Issuance Of 'No Claim Certificate' Does Not Prima-Facie Make Dispute Non-Arbitrable, Gujarat High Court Allows S. 11 Application

The bench reiterated that it could only carry on a prima-facie assessment as a general rule of law and the decision on arbitrability lies primarily within the Arbitrator's ambit.

Brief Facts:

Poll Cont Associates (“Petitioner”) had an agreement with Narmada Clean Tech Ltd. (“Respondent”) with an arbitration clause. Disputes arose between the parties and the Petitioner sent a notice of the relevant claim to the Respondent. The Respondent denied the claim and instituted a suit under Section 8 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The Section 8 application was allowed by Senior Civil Judge, Ankleshwar and the dispute was referred to arbitration. Thereafter, the Petitioner called the Respondent for its consent for the appointment of an Arbitrator from the suggested list. The Respondent refuted the notice contending that the Petitioner itself had issued a 'No Claim Certificate' and accepted the amount paid as per the terms of the contract. Since the claims were now barred, the dispute remained no longer arbitrable at such a late stage. Feeling aggrieved, the Petitioner filed an application under Section 11 of the Arbitration Act in the High Court of Gujarat (“High Court”), seeking for appointment of an Arbitrator. The relevant arbitration clause is reproduced below:

“f. Arbitration & Law

Except as otherwise provided herein, any dispute arising out of this Agreement/ Contract shall be settled by arbitration as provided in clause 36 (page-31) of the Volume-1 bid document.”

Observations by the High Court:

At the outset, the High Court refuted the Respondent's contention that the disputes are no more arbitrable because they've become 'stale'. In this regard, the High Court referred to the 'Eye of the Needle' principle propounded by the Supreme Court in NTPC Limited vs SPML Infra Limited, which means that the jurisdiction of the courts under Section 11(6) of the Arbitration Act is very narrow and warrants just two inquiries. The primary inquiry has to be whether an arbitration agreement existed between the parties (this includes the question of privity of contract) and the secondary inquiry has to be whether the dispute is arbitrable. The High Court further clarified that arbitrability of the dispute, as a general rule, also lay under the Arbitrator's ambit. However, the referral court may reject claims which are ex-facie and manifestly non-arbitrable.

As a result, the High Court confined itself to the inquiry of whether there existed an arbitration agreement and whether the Applicant had privity of contract with the Respondent. Regarding the arbitrability of the dispute, the High Court held that the arbitral tribunal would be the best authority to determine that. It reiterated that even if there is the slightest doubt, the rule is to refer the dispute to arbitration.

Following the aforementioned position of law, the High Court held that it cannot be concluded prima-facie that due to the issuance of a 'No Claim Certificate', the dispute had become 'stale', hence, non-arbitrable. It further held that the Petitioner filed the Section 11(6) petition only after the Commercial Suit was dismissed and the respondent refused to honour the notice sent by the Petitioner under Section 21 of the Arbitration Act.

As a result, the petition was allowed. Mr. Ashutosh J. Shastri was appointed as the sole arbitrator to resolve the disputes between the parties in accordance with the Arbitration Centre (Domestic and International), High Court of Gujarat Rules, 2021.

Case Title: Poll Cont Associates vs Narmada Clean Tech Ltd.

LL Citation: 2024 LiveLaw (Guj) 13

Case No: R/Petn. Under Arbitration Act No. 141 of 2023

Advocate for the Petitioner: Mr JF Mehta

Advocate for the Respondent: Mr Abhishek M Mehta

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