Failure of the contractual DRC to act exhausts the pre-arbitral mechanism, permitting Section 11 appointment.

The Petitioner sought appointment of a sole arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”) in relation to disputes arising from Agreement No. 12/EE/Edu.(M) South West/2018–19 for construction of additional SPS-type classrooms in Government schools.

The work was completed on 16 April 2022, and the Respondent granted extension of time up to the actual date of completion without imposing compensation; however, certain claims and outstanding payments allegedly remained unpaid.

Clause 25 of the Agreement prescribed a pre-arbitral Dispute Redressal Committee (“DRC”) mechanism, followed by arbitration.

The Petitioner raised its claims by letter dated 24 August 2022 and alternatively requested that the letter be treated as a notice under Section 21 of the Act.

Although the Respondent nominated a Chairman of the DRC, no proceedings were conducted and no decision was rendered despite repeated invocation of the mechanism.

The Respondent did not dispute the existence of the arbitration agreement or the maintainability of the petition.

The total claim was stated to be approximately Rs.15 crores.

1. Whether the Petitioner had established the prima facie existence of a valid arbitration agreement warranting exercise of jurisdiction under Section 11 of the Act.

2. Whether the contractual pre-arbitral DRC mechanism had been exhausted or had failed, thereby permitting the Petitioner to invoke arbitration under Clause 25 of the Agreement.

3. Whether a sole arbitrator should be appointed to adjudicate the disputes between the parties under Clause 25.

The Court applied Section 11 of the Arbitration and Conciliation Act, 1996, under which the Court’s enquiry at the referral stage is confined to determining the prima facie existence of an arbitration agreement.

It relied on SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754, for this limited-review principle.

The Court also applied Clause 25 of the Agreement, which required disputes first to be referred to the DRC and permitted either party to seek appointment of an arbitrator if the DRC failed to decide the dispute within the prescribed period or if a party remained dissatisfied with its decision.

Clause 25 further provided for a sole arbitrator where the tendered amount did not exceed Rs.100 crores and made the Act applicable to the arbitration.

The Court found that Clause 25 unequivocally contained an arbitration agreement covering disputes arising out of or relating to the contract.

The Petitioner had raised its claims and repeatedly invoked the DRC process.

Although the Respondent nominated a DRC Chairman, the DRC neither conducted proceedings nor rendered a decision.

Consequently, the contractual pre-arbitral mechanism had failed and stood exhausted, enabling the Petitioner to invoke arbitration.

Since the Respondent could not identify any objection to the arbitration agreement or to the maintainability of the petition, the limited prima facie examination required under Section 11 was satisfied.

Given the stated claim of approximately Rs.15 crores and the contractual provision for a sole arbitrator in cases where the tendered amount was within the stipulated threshold, the Court appointed a sole arbitrator.

Mr. Upendra Malik, Retired Special Director General, CPWD, was appointed as the sole arbitrator to adjudicate the disputes between the parties.

He was directed to enter upon the reference within four weeks and furnish the disclosures required under Section 12(2) of the Act within three weeks of entering upon the reference.

The arbitration was directed to be conducted under the rules and aegis of the Delhi International Arbitration Centre, with fees payable in accordance with the DIAC Schedule of Fees.

The parties were permitted to raise all pleas, including objections concerning arbitrability and jurisdiction, before the arbitrator.

The Court clarified that its observations were confined to the Section 11 proceedings and would not affect adjudication of the claims or counterclaims on merits.

The petition was disposed of accordingly.