- Bookmark
- Share
- CaseIQ
Saraswati Construction Company v. East Delhi Co-Operative Group Housing Society Ltd. .
Factual and Procedural Background
This petition arises under Section 20 of the Arbitration Act, seeking the filing of an arbitration agreement in Court, appointment of an arbitrator in accordance with the arbitration clause, and reference of disputes to arbitration. The parties had entered into a contract containing a detailed arbitration clause specifying the procedure for resolving disputes through architects and, if necessary, arbitration by a single arbitrator or two arbitrators with an umpire. The respondent contested the petition on the ground that the petitioner failed to comply with the arbitration clause’s procedural requirement of giving written notice through the architect before invoking arbitration.
Legal Issues Presented
- Whether the petitioner complied with the procedural requirements of the arbitration clause before invoking arbitration under Section 20 of the Arbitration Act.
- Whether the court should direct the filing of the arbitration agreement and appoint an arbitrator despite the petitioner not following the arbitration clause’s notice procedure.
- The proper interpretation and application of the arbitration clause concerning appointment of arbitrators and the role of the architect in dispute resolution.
Arguments of the Parties
Respondent's Arguments
- The petitioner did not invoke the arbitration clause in accordance with its terms.
- The arbitration clause required the petitioner to give a written notice specifying disputes through the architect before initiating arbitration, which was not done.
- Therefore, the petition under Section 20 is not maintainable.
Petitioner's Position
- The petitioner had appointed its own arbitrator and requested the respondent to appoint the other arbitrator, despite not strictly following the notice procedure.
- The contract contains a valid arbitration clause, making the matter liable for reference to arbitration.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Sikand Construction Co. v. State Bank of India, ILR (1979) I Delhi 364 | Interpretation of arbitration clause notice requirements and the Court's duty under Section 20 of the Arbitration Act to refer disputes to arbitration if an arbitration agreement exists. | The Court held that the requirement to write to the architect was directory, not mandatory, and that the existence of an arbitration agreement compels the Court to direct arbitration despite procedural lapses. |
Court's Reasoning and Analysis
The Court examined the arbitration clause and the procedural requirements it sets forth, particularly the need for a written notice to the other party through the architect specifying the dispute. The respondent argued non-compliance with this step. However, relying on the precedent in Sikand Construction Co. v. State Bank of India, the Court found that such a notice provision is directory rather than mandatory. The Court emphasized that under Section 20 of the Arbitration Act, its primary function is to ascertain the existence of an arbitration agreement and to ensure that disputes covered by it are referred to arbitration unless there are sufficient grounds not to do so.
The Court noted that the petitioner had already appointed an arbitrator and communicated to the respondent to appoint the other arbitrator, even though the clause contemplates agreement on a single arbitrator first or, failing that, appointment of two arbitrators and an umpire. Given the existence of the arbitration agreement and the absence of grounds to refuse reference, the Court directed the parties to comply with the arbitration clause’s appointment procedure within specified timeframes. The Court also clarified that if the parties fail to agree on a common arbitrator and the respondent does not appoint an arbitrator after notice, the petitioner’s arbitrator shall act as sole arbitrator.
Holding and Implications
The Court's final decision is Petition allowed.
The Court ordered the filing of the arbitration agreement in Court and directed the parties to appoint an arbitrator in accordance with the arbitration clause within prescribed time limits. If the parties fail to agree on a single arbitrator, each party shall appoint its own arbitrator and those arbitrators shall appoint an umpire before the reference proceeds. The decision clarifies that procedural lapses in invoking the arbitration clause, such as failure to give notice through the architect, do not preclude the Court from directing arbitration where a valid arbitration agreement exists. No new precedent was set beyond affirming the directory nature of notice requirements and the Court’s duty under Section 20 to facilitate arbitration.
Mr. P.K Bahri, J.— This is a petition under Section 20 of the Arbitration Act requiring the filing of the agreement in Court and for appointment of arbitrator in accordance with the terms of the arbitration clause and for reference of disputes raised in the petition to the Arbitrator for deciding the same in accordance with law.
