Can disputes be referred to arbitration if some contracts don't have arbitration clause? Delhi High Court answers

The Delhi High Court recently appointed an arbitrator to adjudicate disputes arising out of a series of contracts, including those which did not containing an independent arbitration clause. [MS KGPS Mechanical Pvt Ltd v. CINDA Engineering and Construction Pvt Ltd]..While referring all the disputes to arbitration, Justice Prathiba M Singh placed reliance on the fact that the series of contracts arose out of the same project, and that the correspondence between the parties established that they had agreed to refer all disputes (even the ones without an independent arbitration clause) to arbitration..The petitioner was awarded five contracts and four sub-contracts for executing various works at a project site in Dahej, Gujarat. While the five contracts contained independent arbitration clauses for reference to a three-member tribunal, the four sub-contracts were silent on reference of the disputes to arbitration. After disputes arose between the parties, the petitioner invoked arbitration and nominated its arbitrator. The respondent in its reply suggested referring all disputes to a sole arbitrator, which was accepted by the petitioner. However, when the application under Section 11 of Arbitration and Conciliation Act, 1996 was filed befoe the High Court for appointment of the sole arbitrator, the respondent took a plea that only the disputes arising from the contracts containing the independent arbitration clause could be referred to arbitration..The issue that arose for the consideration of the Court was: Whether only the disputes under five agreements can be referred to arbitration or whether the disputes in respect all nine contracts i.e. the five contracts and the four sub-contracts which do not have the arbitration clause, can be together referred to one arbitrator?.In its analysis, the Court observed that if the respondent’s stand is accepted, it would lead to multiplicity of disputes, delay in adjudication and possibility of conflicting rulings."If the stand of the Respondent is accepted that there is an Arbitration Clause only in five of the contracts and not to the remaining four, insofar as the remaining four contracts are concerned, parties would have to be relegated to civil proceedings. This would definitely lead to multiplicity of disputes, delay in adjudication and also a possibility of conflicting rulings. Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, clearly holds - ‘the rule for the Court is when in doubt , do refer’," the Court observed.The Court analysed the provisions of Section 7 of 1996 Act to observe that the arbitration agreement in writing would include within its ambit the correspondence done between the parties as per Section 7(4)(b). Therefore, while the petitioner’s notice invoking arbitration would be invocation qua the contracts, the subsequent reply of the respondent would constitute an invocation qua the remaining sub-contracts.In this regard, the Court placed reliance on precedents to hold that the correspondence of the parties and the attendant circumstances have to be read in reference to the contract, since it clears the intent of the parties. The Court reiterated that even if the arbitration clause in a contract is to be disregarded, arbitration can be invoked based on the communication between the parties.Justice Singh further held that even though the advocate for the respondent had acted under a mistake of fact in assuming that all nine agreements contained an arbitration clause, the said error will not obviate the subsequent proposal to appoint a sole arbitrator for all agreements..The Court, therefore, referred appointed former Supreme Court judge Justice AK Sikri as a sole arbitrator to adjudicate all the disputes..Advocates Kaveesh Nair, Mahima Mukherjee and Rachael Tuli of Vardharma Chambers appeared for the petitioner.Advocates Gauhar Mirza, Hiral Gupta and Ritik Kumar Rath of Cyril Amarchand Mangaldas appeared for the respondent..[Read Judgment]