Issues of satisfaction of claims or existence of a dispute rests with Arbitral Tribunal, Delhi HC

Issues of satisfaction of claims or existence of a dispute rests with Arbitral Tribunal, Delhi HC

Aditi Singh

Commenting on the scope of the Court to reject to a plea for appointment of an arbitrator post introduction of Section 11(6A) the Arbitration And Conciliation Act, 1996, the Delhi High Court has held that issues with regard to accord and satisfaction of claims or existence of a dispute would be decided by the Arbitral Tribunal.

Therefore, except for an open and shut case where a particular dispute does not fall within the four corners of the arbitration agreement between the parties, the matter would have to be resolved by an Arbitral Tribunal.

The judgment was passed by a Single Judge Bench of Justice Rajiv Shakdher in a petition preferred by NCC Limited seeking a direction for appointment of a Sole Arbitrator in respect of disputes with Indian Oil Corporation Ltd.

The dispute arose out of an agreement between the two companies for Civil, Structural & Associated UG piping works at IOCL’s Paradip Refinery Project.

The contract indicated that the designated date for commencement of the Project would be March 3, 2010, and that the scheduled date of completion would be October 2, 2011. The execution of the Project was, however, delayed and was only completed on December 28, 2015.

In view of the delay in the completion of the Project beyond the scheduled date, NCCL made a request for Extension of Time (EOT) in May, 2016. While the EOT requests were pending, NCCL submitted its final bill to the Engineer-in-Charge, which had specific reference to Notified Claims.

Meanwhile, NCCL was informed that its request for EOT would be considered only if it withdrew its Notified Claims. Subsequently, after the request was processed, the delay was attributed to NCCL and its EOT was approved without any price adjustment.

Aggrieved by the decision, NCCL wrote to IOCL to reconsider its decision and accord EOT up to the date of completion without making any adjustment towards price. IOCL  declined the request and communicated that none of the claims mentioned in the final bill were Notified Claims.

Consequently, NCCL triggered the arbitration agreement while conveying to IOCL that it was not opting for the Alternate Dispute Resolution mechanism as provided in Clause of the General Conditions of Contract (GCC) which limited the mechanism to Notified Claims.

However, following the procedure under the GCC, IOCL directed NCCL to refer the claim to its General Manager so as to enable him decipher if the remedy of arbitration was at all available to NCCL.  The Chief General Manager concluded that there was no scope for arbitration between parties and since none of its claims were Notified Claims.

NCCL then sought to refer the dispute to arbitration in terms of the GCC. IOCL stuck to its stand, reiterating that the claims lodged could not be referred to arbitration.

IOCL stated that as per the GCC, the Chief General Manager was the competent authority to decided whether or not to refer the dispute for arbitration.

Aggrieved by the decision, NCCL moved the High Court.

Commenting on the scope for rejection of a request made for the appointment of an Arbitral Tribunal, the Court held that post the insertion of Subsection (6A) in Section 11 of the 1996 Act, it has become even narrower.

 “To my mind, once the Court is persuaded that it has jurisdiction to entertain a Section 11 petition all that it is required to examine, is, as to whether or not an arbitration agreement exists between the parties which is relatable to the dispute at hand.”

If on a bare perusal of the agreement, it is found that the dispute is not relatable to the arbitration agreement, the Court may decline the relief sought for by a party in a Section 11 petition.

However, if there is a contest as to whether the dispute falls within the realm of the arbitration agreement, then, the best course would be to allow the Arbitrator to form a view in the matter, the Court said. It also noted that the position in law remains the same both before and after the Amendment to the 1996 Act.

Thus, unless it is, in a manner of speech, a chalk and cheese situation or a black and white situation without shades of grey, the concerned Court hearing the Section 11 petition should follow the more conservative course of allowing parties to have their say before the Arbitral Tribunal

This approach would be in keeping with the doctrine of Kompetenz Kompetenz; a doctrine which has statutory recognition under Section 16 of the 1996 Act.”

Referring to the facts of the present case, the Court noted that NCCL was informed in no uncertain terms to withdraw its Notified Claims to enable a final review and processing of the time extension recommendation. Therefore, NCCL had no choice but to withdraw its Notified Claims, which had otherwise already been included in its final bill.

This, the Court said, was a case of duress which would require trial. Therefore, the matter would have to be referred to an Arbitral Tribunal, it concluded.

Resultantly, it appointed former Supreme Court judge, Justice Madan B Lokur as an Arbitrator in the matter.

NCCL was represented by Advocates Amit George, Rishabh Dheer, Swaroop George, K Dileep and Rajsree Ajay. IOCL was represented by Advocates VN Koura with Nikhil Mundeja.

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