2. There has been a contract between the parties which contains an arbitration clause to the following effect.
“All disputes and differences of any kind whatever arising out of or in connection with the conduct of the carrying out of the works (whether during the progress of the works or after their completion, and whether before or after the determination, abandonment or breach of the contract) shall be referred to and settled by the architects who shall state their decision in writing. Such decision may be in the form of a final certificate or otherwise. The decision of the Architect with respect to any of the excepted matters shall be final and without Appeal as stated in Clause No. 35. But if either the Employer or the Contractor be dissatisfied with the decision of the Architect or any matter, question or the dispute of any kind (except any of the excepted matters) or as to the withholding by the Architect of any certificate to which the contractors may claim to be entitled, then and in any such case either party (the Employer or the Contractors) may within 28 days after receiving notice to such decision give a written notice to the other party through the Architects requiring that such matters in dispute be arbitrated upon. Such written notice shall specify the matters which are in dispute and such dispute or difference of which such written notice has been given and no other shall be and is hereby referred to the arbitration and final decision of a single arbitrator being a Fellow of the Indian Institute of Architects to be agreed upon and appointed by both the parties or in case of disagreement to the appointment of a single arbitrator, to the arbitration of two Arbitrators being both Fellow of the Indian Institute of Engineers of equivalent one to be appointed by each party, which arbitrators shall before taking themselves the burden of reference appoint an Umpire.”
3. This petition is contested by the respondent on the sole ground that the petitioner has not invoked the arbitration clause in accordance with the terms of the said clause and thus the petition is not maintainable. It is pointed out that the arbitration clause contemplates that petitioner has to give a notice in writing in which the disputes sought to be raised for arbitration were to be detailed out and such a notice was to be given through the architect to the respondent and this step has not been taken by the petitioner, thus the arbitration clause cannot be invoked by filing a petition under Section 20.
4. Similar arbitration clause came up for consideration before this Court in the case of Sikand Construction Co. v. State Bank of India, ILR (1979) I Delhi 364. The Court held that writing a letter to the architect is directory provision in an arbitration clause and in the said case despite no such letter being written by the party for invoking the arbitration clause in the manner contemplated in the arbitration clause, still the Court held that in view of the provisions of Section 20 of the Arbiration Act what the Court has to consider is whether the parties have entered into an arbitration agreement and if so, whether there is any sufficient ground for not referring the matter for arbitration and if it is proved that there is an agreement for arbitration then the Court has to direct the filing of the arbitration agreement and appoint the arbitrator in accordance with the arbitration clause.
5. In that case also the directions were given to the parties to appoint an arbitrator in consonance with the arbitration clause. In the present case, admittedly, the contract out of which the disputes arise contains the arbitration clause and thus I hold that the matter is liable for reference in accordance with the arbitration clause. In the present case, the petitioner had on his own appointed his arbitrator and had sent a communication to the respondent to appoint his arbitrator. The arbitration clause did not contemplate that in the very first instance, the petitioner could appoint his own arbitrator. As was required by the arbitration clause that parties have to agree for appointment of a single arbitrator who is Fellow of the Indian Institute of Architects failing which each party was to nominate its arbitrator who was also to be a Fellow of the Indian Institute of Architects and those two arbitrators were then to appoint an Umpire.
6. So, I allow this petition and direct that the agreement be filed in Court and require the parties to agree and appoint a single arbitrator who is a Fellow of the Indian Institute of Architects within one month from today failing which each party shall appoint its own arbitrator within two months thereafter and the said two arbitrators, before entering upon reference, shall appoint an Umpire and on such arbitrator/arbitrators/arbitrator-cum-Umpire being appointed, the disputes mentioned in the petition shall stand referred for arbitration.
7. I make it clear that in case the parties fail to agree for appointment of a particular common arbitrator and petitioner gives a notice appointing his arbitrator, the respondent, if fails to appoint an arbitrator within one month of receiving of such notice, then the arbitrator appointed by the petitioner shall act as sole arbitrator.
Petition allowed.
Alert