D.P. Construction versus M/s. Vishvaraj Environment Pvt. Ltd

M/s Vishvaraj Environment Pvt. Ltd (“Non Applicant”) was awarded a contract by Nagpur Municipal Corporation (“Applicant”) for laying pipelines and in reference to the same, the Non-Applicant approached the Applicant by issuing a work order. After some negotiations upon the terms, the work order was executed in favour of the applicant which included a clause of settlement of disputes by Arbitration. However, certain disagreements occurred between the parties as regards the extent of work done, the time taken for the said work and the entitlement of the applicant towards payment in terms of the agreement between the parties. The Applicant issued a letter to the Non-Applicant stating that the Non-Applicant was supposed to carry out certain amendments but those amendments were not carried out, due to which the Applicant was not compensated. Furthermore, the Applicant issued a legal notice dated stating their grievances and claims. The applicant averred in the said legal notice that if the payment was not released to it within one month, as requested, the applicant would seek redressal of its grievances by approaching the competent court of law.

In reply to the said legal notice, the Non-Applicant issued a legal notice denying all the claims and stated that in spite of the demand of the Applicant, the Applicant is required to deposit a specific amount towards penalty with the Non-Applicant. Additionally, the Non-Applicant stated that if the penalty amount is not paid, then the Non-Applicant should approach the appropriate forum. It is pertinent to note that both the parties did not mention anything pertaining to invoke the clause of Arbitration. In pursuance to the above, the Applicant filed the present application under Section 11(6) of the Arbitration Act, seeking the appointment of the arbitrator.

The Non-Applicant raised a preliminary objection, as the present application is not maintainable under Section 11 (6) of the Arbitration Act, as the Applicant did not follow two-tier procedure for invoking Arbitration, which was initially to refer the matter to dispute to the respondent whose decision would be final and binding. In case, the said step failed, the dispute would be referred for arbitration to a sole Arbitrator and the provisions of the said Act would govern it. On this basis, the Non Applicant claimed that since the procedure agreed between the parties was yet to be resorted to, this Court could not invoke jurisdiction under section 11(6) of the Arbitration Act.

Issues:

Whether mentioning Claims in legal notice would amount to invocation of the Arbitration clause ? 

Held:

The Bombay High Court after hearing both the parties held that the Court can be called upon to exercise jurisdiction under Section 11(6) of the said Act, only when the procedure agreed between the parties under Section 11(2) of the said Act regarding appointment of arbitrator(s) has failed. The Hon’ble Court added that invocation of arbitration has to be in clear terms, as specified in Section 21 of the Arbitration  Act, and that a mere reference to the claims and disputes sought to be raised by a party, and the existence of an arbitration clause, would not itself mean that arbitration clause has been invoked by such a party. The Court added that in the said legal notice, there was no reference of the applicant’s intent to invoke arbitration clause. Hence, the Court ruled that unless there is a request by a party to the dispute, for the dispute to be referred to arbitration, merely stating the claims and disputes in a notice would not suffice.

K S&CO Comments:

The Arbitration Act lays down the procedure for adjudication of disputes. Section 21 of the Arbitration Act specifically states that for a dispute to be referred to arbitration, a request for the same is to be sent to the respondent. The applicant’s failure to show its intention to invoke the arbitration clause in the legal notice to the respondent, resulted into non adherence to the procedure laid down for invoking arbitration under the Arbitration Act. Therefore, simply making an application to refer the disputes to arbitration because an arbitration clause exists would not successfully invoke arbitration.