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Delhi High Court: Claims Must Comply with Notification Requirement for Arbitration

Delhi High Court Dismisses Arbitration Petition for Failure to Notify Claims

In a recent ruling, the Delhi High Court delivered a significant judgement regarding arbitration proceedings. The court declared that claims cannot be referred to arbitration if the mandatory requirement of notifying these claims with the General Manager (GM) has not been followed. The bench, led by Justice Manoj Kumar Ohri, emphasized that the court has the authority to conduct a preliminary inquiry to determine if the dispute aligns with the arbitration agreement. If the claims are clearly non-arbitrable, the court may refuse to refer the case to arbitration. Furthermore, the court highlighted that if a contract specifies arbitration only for claims not exceeding 20% of the contract value, it will not compel arbitration when claims surpass this threshold. This ruling stems from a case involving an agreement dated April 15, 2019, where the petitioner was responsible for construction activities for the respondent.

The Disputed Agreement

The parties involved in this case entered into an agreement on April 15, 2019. According to the terms of the agreement, the petitioner was tasked with performing specific construction activities for the respondent. Clause 64 of the General Conditions of Contract (GCC) outlined the procedure for resolving disputes through arbitration. However, it mandated notifying claims to the GM before they could be referred to arbitration. Additionally, only claims that had been duly notified were eligible for arbitration. Clause 34 of GCC further specified that arbitration was limited to claims not exceeding 20% of the total contract value.

Disputes and Termination

Disputes arose between the parties, ultimately resulting in the termination of the agreement by the respondent. Dissatisfied with this termination, the petitioner issued an arbitration notice and initiated arbitration proceedings. When the parties failed to mutually appoint an arbitrator, the petitioner filed a Section 11 petition with the High Court.

Arguments and Protests

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

The claims put forth by the petitioner were deemed non-arbitrable because the petitioner failed to comply with the agreement's requirement to notify its claims to the GM.

The arbitration notice did not align with the agreement's terms, as the petitioner did not provide details of the disputed issues or item-wise quantification of the claim amount. Clause 64(1)(ii)(a) explicitly excluded non-conforming disputes from arbitration.

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

Judicial Examination

The court carefully analyzed the contractual provisions. Under Clause 64 of the GCC, the petitioner was obligated to present all its claims to the GM, who would then notify the claims. Only those claims that had been duly notified were eligible for arbitration. This provision effectively excluded non-conforming disputes from the arbitration process.

Additionally, the court noted that Clause 34 of the GCC stipulated that the aggregate value of claims referred to arbitration should not exceed 20% of the project's value. Consequently, it was essential for the petitioner to provide a claim-wise quantification of its claims to remain within this threshold. However, the petitioner failed to specify the claim value for certain claims.

The court emphasized that when parties fail to mandatorily notify their claims to the General Manager, these claims cannot be referred to arbitration. It reaffirmed that arbitrators derive their authority from the contract between the parties, making compliance with contractual obligations crucial.

Furthermore, the court asserted that it possessed the authority to conduct a preliminary inquiry to assess whether a dispute aligned with the arbitration agreement. In cases where claims were clearly non-arbitrable, the court could refuse to compel arbitration.

Lastly, the court reiterated that if a contract stipulates arbitration only for claims not exceeding 20% of the contract value, it would not compel arbitration when claims exceeded this threshold.

Court's Decision

Based on its analysis, the Delhi High Court dismissed the arbitration petition in this case. The ruling serves as a significant precedent, emphasizing the importance of adhering to mandatory notification requirements and contractual thresholds in arbitration agreements.

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

Date: 28.08.2023

Counsel for the Petitioner: Mr. Sidhant Dwibedi, Advocate

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