Introduction
In the case of M/s. Larsen and Toubro v. Rajasthan Urban Sector Development Project[i], the High Court of Rajasthan, allowed the arbitration application on multiple grounds. The High Court held that M/s Larsen and Toubro’s (‘L&T’) application was not premature, despite the Rajasthan Urban Sector Development Project’s (‘RUIDP’) objection regarding the mandatory appointment of a DAB, as RUIDP had refused to engage in the DAB process. Additionally, the Court found that the claim was not barred by limitation, as the cause of action was revived by subsequent communications acknowledging variations in work. The Court also rejected the argument that the claim was non-arbitrable due to exceeding the 10% contract value threshold, deciding that the arbitrator should assess this issue. By appointing an arbitrator, the Court reinforced the principles of efficiency and fairness under the Arbitration and Conciliation Act, 1996 (‘Act’).
Brief Facts
RUIDP issued a tender for construction related to water supply, sewage network, and allied works in Pali, Rajasthan. L&T participated in the bid and emerged as the successful bidder.
RUIDP issued a letter of acceptance to L&T for a total bid price of Rs. 496 crores. RUIDP directed L&T to begin the work, and L&T commenced work.
During the project, L&T encountered unexpected site-specific constraints, including hard rock strata along the pipeline alignment, which necessitated the mobilization of specialized machinery for trenchless work. This led to additional work beyond the original bill of quantities (BOQ). L&T claimed additional payment for the excess work under clause 13.3 of the general conditions of contract (‘GCC’), which deals with variations in work.
Despite several communications between L&T and RUIDP, the dispute persisted regarding the release of payment for the excess work at the claimed new rates. The RUIDP did not agree to the variation rate proposed by L&T, leading to a dispute over the payment.
L&T initially sought to resolve the dispute through the dispute adjudication board (‘DAB’) as per clause 20.3 of the GCC. L&T sent multiple communications to RUIDP, requesting the appointment of the DAB, which resulted in a dispute over the payment.
After RUIDP refused to constitute the DAB, L&T invoked the arbitration clause under clause 20.8 of the GCC. L&T served a legal notice to RUIDP, demanding the appointment of arbitrators to resolve the dispute. L&T nominated an arbitrator from their side and asked RUIDP to nominate an arbitrator within 15 days.
When RUIDP failed to nominate an arbitrator, L&T filed an arbitration application before the High Court, seeking the appointment of arbitrators to adjudicate the dispute.
Held
The RUIDP argued that L&T’s application for arbitration was premature due to the failure to follow the mandatory procedure of appointing a DAB before seeking arbitration. However, L&T contended that despite their efforts, RUIDP had refused to appoint the DAB, making the arbitration application maintainable. The High Court of Rajasthan agreed with L&T, observing that the arbitration application was not premature since RUIDP had rejected the DAB appointment. The High Court observed that the requirement to appoint a DAB was not strictly mandatory, especially given the respondent's failure to engage in the process.
The Court relied on the case Demerara Distilleries (P) Ltd. v. Demerara Distillers Ltd.[ii], where it was observed that when extensive correspondence between the parties has occurred, any further attempt at resolution through mutual discussion or mediation may be considered an ‘empty formality.’ Additionally, the Court referenced the Supreme Court’s decision in MTNL v. Canara Bank[iii], which shows that an arbitration agreement should be interpreted in a manner that shows the party’s intent rather than invalidating it on technical grounds.
The RUIDP also argued that the claim was barred by limitation, citing a 2018 letter as the start of the limitation period. In contrast, L&T asserted that the cause of action was revived by a 2022 letter acknowledging variations in work, along with subsequent communications and legal notices, which indicated that the claim was not stale. The Court agreed with L&T, finding that the 2022 letter and subsequent communications revived the cause of action, thus making the arbitration application not barred by limitation. However, the arbitrator would determine the final assessment of the limitation period.
Further, the RUIDP argued that the quantum of the escalated cost exceeded 10% of the contract value, rendering the claim non-arbitrable under clause 20.8(c) of the tender agreement. However, L&T disputed the amount already paid and asserted that the total claim, including the escalated cost, would not exceed the 10% threshold. The Court decided that the arbitrator should assess whether the claim exceeded 10% of the contract value and that the arbitration application should not be dismissed on this ground alone at this stage.
Following the precedent set by the Supreme Court in Twenty-Four Secure Services Pvt. Ltd. v. Competent Automobiles Company Limited[iv], the Court appointed a sole arbitrator in this case. The Court reiterated that arbitration proceedings should remain efficient, less expensive, and accessible to the parties involved. This case reaffirmed the principle that the appointment of a sole arbitrator is valid and can be in the best interest of justice.
The High Court, therefore, concluded that the arbitration application was valid and should be allowed, appointing Hon’ble Mr. Justice Ajay Rastogi, former judge of the Supreme Court, as the sole arbitrator to adjudicate the dispute between the parties under the provisions of the Act.
Conclusion
In this case, the Rajasthan High Court carefully examined the contractual provisions, particularly the clauses related to dispute resolution, alongside the factual circumstances surrounding the delay in appointing a Dispute Adjudication Board. The court determined that the arbitration application was valid, rejecting procedural objections regarding prematurity, limitation, and the quantum of the claim. The court emphasized the importance of efficiency and fairness in arbitration, reinforcing that arbitration proceedings should proceed without unnecessary hurdles, thereby allowing disputes to be resolved expeditiously and in line with the Act.
End Notes
[i] 2024: RJ-JP:33112.
[ii] [(2015) 13 SCC 610].
[iii] [(2020) 12 SCC 767].
[iv] [2024 SCC OnLine Del 4358].
Authored by Nitish Solanki, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
コメント