Merely Because A Particular Decision Is Made Final And Binding By A Contractual Clause, It Does Not Mean Parties Intended To Resolve Dispute Through Arbitration: Bombay HC
The Bombay High Court observed that a clause in a contract does not show that the parties intended to have their disputes resolved through Arbitration merely because a particular decision is made final and binding by that clause.
A contractor sought the initiation of arbitration for a dispute with the Bombay Municipal Corporation over the link road project.
The Court noted the four key components: a possible or real disagreement stemming from the contract, mutual consent from both parties to resolve the dispute through a private arbitrator rather than a court, agreement from the parties to abide by the arbitrator's ultimate decision, and an active agreement to engage in arbitration with a definite meeting of minds.
The Court noted that despite modifying clause 96, retaining "non-arbitrability" in the title reveals the parties' intent against arbitration. Therefore, the Court noted that the modified clause 96 was not an arbitration agreement.
The Bench of Justice Firdosh P. Pooniwalla observed, “it is very clear that a clause in a contract does not show that the parties intended to have their disputes resolved through Arbitration merely because a particular decision is made final and binding by that clause. For these reasons also, in my view, the modified Clause 96 of the GCC does not constitute an Arbitration Agreement between the parties”.
Advocate Naresh Thacker appeared for the Applicant and Advocate P. G. Lad appeared for the Bombay Municipal Corporation (BMC).
The Applicant filed an Arbitration Application under the Arbitration and Conciliation Act, 1996 (Act).
The Applicant, having responded to a BMC tender for the Ghatkopar- Mankhurd Link Road Flyover (GMLR) construction, was awarded the contract and issued a Work Order on December 28, 2016. Originally due for completion by July 3, 2019, the project faced delays due to unforeseen circumstances, Respondent-caused events, and additional instructed works. Substantial completion was achieved on July 25, 2021, with inauguration following on August 1, 2021. Further variation works after the inauguration extended the contract period to September 30, 2021.
The Applicant raised various claims throughout the project and post-completion, some of which were rejected by the Respondent's Chief Engineer. Invoking the Contract's pre-arbitral steps, the Applicant sought dispute resolution through a committee. This procedure proved unsuccessful, prompting the Applicant to invoke arbitration under Clause 96 of the General Conditions of Contract (GCC) after receiving no response to their Notice of Arbitration from the Respondent.
The Court framed the following issues:
“I. Whether the parties intended to have their disputes settled by arbitration is naturally to be gathered from the terms of the written agreement between the parties.
II Whether the modified Clause 96 of the GCC contains an Arbitration Agreement between the parties”.
The Court placed reliance on the case of Bihar State Mineral Development Corporation and Another v Encon Builders (I)(P) Ltd [(2003) 7 SCC 418], and noted the four essential elements of an arbitration agreement: (1) a present or future difference arising from a contemplated affair, (2) an intention to settle such difference through a private tribunal, (3) a written agreement to be bound by the tribunal's decision, and (4) mutual agreement (ad idem) between the parties. The Court further emphasized that a crucial element is the shared intention of the parties to resolve their disputes through arbitration. This establishes the necessary foundation for a valid and enforceable arbitration agreement.
Regarding issue no 2, the Court rejected the Applicant’s contention that the modified Clause 96 of the GCC constituted an arbitration agreement between the parties.
Firstly, the Bench observed that the modified clause lacks any explicit reference to arbitration or the appointment of an arbitrator. This omission is particularly conspicuous given that the original Clause 96, before its modification, explicitly stated that disputes were not arbitrable. This strongly suggests that the parties did not intend to utilize arbitration for dispute resolution.
Furthermore, the Court noted that the title of Clause 96, "Finality of Decision and non-arbitrability," reinforces this non-arbitral intent. While headings and marginal notes are typically not considered in contract interpretation, retaining the "non-arbitrability" title even after modifying the clause indicates a deliberate decision to retain its anti-arbitration character. Therefore, the Court held that the modified Clause 96 does not constitute an arbitration agreement between the parties.
Therefore, the Court held that since the parties had not agreed to resolve disputes through arbitration, the Application for appointment of an arbitrator was liable to be dismissed.
Accordingly, the Court dismissed the Application.
Cause Title: Kalpataru Projects International Ltd. v Municipal Corporation of Greater Mumbai (2024:BHC-OS:502)
