Contractual pre-arbitral grievance procedures must be exhausted before arbitration may be invoked.

The petitioner was awarded a PWD contract to construct a 3.80 km cement-concrete road for Rs. 60 lakhs, initially due for completion on 1 January 2014. The Department extended the completion period to 31 May 2014; the work was completed on 1 September 2014, and a completion certificate was issued on 30 September 2014.

The petitioner attributed delay to restrictions on sand mining, non-allotment of mine leases and delayed departmental payments. The Superintending Engineer imposed a penalty under Clause 2 of the contract. The petitioner appealed to the Chief Engineer, who rejected the appeal on the ground that the petitioner should invoke arbitration under Clause 28. The petitioner challenged that decision, also alleging that the penalty had been imposed without the hearing required by Clause 5.

1. Whether the Chief Engineer erred in holding that the petitioner could not pursue a departmental appeal and had to invoke arbitration under Clause 28.

2. Whether Clause 27 required the petitioner to first pursue the contractual administrative grievance procedure before invoking arbitration.

Under Clause 27, the contractor must first approach the concerned Executive Engineer or Superintending Engineer for a decision on the administrative grievance; arbitration under Clause 28 becomes available if the contractor remains aggrieved by that decision.

The Court did not rely on any statute or precedent. The alleged hearing requirement under Clause 5 and the penalty under Clause 2 were not determined on their merits.

The Chief Engineer’s direction to proceed directly to arbitration was inconsistent with the contractual sequence identified by the Court. Because Clause 27 required the administrative grievance procedure to be followed before recourse to Clause 28, directing the petitioner to arbitration without first deciding the appeal was premature and legally unsustainable.

The Court expressly left the underlying merits, including the penalty dispute, for the departmental appellate authority to consider.

It expressed no opinion on the merits of the dispute and preserved the petitioner’s liberty to invoke arbitration under Clause 28 if aggrieved by the departmental decision. The petition was finally disposed of.