In C.M.P. NO. 24 OF 2022-KAR HC- Once agreed procedure of dispute resolution is made condition precedent for invoking arbitration clause, same is required to be followed: Karnataka HC Justice Ritu Raj Awasthi [10-06-2022]

Read Order: M/S SOBHA LIMITED v. M/S NAVA VISHWA SHASHI VIJAYA 

Tulip Kanth

Bengaluru, June 13, 2022: The Karnataka High Court has recently termed the Petition under Section 11(6) of the Arbitration and Conciliation Act as premature and dismissed the same after the petitioner did not fulfill the precondition of conciliation before invoking arbitration clause under the work order.

Referring to the judgment of the Apex Court in M.K. Shah Engineers & Contractors v. State of M.P., wherein it was observed that the steps preceding the coming into operation of the arbitration clause are essential in nature and parties cannot bypass or skip the prerequisites to invoke arbitration directly, the Bench of Justice Ritu Raj Awasthi asserted, “In view of the aforesaid discussion, I am of the view that where an agreed procedure of dispute resolution has been made a condition precedent for invoking the arbitration clause, the same is required to be followed.”

The factual matrix of this case was such that the first respondent issued a work order entrusting design and construction of residential building work to the petitioner. It was alleged that the respondents also entrusted to the petitioner the work of carrying out residential building construction work at their plot and the petitioner agreed for the same. After the completion of the construction works of both the residential buildings, the respondents took over complete occupation and enjoyment of the same but did not pay the balance amount for construction work done by the petitioner.

The petitioner had been repeatedly requesting the respondents to make the payment of the balance amount, however, the respondents did not bother to reply to the letters of the petitioner or make the payment of the balance amount with interest.Thus, this  Civil Miscellaneous Petition was filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking appointment of an Arbitrator to adjudicate the dispute that had arisen between the petitioner and respondents as per clause 11 of the Work Order .

The Bench considered Clause 11 of the work order extensively wherein an initial step of conciliation had been agreed for between the petitioner and respondent and hence, it provided that dispute be referred to arbitration in case such conciliation fails; thereby, making it a precondition before further referring the dispute for arbitration. Justice Awasthi observed that no steps had been taken nor any attempt was made by the petitioner to initiate conciliation proceedings with the Respondents before issuing the notice that invoked the arbitration clause. As per the Bench, it appeared that the petitioner was trying to bypass or skip this preceding condition of taking recourse to conciliation, thereby making an attempt to render the substance of Clause 11 of the work order as ineffectual. 

The Bench also placed reliance on the opening words of Section 11(6) read along with clause (a) of the sub-section which are “where, under an appointment procedure agreed upon by the parties, a party fails to act as required under that procedure” and concluded that the petitioner had failed to act as required under the appointment procedure of initiating conciliation proceedings with the Respondents before referring the dispute for arbitration by invoking Clause 11 of the work order which carries the arbitration clause. Thus, the Bench dismissed the petition by holding that the petitioner had no right to invoke the arbitration clause.