Requirement To Refer The Claims To Dispute Adjudication Board (DAB) Is Mandatory: Jammu & Kashmir And Ladakh HC

The High Court of Jammu & Kashmir and Ladakh has held that the requirement to refer the dispute to DAB, as per the GCC of FIDIC Contracts, is mandatory and the failure to comply with the provision results in making the dispute non-arbitrable.

The bench of Justice Vinod Chatterji Koul held that when the agreement between the parties provides for reference of claims to DAB as pre-arbitration requirement and also provides for the consequences for the non-compliance, the parties must necessarily follow the agreed procedure and failure would result in the claims becoming non-arbitrable.

Facts

The parties entered into an agreement dated 14.10.2010 whereby the respondent agreed to carry out certain construction work on ‘Turnkey Basis’. The agreement was based on the General Conditions of FIDIC Contract. Clause 20 of the agreement provided for the resolution of dispute. It provided that the contractor has to give a notice of dispute and the employer would then refer the dispute to DAB for adjudication and it is only in the eventuality when the DAB proceedings fail or the parties do not agree with its finding that the dispute would be referred to arbitration. It further provided that only the claims which remain unsettled after the decision of DAB are to be referred to arbitration.

The work was to be completed within a period of two years, however, there was a delay of 386 days in the completion of the contract work. The respondent contended that the delay in the completion is due to the failure of the appellant to appoint the proof collector on time who was responsible for the approval of the design and drawings. Accordingly, it invoked the dispute resolution clause and the dispute was referred to arbitration.

The tribunal vide the impugned award dated 20.07.2017 allowed the claims of the respondent and held the appellant liable for the delay in the completion of the project work.

Aggrieved by the award, the appellant challenged it under Section 34 of the Act, however, the Court dismissed the challenge petition. Finally, the appellant filed the appeal under Section 37 of the Act.

Grounds of Appeal

The appellant challenged the award on the following grounds:

• The award is illegal as against the policy of the State for the reason of it being against the terms of the agreement.
• The arbitrator as well as the Court below failed to appreciate the fact that the agreement between the parties provided that the any claim is to be first notified with the superintending engineer within a fixed time period, however, there was no such notification as the claims were raised much later after the final payment was made to the respondent.
• The agreement further provided that the claims were to be first referred to DAB for its decision and only the claims that were not settled by DAB were to be referred to arbitration.
• The requirement of DAB adjudication was mandatory as the agreement also stipulated the effect of its non-compliance which was the waiver of the right to claim adjudication.
• The scope of arbitration clause was limited to only those claims that remained unsettled by DAB.
• All the claims of the respondent were settled by accord and satisfaction as the final payment was made to it which was received and accepted without any protest or demur, thus, the reference to arbitration was an afterthought.

Analysis by the Court

The Court observed that the agreement was based on the General Conditions of FIDIC Contract. Clause 20 of the agreement provided for the resolution of dispute. It provided that the contractor has to give a notice of dispute and the employer would then refer the dispute to DAB for adjudication and it is only in the eventuality when the DAB proceedings fail or the parties do not agree with its finding that the dispute would be referred to arbitration. It further provided that only the claims which remain unsettled after the decision of DAB are to be referred to arbitration.

The Court held that the pre-arbitral steps in the agreement were mandatory in nature and the respondent had to necessarily give a notice of dispute to the employer and the requirement of adjudication before DAB is also necessary. Any contravention with the same would result in the waiver of any right to adjudication.

The Court observed that the respondent did not give any notice of claim as provided under the agreement and the issues were raised much later after the settlement of the final bill. Moreover, the procedure as provided under the agreement for reference of dispute to DAB was not followed, and the respondent directly invoked the arbitration clause.

The Court held that the scope of arbitration clause was limited only to those claims that remained unsettled despite the decision of DAB. On merit also, the Court set aside several claims on the ground that the arbitrator failed to appreciate that it was a ‘Turnkey Agreement’ which means that it was the duty of the respondent to prepare the design and drawings as well as reasonably anticipate all such issues that were likely to arise in the execution of the agreement.

Accordingly, the Court allowed the appeal in the above terms.

Case Title: Union of India v. S.P. Singla Construction Pvt. Ltd. AA No. 6 of 2022

Citation: 2023 LiveLaw (JKL) 150

Date: 02.02.2023

Counsel for the Appellant: Mr D.C.Raina, Advocate General with Mr Ilyas Laway, Advocate

Counsel for the Respondent: Mr Anirudh Wadhwa, Advocate & Mr Aditya Mittal, Advocate

Click Here To Read/Download Judgment