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Arbitration in respect of non-arbitrable issues

Shivendra Pratap Singh

Advocate (Lucknow)

Online advising since Oct. 2014

Civil Law

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Question: Some tenders were issued during last financial year. Tenders were in respect of fencing and drainage on both sides of the road. The department has allotted those tenders to my company. Company has to conduct a survey of land and demarcate slope angle for the drainage.

My engineers have committed errors in finding slope and constructed drainage up to seven kilometres in length. One supervisor team found that mistake and directed the company to stop the drainage work immediately. In the work agreement no arbitration clause is existing regarding the compensation in respect of fault in the decision making process. 

But the company has filed an application under Section 11(6) of the Arbitration and Conciliation Act 1996 for the appointment of the arbitrator. The agreement is silent towards the compensation if fault is committed by the party. What should I do and what action is possible in the present circumstances?

My company has been suffering huge losses due to mistakes. The officers of the concerned department were not brought to notice until the supervisor is unveiled in his report. This is also the fault of the concerned department. It has the responsibility to check and inspect the work and intimate my engineers.

All payments are stalled and the department is not ready to clear a single cheque. If the same things persist the department can blacklist my company. Then I’ll not receive any tender from the government department. Please help. 

Asked from: Uttar Pradesh

You said that the particular issue is not mentioned in the arbitration clause of the tender agreement. If an issue which would likely to be decided by the arbitrator is not mentioned in the agreement, that issue is called a non-arbitrable issue. 

Hence, the party cannot execute an arbitration clause and cannot send that issue to the arbitrator for its decision. Arbitration is a mechanism for quick redressal of disputes out of the process of the court. 

This is out of the court settlement process hence, agreement between parties is mandatory. The parties to the agreement can settle their dispute through arbitration if these conditions are fulfilled:

  • Existence of arbitration clause in the agreement.
  • Enforceable claim is existing between the parties
  • The dispute is arbitrable i.e. parties are agreed to refer that dispute to the arbitrator.

In your case the third clause is not existing. The particular issue is non-arbitrable because you did not agree to refer that issue to the arbitrator for determination. 

Your engineers have committed mistakes in levelling of land. Hence, the slope of drainage is not proper. This is an extraneous condition and you did not think about this at the time of agreement. hence, not included this dispute in the agreement. In lack of particular provision in the agreement (tender agreement) you cannot refer this issue to the arbitrator. 

The Supreme Court in KSS KSSIIPL Consortium vs GAIL (India) Ltd (2015) 2 SCC (Civ) has held that before exercising power under Section 11(6) of the Arbitration and Conciliation Act, to make appointment of the arbitrator, court has to determine existence of arbitrable dispute between the parties as per the terms of the contract.

In this situation you should file a civil suit for compensation. However, you cannot avail arbitration but you can still enforce your right through the regular legal process. You should send a legal notice to the department and demand compensation. Upon refusal to pay compensation you should file a civil suit.

shivendra pratap singh advocate

Shivendra Pratap Singh

Advocate (Lucknow)

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