbitrable in terms of the agreement and refuse arbitration when the claims are ex facie non-arbitrable.

The Court also held if the contract provides for arbitration only if the aggregate value of claims does not exceed 20% of the contract value, the Court would not refer the parties to arbitration when the claims exceed such an aggregate value.

Facts

The parties entered into an agreement dated 15.04.2019. In terms of the agreement, the petitioner was to carry out certain construction activities for the respondent. Clause 64 of the GCC provided for resolution of dispute through arbitration, however, it provided for a pre-arbitration requirement of notifying the claims with the GM before they could be referred to arbitration. It further provided that only notified claims would be referred to arbitration. Moreover, Clause 34 of GCC provided that the arbitration would only be for claims which do not exceed 20% of total value of the contract.

Certain disputes arose between the parties which led to the termination of the agreement by the respondent. Aggrieved by the termination of the contract, the petitioner issued a notice of arbitration and referred the dispute to arbitration. On failure of the parties to mutually appoint the arbitrator, the petitioner filed a Section 11 petition before the High Court

Contentions

The respondent objected to the appointment of the arbitrator on the following grounds:

• The claims raised by the petitioner are non-arbitrable as it has failed to notify its claims with the GM as provided under the agreement.
• The notice of arbitration is not in terms of the agreement as the petitioner has failed to give details of the disputed issues and item wise quantification of the claim amount. Clause 64(1)(ii)(a) precluded the non-conforming disputes from being referred to arbitration
• The aggregate value of the claims of the petitioner would exceed the limit of 20% of the value of the project provided under Clause 34 of the GCC, therefore, the dispute cannot be referred to arbitration.

Analysis by the Court

The Court observed that in terms of Clause 64 of GCC, the petitioner was required to raise all its claims before the GM who would notify its claims and only the notified claims are to be referred to arbitration. It further observed that it precluded the non-conforming disputes from being referred to arbitration.

The Court also observed that Clause 34 of GCC further provides that the aggregate value of all the claims being referred to arbitration should not be more than 20% of the value of the project, therefore, it was necessary for the petitioner to have given a claim wise quantification of its claims to fall within the threshold limit, however, it failed to indicate the claim value against certain claims.

The Court held that claims of a party cannot be referred to arbitration when the requirement to mandatorily notify such claims with the General Manger (GM) was not followed. It observed that the arbitrator is the creature of the contract who draw their life and sustenance from the contract between the parties.

The Court held that the Court can conduct a preliminary enquiry to find out if the dispute is arbitrable in terms of the agreement and refuse arbitration when the claims are ex facie non-arbitrable.

The Court also held if the contract provides for arbitration only if the aggregate value of claims does not exceed 20% of the contract value, the Court would not refer the parties to arbitration when the claims exceed such an aggregate value.

Accordingly, the Court dismissed the arbitration petition.

Case Title: M/s BCC-MONALISHA (JV) v. Container Corporation of India, ARB.P. 933/2022

Citation: 2023 LiveLaw (Del) 814

Counsel for the Petitioner: Mr. Sidhant Dwibedi, Advocate

Counsel for the Respondent: Mr. R.K. Joshi and Mr. Ojusya Joshi, Advocates

Click Here To Read/Download Order