Supersession Of The Arbitration Clause Must Not Be Inferred Lightly: Delhi High Court

The Single Bench of Justice Anup Jairam Bhambhani held that an arbitration agreement embedded in a contract is always considered a separate and severable clause, and that the supersession of the arbitration clause must not be inferred lightly.

The petitioner Shristi Infrastructure Development Corporation Ltd. entered into an agreement with the respondent Ircon International Limited. After certain disputes arose between the parties, the petitioner invoked the arbitration clause contained in the General Conditions of Contract and filed a petition before the Delhi High Court under Section 11 of the Arbitration & Conciliation Act, 1996 (A&C Act) seeking appointment of an arbitrator.

The respondent Ircon International submitted before the High Court that the parties had signed the Special Conditions of Contract (SCCs), and that as per the relevant clause contained in the SCCs, if any of the conditions contained in the SCCs conflict with or are inconsistent with any of the General Conditions of Contract (GCCs), the special conditions shall prevail.

The respondent averred that the SCCs contain a dispute settlement clause providing for amicable settlement of disputes between the parties through mutual discussions, negotiations and deliberations.

The respondent added that the dispute settlement clause contained in the SCCs specifically provided that it superseded the relevant clause contained in the GCCs, i.e., Clause 72, which comprised the dispute settlement clause as well as an arbitration agreement, as comprised in Clause 72.2. Hence, the respondent averred that since the arbitration agreement was incorporated in the said relevant clause contained in the GCCs, therefore, the arbitration agreement between the parties was superseded by the SCCs.

The Court observed that though the Special Conditions of Contract (SCCs) gave an overriding effect to the Special Conditions of Contract over the General Conditions of Contract (GCCs), such an effect was only restricted to the extent there was a conflict or inconsistency between the two provisions. The Court added that there was no evident conflict or inconsistency between the arbitration clause comprised in the General Conditions of Contract and any other provision contained in the Special Conditions of Contract.

The Court ruled that the question whether the dispute settlement clause contained in the SCCs overrides only the relevant clause contained in the GCCs, or also the specific arbitration agreement contained in the GCCs, requires a detailed interpretation of the provisions of the contract, which cannot be decided by the Court in the proceedings initiated under Section 11 of the A&C Act.

The High Court observed that the Apex Court in Intercontinental Hotels Group (India) Pvt. Ltd. & Anr. versus Waterline Hotels Pvt. Ltd. (2022) had relied upon the supplementary opinion rendered by the Chief Justice of India N.V. Ramana in Vidya Drolia & Ors. versus Durga Trading Corporation (2020), to the effect that- if the validity of the arbitration agreement cannot be determined on a prima facie basis, the Court should refer a matter to arbitration, i.e., 'when in doubt, do refer'.

Hence, the Supreme Court in Intercontinental Hotels Group (2022) had ruled that the Courts have a very limited jurisdiction under Section 11(6) of the A&C Act and that the watch word for the Courts is- 'when in doubt, do refer'. The Apex Court had held that when dealing with issues relating to the existence of the arbitration agreement, the Courts are only required to take a 'prima facie' view and that the issues of arbitrability and validity are required to be adjudicated upon by the arbitrators. The Supreme Court had ruled that the only exception to this rule was when the dispute involved was a deadwood.

Ruling that the arbitration agreement embedded in a contract is always considered a separate and severable clause, the supersession of which must not be lightly inferred, the High Court held that in consonance with the overarching principle of 'when in doubt, do refer', if there is an arbitration agreement between the parties, which is sought to be negated by a party by citing other provisions of a contract, which requires interpretation of the contract, the Courts must lean towards referring the matter to arbitration.

The High Court added that even after the matter has been referred to arbitration, the arbitrator must be free to decide on his or her own jurisdiction, including the existence of the arbitration agreement, under Section 16 of the A&C Act.

"Accordingly, while leaving it to the arbitrator to consider whether the provisions of the SCCs override and efface the arbitration agreement between the parties as contained in the GCCs, this court is prima-facie satisfied that there is a valid and subsisting arbitration agreement between the parties;", the Court said.

The Court, thus appointed a Sole Arbitrator and referred the parties to arbitration.

Case Title: Shristi Infrastructure Development Corporation Ltd. versus Ircon International Limited

Citation: 2022 LiveLaw (Del) 778

Dated: 05.08.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. Anand Mishra, Advocate

Counsel for the Respondent: Mr. Sandeep Garg with Mr. Jatin Kumar, Advocate

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