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An arbitration clause in the contract prevents arbitration until alternative remedies are made by the government



Delhi High Court observed that an arbitration clause in the contract prevents arbitration until alternative remedies are made by the government.


A single-judge bench of Delhi High Court comprising Justice Sachin Datta was hearing an arbitration petition and held that the arbitration clause in the contract, specifically Clause 60 of the General Conditions of Contract (GCC) purportedly prevented arbitration until alternative arrangements were made by the government.


The High Court's decision centred on the interpretation of the arbitration clause in the contract, specifically Clause 60 of the General Conditions of Contract (GCC). The court held that the clause, which purportedly prevented arbitration until alternative arrangements were made by the government, was an enabling provision rather than a strict limitation on the right to seek arbitration.


The High Court emphasized that such clauses should not be construed as fetters on a party's right to seek remedies for breach of contract. It also noted that the respondent's failure to make alternative arrangements for an extended period could not frustrate the arbitration agreement.


The High Court received a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, requesting the appointment of a Sole Arbitrator to resolve disputes between the parties. The disputes arose from a tender process initiated by the respondent for the construction of dwelling units in Mumbai for the Army. The petitioner's bid was accepted, and a Work Order was issued. However, due to reasons beyond the petitioner's control, the work could not be completed within the stipulated time, leading to the termination of the contract by the petitioner. The petitioner submitted its final bill, but payment was not released. The respondent later sought to terminate or cancel the contract illegally, leading to arbitration proceedings.


The respondent argued against the petition, citing insolvency proceedings against one of the petitioner's members and claiming that the contract termination was valid. They also pointed out a clause in the General Conditions of Contract (GCC) that, according to them, prevented arbitration until alternative arrangements were made for completing the work. However, the court found no merit in the objections raised by the respondent.


The Hogh Court noted that the scope of inquiry in a Section 11 petition is limited to the existence of an arbitration agreement. It held that the dispute regarding the termination of the contract and the validity of the termination should be adjudicated in the arbitral proceedings.


The Single-judge bench also clarified that even if one of the petitioner's members was undergoing insolvency proceedings, it did not prevent them from filing for arbitration. The court appointed a Sole Arbitrator and directed the parties to share the arbitrator's fee and arbitral costs equally. It kept all rights and contentions of the parties open to be decided by the arbitrator on their merits.



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