Arbitration Can Be Invoked Despite Unworkable DRE/Adjudicator Pre-Step When Employer-Termination Dispute Falls Outside GCC Clause 24 and PCC Arbitration Clause Is Broad

Case: M/S HASSAN ROADS CONSTRUCTION COMPANY PRIVATE LIMITED v. J AND K ECONOMIC RECONSTRUCTION AGENCY (ERA) AND ORS.
Court: High Court of Jammu & Kashmir and Ladakh, Srinagar
Date: 22-05-2026
Proceeding: Petition under Section 11(6), Jammu and Kashmir Arbitration and Conciliation Act, 1996 (appointment of arbitrator)

1. Introduction

The petitioner-contractor, M/s Hassan Roads Construction Company Private Limited, sought appointment of an arbitrator to adjudicate disputes arising out of a contract dated 07.08.2021 for construction of a “Central Control Building for Housing Emergency Operation Centre and SCADA System at Ompora, Budgam”.

The dispute escalated after the respondent employer, J&K Economic Reconstruction Agency (ERA), terminated the contract (initially on 01.04.2025, later revoked on 02.06.2025 pursuant to court directions, and then treated as terminated on expiry of a 90-day extension with confirmation dated 01.09.2025). The petitioner asserted substantial completion and claimed unpaid amounts, variations, non-BOQ items, retention, bank guarantee-related reliefs, and compensation for delayed payments and compensation events.

The key issue before the High Court was whether arbitration could be invoked directly under the contract, notwithstanding a tiered dispute mechanism in the General Conditions of Contract (GCC) requiring reference of certain disputes to an Adjudicator/Dispute Review Expert (DRE) before arbitration.

2. Summary of the Judgment

The Court held, on a prima facie basis, that the disputes were arbitrable and that the petition under Section 11(6) was maintainable even though the petitioner had not first referred disputes to the Adjudicator/DRE under GCC Clauses 23 and 24.

The Court appointed Hon’ble Mr. Justice Ali Mohammad Magrey (former Chief Justice, High Court of J&K and Ladakh) as the Sole Arbitrator, directed statutory disclosures under Section 11(8) read with Section 12(1), and left questions of jurisdiction open to be raised before the arbitral tribunal under Section 16.

3. Analysis

3.1 Precedents Cited

The judgment relies on, and synthesizes, the following authorities to reinforce a pro-arbitration approach at the Section 11 stage:

  • Visa International Limited v. Continental Resources (USA) ltd. (2009) 2 SCC 55
    Cited to support the proposition that courts should not allow procedural or interpretive obstacles to defeat a clear arbitration agreement, particularly where insisting on preliminary steps would be impractical or would undermine the parties’ underlying intent to arbitrate.
  • Quick Heal Technologies ltd. v. NCS Computech Pvt and Anr. 2020 SCC Online Bombay 687
    Used (via later reliance) to emphasize that where an arbitration clause is clear, courts should lean towards giving it effect rather than permitting ancillary clauses to create avoidable confusion or to obstruct arbitral reference.
  • Generic Engineering Construction and Project ltd. vs. Maharashtra Maritime Board, 2026 SCC Online Bom 2733
    Quoted for the principle that even if “few other clauses” appear inconsistent with the “main arbitration clause,” the court should rule in favour of arbitration; confusing or conflicting clauses should not nullify a clear agreement to arbitrate. The judgment explicitly notes arbitration’s systemic role in “declogging the overburdened courts.”
  • Maharashtra State Electricity Distribution Company Limited (MSEDCL) v. R Z Malpani, 2026 LiveLaw (SC) 356
    Cited for the Supreme Court’s articulation of the referral bias at the threshold: the principle of “When in doubt, do refer”—i.e., if the arbitration agreement is prima facie existent, the court should lean towards referral, leaving contested merits/jurisdictional intricacies to the tribunal.

3.2 Legal Reasoning

(A) Addressing the “mandatory pre-arbitration DRE” objection

ERA’s core objection was that GCC Clauses 23 and 24 created a mandatory pre-arbitral step: disputes (at least those arising from Project Manager decisions) must first be referred to the Adjudicator/DRE, and only thereafter could arbitration be invoked (GCC 24.3 and 24.4).

The Court declined to treat the DRE route as an absolute bar in the facts, for two principal reasons:

  • Non-availability/Non-operationalization of the DRE mechanism: Although the PCC named “Sh. Mohd. Iqbal (Retd) Chief Engineer PWD” as Adjudicator/DRE, the Court found that the contract record did not contain the required agreement (Appendix-3) contemplated by GCC 23.1.1. Since neither party pleaded or produced the Adjudicator/DRE agreement, the Court presumed it had not been executed, undermining the feasibility of insisting on that preliminary forum.
  • Mismatch of dispute type with GCC 24’s trigger: GCC 24.1 is framed around a contractor challenging a “decision taken by the Project Manager.” The Court distinguished the “Employer” (ERA) from the “Project Manager,” noting that the petitioner’s main grievance related to employer actions—termination of contract and consequential measures (encashment of bank guarantees, post-termination steps, re-tendering at risk and cost). Such employer decisions, in the Court’s view, were not within the intended scope of the GCC 24.1 → DRE pathway. Therefore, the petitioner could not realistically be compelled to route these disputes through the DRE mechanism.

