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Delhi HC Sets Precedent: Clarifies Contractual Arbitration Thresholds and Procedures

In a landmark ruling, the Delhi High Court has provided crucial insights into the conditions under which arbitration can be compelled in contractual disputes that have specified thresholds for claim values. The court's decision centers around a contract clause that mandates arbitration only when the collective value of claims is 20% or less of the contract's total value. Importantly, the court has clarified that it will not enforce arbitration if the cumulative value of claims surpasses this prescribed threshold.
The Role of Preliminary Inquiry and Non-Arbitrable Claims

Justice Manoj Kumar Ohri, presiding over the case, emphasized that the court holds the authority to conduct a preliminary inquiry to determine if the dispute falls within the scope of the agreement's arbitration clause. If it becomes evident that the claims are inherently non-arbitrable, the court reserves the right to deny arbitration.

Furthermore, the judge underscored that claims cannot be referred to arbitration if the mandatory requirement of notifying these claims to the General Manager (GM) has not been fulfilled. This underscores the importance of adhering to contractual obligations and procedures before resorting to arbitration.

Background of the Case

The case in question originates from an agreement dated 15.04.2019, where the petitioner was contracted to undertake specific construction activities for the respondent. The agreement contained Clause 64, which outlined the process for resolving disputes through arbitration.

However, it included a prerequisite: claims had to be notified to the GM before arbitration could be pursued. Additionally, Clause 34 of the General Conditions of Contract (GCC) specified that arbitration would only be applicable to claims that did not exceed 20% of the total contract value.

Disputes arose between the parties, ultimately leading to the termination of the agreement by the respondent. In response, the petitioner issued an arbitration notice and initiated the dispute resolution process. When the parties were unable to mutually appoint an arbitrator, the petitioner filed a Section 11 petition with the High Court.

Crucial Contentions

The respondent raised several objections to the appointment of an arbitrator:

The petitioner's claims were non-arbitrable because it had failed to notify them to the GM as required by the agreement.

The arbitration notice did not conform to the agreement's terms, as it lacked details of the disputed issues and itemized quantification of the claim amount, rendering these disputes non-conforming for arbitration under Clause 64(1)(ii)(a).

The aggregate value of the petitioner's claims would exceed the 20% limit of the project's value set forth in Clause 34 of the GCC, making arbitration inappropriate.

In-Depth Court Analysis

The court meticulously examined the contract provisions, with a particular focus on Clause 64 of the GCC. This clause mandated that all claims must be raised before the GM, who would subsequently notify them for arbitration. Only claims that were properly notified could proceed to arbitration, with non-conforming disputes being excluded.

Additionally, Clause 34 of the GCC stated that the total value of claims referred to arbitration should not exceed 20% of the project's value. To comply with this requirement, the petitioner needed to provide a claim-wise quantification of its claims. However, it failed to do so for certain claims, potentially leading to non-compliance with the threshold.

The court stressed that claims could not be subjected to arbitration when the mandatory notification requirement to the General Manager (GM) had not been adhered to. The arbitrators derive their authority from the contract itself, and adhering to contractual obligations is paramount.

This ruling, in the case of M/s BCC-MONALISHA (JV) v. Container Corporation of India, ARB.P. 933/2022, has brought clarity to the arbitration process in contracts with predefined thresholds. The court's decision signifies that claims exceeding 20% of the contract value, as stipulated in the contract, will not be compelled into arbitration. Furthermore, the court retains the power to conduct a preliminary inquiry into the arbitrability of disputes and may refuse arbitration when claims are prima facie non-arbitrable.

This case serves as a stark reminder to parties engaged in contracts with arbitration clauses to meticulously follow the contract's requirements and procedures. Failing to adhere to these provisions may result in disputes being deemed non-arbitrable by the court, potentially leading to delays and legal complications.

Additionally, this ruling contributes to the evolving landscape of dispute resolution in India, providing a legal precedent for handling contractual disputes with set claim thresholds. It underscores the importance of a thorough understanding of contract terms and the necessity of compliance with established procedures.

Case Details:

Case Title: M/s BCC-MONALISHA (JV) v. Container Corporation of India, ARB.P. 933/2022

Counsel for the Petitioner: Mr. Sidhant Dwibedi, Advocate

Counsel for the Respondent: Mr. R.K. Joshi and Mr. Ojusya Joshi, Advocates