In CR 6634/2019-PUNJ HC- Present dispute relates to case of non-payment of dues simpliciter & cannot be said to be dispute ‘under’, ‘in connection with’, or even ‘with regard to’ contract; Such dispute cannot be held to be case for reference to arbitration: P&H HC
Justice Nidhi Gupta [09-12-2022]

Read Order: M/s Simplex Infrastructure Limited and Another v. M/s J.P.Singla Engineers and Contractor

Monika Rahar

Chandigarh, December 10, 2022: While dealing with a revision petition against the order of the Trial Court whereby the petitioners’ application under Section 8 of the Arbitration and Conciliation Act, 1996, was dismissed, the High Court of Punjab and Haryana has held that arbitration clause comes into operation ‘in a matter which is the subject of an Arbitration Agreement’ and since, the present case was simply a case of non-payment of dues, it cannot be said to be a dispute arising out of the work contract. 

“Accordingly, this is a simple case of nonpayment of the final amount due and therefore, the arbitration clause cannot be held to be applicable to this case”, Justice Nidhi Gupta held. 

Brief facts of the case are that the plaintiff/respondent was a proprietorship firm and via a 2014 agreement/work order, the defendants/petitioners allocated road work to the plaintiff.  As per work order the respondent started road work and completed the same as per specifications of the defendants.

It was the case of the respondent that after completion of the road work, it communicated its bill for the period of three years to the petitioners. Thereafter, after completion of minor patch work the final bill was also submitted to the petitioners. However, since payment was not disbursed to the respondent despite numerous reminders, the respondent was left with no alternative but to file a suit for the recovery of Rs. 27,16,659/- as principal amount and Rs. 3,79,748/- as interest @ 15% per annum w.e.f. May 2017. 

During the suit pendency, the petitioner/defendant filed application under Section 8 of the 1996 Act before the Civil Judge (Jr.Div.) praying that the above suit was not maintainable in view of Clause 12 of the Agreement/work order wherein it was clearly stipulated that in case of any dispute between the parties, the matter was to be referred to arbitration. It was against dismissal of this application by the Civil Judge (Jr.Div.) that the petitioners approached this Court by way of a present revision petition. 

It was submitted by the petitioners’ counsel that as per Clause 12 of the Arbitration Agreement, the respondent was required to refer the dispute regarding non-payment of bills to arbitration. It was also submitted that the total dues were Rs.1,33,00,000/- out of which only about Rs. 27,16,000/- was outstanding. 

It was also the Counsel’s case that once the execution of the Agreement between the parties containing the arbitration clause was admitted, the matter was required to be resolved through arbitration, thus, the Counsel argued that the civil suit filed by the respondent was not maintainable. Lastly, the Counsel submitted that the respondent was raising a dispute on merit whereas language of Section 8 was peremptory. 

Clause 12 in the Agreement/work order stated, “dispute arising out of or in connection with this work order/contract/purchase order which shall be first amicably settled by mutual dialogue. If the parties fail to settle the difference or dispute arising out of or in connection with this work order/contract/purchase order (including interpretation of the terms thereof), the same shall be referred to arbitration”. 

At the very outset, the Court observed that the liability was not disputed by the petitioners. Further, from a perusal of the aforesaid clause, the Court observed that the dispute did not arise out of or in connection with the work order/contract/purchase order. 

“It is plain and simply a case of non-payment of dues. As such, it cannot be said to be a dispute arising out of the work contract. Even otherwise, the operation of the agreement ceases once the respondent has completed the work project. Accordingly, this is a simple case of non-payment of the final amount due and therefore, the arbitration clause cannot be held to be applicable to this case”, the Court held. 

Further, from the argument of the petitioner’s counsel regarding Section 8 of the 1996 Act, the Court observed that the arbitration clause comes into operation ‘in a matter which is the subject of an Arbitration Agreement’. 

However, in the present case the Court observed that the dispute was not a subject of the Arbitration Agreement as it did not relate to execution of the work or its completion, or even of the contract or projects related thereto.

“As noticed above the present dispute relates to/ is a case of non-payment of dues simpliciter. The present dispute between the parties cannot be said to be a dispute ‘under’, ‘in connection with’, or even ‘with regard to’ the contract”, the Court held while also adding that it cannot be held to be a case for reference to arbitration, and in the face of admitted liability respondent has legally filed the present suit for recovery.

Additionally, the Court also observed that the respondent had sent numerous reminders and emails to the petitioners for payment but no reply was received by the respondent on the part of the petitioners, accordingly, even the condition for amicable settlement was not adhered to by the petitioner. 

As such, in view of the aforesaid facts and discussion, the revision petition was dismissed.