(B) Reconciling GCC’s tiered mechanism with PCC’s broad arbitration clause

The Court gave decisive interpretive weight to the PCC arbitration clause (GCC 24.4 in PCC), which states that “in case of dispute or difference … relating to any matter arising out of or connected with this agreement,” disputes “shall be settled” under the Arbitration and Conciliation Act, 1996.

Two interpretive moves are important:

  • Wide amplitude of arbitration agreement: The PCC clause was treated as comprehensive enough to capture disputes not practically referable to the DRE (especially employer termination disputes).
  • Pro-arbitration resolution of internal inconsistencies: Invoking the logic of the Bombay High Court line of cases (including Generic Engineering Construction and Project ltd. vs. Maharashtra Maritime Board, 2026 SCC Online Bom 2733) and the Supreme Court’s referral bias (Maharashtra State Electricity Distribution Company Limited (MSEDCL) v. R Z Malpani, 2026 LiveLaw (SC) 356), the Court held that apparent conflicts should be resolved in favour of giving effect to arbitration rather than treating the arbitration clause as neutralized by procedural preconditions that are unworkable or inapplicable.

(C) Section 11’s “prima facie” posture and Section 16 competence-competence

The Court expressly grounded its approach in the arbitral tribunal’s power under Section 16 to rule on its own jurisdiction. Thus, even if ERA wished to argue that disputes were non-arbitrable or that contractual pre-steps were not followed, the Court considered it appropriate—at this stage—to appoint the arbitrator and leave such objections to the tribunal.

This aligns with the judgment’s overarching emphasis: at the appointment stage, the Court’s task is limited to a prima facie determination that an arbitration agreement exists and that disputes are arguably covered.

(D) Outcome: appointment of Sole Arbitrator (despite a 3-member clause)

The PCC clause envisaged a 3-member tribunal (one nominee each and a presiding arbitrator). However, the Court appointed a Sole Arbitrator. The judgment does not provide an extended justification for departing from the 3-member mechanism; it proceeds directly to appointment under Section 11(6). Practically, this reflects the Court’s emphasis on efficacy and timely constitution, but it may invite debate in later cases about when a court can prefer a sole arbitrator where the contract contemplates a panel.

3.3 Impact

The decision is significant for arbitration practice in government/works contracts that incorporate multi-tier dispute clauses (Project Manager → DRE/Adjudicator → Arbitration) alongside broadly worded arbitration agreements in the PCC. Its likely impacts include:

  • Reduced derailment at Section 11 by “pre-step” objections: Where the pre-arbitral mechanism is not properly constituted (e.g., no executed DRE agreement) or is structurally incapable of handling the dispute (e.g., employer termination decisions), courts may permit direct arbitration.
  • Greater reliance on “when in doubt, do refer”: The judgment reinforces a modern referral orientation, pushing jurisdictional and procedural defenses towards Section 16 adjudication by the tribunal.
  • Drafting and contract administration consequences: Employers and contractors are likely to pay closer attention to operationalizing DRE/adjudication structures (execution of required appendices/agreements, clear scope clauses) if they wish pre-steps to be enforceable as true conditions precedent.
  • Termination disputes as arbitral disputes: The ruling underscores that termination-related disputes in works contracts are generally arbitrable and, depending on drafting, may not be capturable by narrower “Project Manager decision” gateways.

4. Complex Concepts Simplified

  • Section 11(6) (Appointment of arbitrator): A court power used when the contract’s appointment procedure breaks down (e.g., one side fails to respond/appoint). The court primarily checks whether an arbitration agreement exists and whether disputes are prima facie referable.
  • Adjudicator / Dispute Review Expert (DRE): A contract-created neutral (often used in construction contracts) who gives quick, interim decisions—typically on site-level or contract administration issues. Some contracts require approaching the DRE before arbitration.
  • “Decision of the Project Manager” gateway: Here, GCC 24.1 limits DRE referrals to challenges against decisions of the Project Manager. If the dispute arises from actions of the Employer (like termination), that gateway may not fit.
  • Competence-competence (Section 16): The principle that the arbitral tribunal can decide whether it has jurisdiction, including objections about scope of arbitration agreement or procedural preconditions.
  • “When in doubt, do refer”: A modern arbitration principle emphasized by the Supreme Court (as cited) urging courts to prefer referral to arbitration at the threshold when an arbitration agreement is prima facie present, leaving deeper issues to the tribunal.
  • Section 9 and bank guarantees (context in the case): Section 9 allows interim protective measures (like injunctions) from courts. The petitioner’s Section 9 attempt to restrain encashment of bank guarantees was dismissed; that history contextualized urgency but did not determine Section 11 outcome.

5. Conclusion

This judgment strengthens a pro-arbitration approach in the face of tiered dispute resolution clauses that are either non-operational (no executed DRE agreement) or ill-suited to the dispute (employer termination and its consequences). By emphasizing the breadth of the PCC arbitration clause and the Supreme Court’s “When in doubt, do refer” principle—while relegating jurisdictional objections to Section 16—the Court ensures that procedural complexities do not defeat substantive access to arbitration.

The core takeaway is that pre-arbitration steps will not be rigidly enforced as bars to arbitration where they are practically unavailable or contractually inapplicable, particularly when the arbitration clause is broadly worded and the tribunal can address residual objections.