Delhi High Court: A Single Judge Bench of Navin Chawla, J. held that even if the contract clearly stated that before resorting to arbitration, the parties agreed to explore Conciliation by the Committee, the same cannot be held to be mandatory in nature. Further, the Court held that in case of urgency, arbitral proceedings can be initiated even when conciliation proceedings were pending.
The petition had been filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Act”) seeking appointment of an Arbitrator for adjudicating the disputes that have arisen between the parties in relation to the “Balance work for Four-landing of NH-39 Dimapur-Kohima Road in the State of Nagaland under SARDP-NE through an Engineering, Procurement and Construction (EPC) Contract (“Contract”)”. In the present case, disputes arose between the parties pursuant to the alleged Notice of Termination of the Contract by the petitioner and the Notice for intention to Terminate the Contract issued by the respondent.
The petitioner invoked the Arbitration Agreement through notice in 2022 but the respondent through a letter called upon the petitioner to first explore Conciliation by the Conciliation Committees of Independent Experts as provided in Article 26.2 of the Contract. However, the petitioner proceeded to file the present petition.
Submissions on behalf of the Petitioner
Counsel for the petitioner submitted that the Conciliation process as mentioned in Article 26 was directory and could not affect the petitioner’s right to invoke the Arbitration Agreement. Further, it was submitted that before invoking arbitration, the petitioner had taken steps to arrive at an amicable settlement of disputes with the respondent, however, such attempts failed. Therefore, the present petition could not be said to be premature.
It was submitted that the respondent having refused to give consent to the appointment of an Arbitrator, the petitioner need not have waited for a period of 30 days before approaching this Court and that as on the date of filing of the present petition, the website of the respondent did not reflect/provide the constitution or the procedure of the Committee.
Submissions on behalf of the Respondent
Counsel for the petitioner submitted that the present petition was not maintainable as the petitioner had failed to follow the procedure prescribed for invocation of the arbitration, as contained in Article 26 of the Contract, which stated that the parties agreed to explore Conciliation by the Committee before resorting to arbitration. Further, it was submitted that the petitioner approached this Court without giving adequate time to the respondent to reply to its request for arbitration and to bring to the notice of the petitioner that the Committee had been set up by the respondent. Therefore, as the petitioner had failed to follow the said procedure, the present petition was liable to be dismissed on the ground of it being premature.
It was submitted that though the constitution and the procedure of the Committee was duly available on the website of the respondent under the icon “MoA (Memorandum of Association) & Notices” and now the same was duly reflected under a separate icon of “Dispute Resolution Mechanism”. Moreover, had the petitioner given sufficient time to respond, the respondent would have pointed out the icon under which the petitioner could access the constitution and the procedure of the Committee.
Analysis, Law, and Decision
The issue for consideration before this Court was “whether it was mandatory for the petitioner to resort to the Conciliation process by the Committee before invoking arbitration?”.
The Court opined that though Article 26.2 of the Contract clearly stated that before resorting to arbitration, the parties agreed to explore Conciliation by the Committee, the same could not be held to be mandatory in nature and it needed no emphasis that Conciliation as a Dispute Resolution Mechanism must be encouraged and should be one of the first endeavours of the parties when a dispute arose between them. The Court further opined that “Conciliation expressed a broad notion of a voluntary process, controlled by the parties, and conducted with the assistance of a neutral third person or persons and it could be terminated by the parties at any time as per their free will. Therefore, while interpreting Article 26.2, the basic concept of Conciliation would have to be kept in mind”.
The Court noted that even the Office Memorandum (“OM”) giving the establishment, constitution, and procedure of the Committee, published by the respondent on its website, clearly evidences that such Conciliation process was voluntary and could be resorted to only where the Contractor agrees to such process after the disputes had arisen and inspite of the earlier agreement, as recorded in the Agreement.
The Court relied on Ravindra Kumar Verma v. BPTP Ltd., 2014 SCC OnLine Del 6602, wherein this Court had stated that any doubt on the aspect of whether Conciliation proceedings, as required by the arbitration clause, was directory or mandatory in nature, was removed when reference was placed on Section 77 of the Act. Section 77 of the Act and Clause 16 of the OM stated that where, in the opinion of a party, immediate initiation of the arbitral proceedings was necessary to preserve the rights of the said party, the said party may initiate arbitral or judicial proceedings even during the Conciliation proceedings. Thus, the Court held that “in case of urgency, arbitral proceedings could be initiated even when conciliation proceedings were pending”.
The Court further noted that in terms of Article 23.1(v) of the Contract, in case the respondent terminated the Contract, the petitioner shall be deemed to have been debarred for a period of two years and shall not be able to bid any Contract of the respondent. The petitioner also feared the invocation of the performance guarantee. Therefore, the Court held that in terms of Section 77 read with Clause 16 of the OM, the petitioner was justified in expressing urgency in initiating arbitration for preserving its rights.
The Court further opined that in the present case, with the respondent, insisting upon the petitioner to first initiate the Conciliation process by the Committee before seeking initiation of arbitration, the failure for appointment of the Arbitrator occurred, therefore, the present petition could not be said to be premature.
The Court allowed the petition as it found no impediment in appointing an Arbitrator to adjudicate the disputes that had arisen between the parties in relation to the Contract.
[Oasis Projects Ltd. v. Managing Director, National Highway and Infrastructure Development Corporation Ltd., 2023 SCC OnLine Del 645, decided on 7-2-2023]
Advocates who appeared in this case:
For the Petitioner: Advocate Bharat Chugh;
Advocate Siddharth Shiva Kumar;
For the Respondent: Senior Advocate Debal Kumar Banerjee;
Advocate Dharmender Verma;
Advocate Vishal Singh.
*Judgment authored by: Justice Navin Chawla;
*Simranjeet Kaur, Editorial Assistant has reported this brief.