A Party Cannot Circumvent The Dispute Resolution Process After Agreeing On The Same: Gujarat High Court

The Court held that party is bound to follow the mechanism provided under the arbitration clause that requires it to first raise the dispute before the DRC and pre-deposit the amount in dispute if no challenge is made to the validity of terms of the clause

The Court held that a party cannot circumvent the dispute resolution process provided under the agreement after agreeing on the same with open eyes unless a challenge is made to the validity of such a clause.

The Court held that a Court exercising power under Section 11 of the A&C Act cannot examine the validity of the dispute resolution clause in absence of any prayer to that effect.

Facts

The Airports Authority of India (Respondent) floated a tender for Food Court Facility and the bid of the petitioner was accepted by it. Accordingly, the parties entered into a license agreement dated 09.04.2018. The validity of the agreement was extended till 30.06.2020.

Clause 18 of the license agreement provided that any dispute shall be first referred to Dispute Resolution Committee and if remain unresolved shall be referred to a sole arbitrator. The Clause also provided for the deposit of the amount in dispute by the petitioner as a pre-condition for invocation of the dispute resolution mechanism.

On the expiry of the agreement, a dispute arose between the parties related to the payment of the monthly licence fee. The petitioner also filed an application under Section 9 of the A&C Act to restrain the respondent from encashing the bank guarantee and the application was allowed by the Court.

Accordingly, the petitioner issued a notice dated 29.12.2020 and requested the respondent to refer the dispute to arbitration. Vide the reply dated 16.02.2021, the respondent refused to give its assent to the request of the petitioner and request it to comply with the requirements enshrined under Clause 18 of the Agreement.

Consequently, the petitioner filed the application for the appointment of the arbitrator.

The Contention Of The Parties

The petitioner sought the appointment of the arbitrator on the following grounds:

• The demand of the respondent for payment of the licence fee is illegal.
• The terms of the Clause 18 are unconstitutional and arbitrator in as much as it requires the reference to the DRC and pre-deposit of the disputed amount, therefore, the respondent cannot insist on the compliance with the same

The respondent objected to the maintainability of the petition on the following grounds:

• The parties have entered into the agreement with their eyes open also the petitioner agreed to extend the validity of the agreement on the same terms and conditions, therefore, it must comply with the requirement of Clause 18 of the Agreement.
• The agreement also provides a reference to the General Conditions of the Contract that also envisages a similar dispute resolution clause, therefore, it is hardly open for petitioner to seek an independent arbitration forum de hors the terms of the agreement.
• The respondent was justified in raising the demand for the months after the expiry of the agreement for the reason that the petitioner deliberately did not remove its material from the premises and also the keys of the premises were not given to the respondent.

Analysis By The Court

The Court observed that Clause 18 of the licence agreement provides for reference to the Dispute Resolution Committee (DRC) and also requires the petitioner to deposit the disputed amount and it is only when the dispute remains unresolved within 45 days from the reference to DRC that the sole arbitrator would be appointed.

The Court held that the petitioner entered into the agreement with its eyes open, therefore, it cannot circumvent the mechanism provided under the agreement. Moreover, the agreement also incorporates the General Conditions of Contract (GCC) which also provides for a similar dispute resolution clause, therefore, the petitioner has unconditionally accepted the terms of the agreement and is bound by the same.

The Court reiterated that "the authority which authors the tender document is the best person to understand and appreciate its requirements and even its interpretation should not be second-guessed by a court in judicial review proceeding"

The Court distinguished the judgment of the Supreme Court in Punjab State Water Supply and Sewerage Board in Civil Appeal No. 2713 of 2019, on the ground that the petitioner, in that case, had specifically challenged the condition that required it to pre-deposit the 10% disputed amount and the Apex Court held such a condition to be arbitrary. However, in the present case, the petitioner has made no prayer challenging the validity of the Clause 18, therefore, the judgment of the Supreme Court would not help the petitioner.

The Court further observed that apart from its final arguments, the petitioner has not prayed for declaring the terms of the agreement as illegal or unconstitutional. The Court held that in absence of any prayer in respect of terms and conditions being arbitrary or irrational, the Court sitting in jurisdiction under Section 11 of the Arbitration and Conciliation Act cannot examine the validity of the terms which are unequivocally with open eyes have been accepted.

The Court held that if the petition is allowed it would amount to allowing a party to flout the terms of the agreement that are specifically agreed upon between the parties.

Accordingly, the Court dismissed the petitioner as being devoid of merit.

Case Title: Lite Bite Foods Pvt. Ltd. v. Airports Authority of India, R/Petn. Under Arbitration Act No. 26 of 2021

Citation: 2022 LiveLaw (Guj) 203

Counsel for the Petitioner: MR NAVIN PAHWA SR. ADVOCATE with MR NACHIKET A DAVE

Counsel for the Respondent: MS HARSHAL N PANDYA

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