Intention To Arbitrate Cannot Be Left Unenforced Merely Because Designated Arbitral Institution No Longer Exists: Telangana High Court

The application before the High Court was filed under Section 11(6)(c) of the Arbitration and Conciliation Act, 1996 to appoint 3 Arbitrators to adjudicate the disputes between the parties.

The Single Bench of Justice K. Lakshman said, “The decision of ACC (supra) can be extended to the facts of the present case. Merely because the designated arbitral institution no longer exists, the intention to arbitrate cannot be left unenforced. Therefore, this Court deems it appropriate to exercise its powers under Section 11 of the Act, 1996.”

Advocate S. Ram Babu represented the applicant while Advocate V. Uma Devi represented the respondent.

Factual Background

The applicant, engaged in the engineering and supply of steel plant equipment, had entered into a Contract with the respondent for setting up a Single Stand Reversing 4- HI Wide Plate Hot Rolling Mill for the Rolling of Plates (Phase-I) at the respondent's premises in Hyderabad. Adhering to the stipulated timeline, the applicant invested substantial funds and allocated significant resources for the execution of the contract. It was the case of the applicant that the project completion was delayed by 26 months due to various reasons attributable to the respondent.

The respondent extended timelines up to December 31, 2021, for completion of the contract and amended the contract for erection, start up and putting into commissioning of the contract. The respondent reserved its right to impose Liquidated Damages. The applicant alleged that it had informed the respondent that it had imposed liquidated damages wrongfully. The applicant also filed an application under Section 9 of the Act, 1996, which was dismissed. The applicant then issued a notice invoking the Arbitration Clause.

Arguments

The Respondent argued that the present application was not maintainable since the applicant had to approach ICADR, and on exhausting alternative remedies, it had to file the application before the High Court.

Reasoning

The Bench took note of the fact that the institution of ICADR has now been taken over by the India International Arbitration Centre under the aegis of the Central Government. It was also noticed that the arbitral institution designated by the parties i.e., ICADR has now become defunct and no longer exists. The issue thus raised before the Bench was whether an arbitration clause in the present case becomes unworkable and whether no arbitrator can be appointed by this Court under Section 11.

“According to this Court, when the intention to arbitrate is clear from the terms of the agreement, the Courts shall give effect to such an intention. In case, an arbitration clause becomes unworkable either by reason of drafting errors or due to the death of a named arbitrator or by reason of the designated arbitral institution not existing, the intention to arbitrate shall be given effect to by exercising powers under Section 11 of the Act, 1996”, the Bench explained.

Reference was also made to the judgment in ACC Ltd. v. Global Cements Ltd. (2012), wherein it has been held that unless a contrary intention appears, restraining the appointment of a new arbitrator in the place of the deceased named arbitrator, a new arbitrator can be appointed.

“It is clear from the contentions of the parties that disputes have arisen between the applicant and the respondent under the Contract Agreement dated 28.04.2017. The same are arbitrable in nature and have to be adjudicated by an Arbitrator”, the Bench held.

Thus, allowing the application, the Bench appointed Justice L. Nageswara Rao, Former Judge, Supreme Court of India, as the sole arbitrator to adjudicate the disputes between the applicant and the respondent.

Cause Title: Danieli India Limited v. Mishra Dhatu Nigam Limited (Case No.: ARBAPPL 266/2024)

Appearance:

Applicant: Advocate S. Ram Babu

Respondent: Advocate V. Uma Devi

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