M/s Kundlas Loh Udhyog vs. M/s SRMB Srijan Pvt Ltd.
The realm of arbitration in India witnessed an interesting development through a recent order issued by Himachal Pradesh High Court concerning an application under Section 9 of the Arbitration and Conciliation Act, 1996. This case pertains to an application seeking restraint against the constitution of an Arbitral Tribunal.
The crux of the case revolved around a supplementary agreement between the parties, which contained two critical clauses that shaped the dispute: Clause IV designated the Courts at Kolkata as having jurisdiction for all disputes or claims, setting a geographical legal boundary for potential litigation. On the other hand, Clause V of the same agreement laid down the protocol for dispute resolution. It necessitated negotiation as the primary avenue for settling disputes arising from the supplementary agreement. Arbitration proceedings, as specified under the Arbitration and Conciliation Act, 1996, were to come into play only if the negotiation process failed within a stipulated 30-day period.
In the instant case, the Respondents chose to bypass the negotiation stage and unilaterally appointed an arbitrator. The Respondents contended that the arbitration clause gave them the prerogative to refer disputes to arbitration and that the venue for such proceedings was Kolkata.
The Hon’ble Court however, delved into the clauses of the supplementary agreement and dissected their implications. The Court acknowledged the arbitration clause’s existence but underscored that it was subject to the prior requirement of negotiation. The Court concluded that since the respondents had not attempted negotiation before resorting to arbitration, their unilateral appointment of an arbitrator was procedurally flawed.
Highlighting the significance of negotiation as a precursor to arbitration, the Court emphasized the principle that parties should exhaust all possibilities of amicable resolution before resorting to more formal dispute resolution mechanisms like arbitration.
In light of this analysis, the High Court disposed of the application and ruled that the appointment of the arbitrator was not in accordance with the terms of the supplementary agreement. The order reaffirmed the supremacy of contractual clauses and their proper execution in the realm of arbitration and dispute resolution.
Author of this article:
Adv. Ravish Bhatt,
Partner, R&D Law Chambers,
Dual Qualified Lawyer Solicitor | International Tax Affiliate
Connect with Mr. Bhatt on Linkedin: https://www.linkedin.com/in/adit-ravishbhatt/
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