TaxTMI 
TaxTMI 
2025 (5) TMI 1123
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.... thus making the disputes arbitrable. This alleged ambiguity has led to protracted litigation before multiple fora. 3. To further contextualise, the private contractors assert that these dispute resolution clauses necessarily mandate arbitration; whereas the Municipal Corporations contend that they be construed as those prescribing mediation. A. FACTS 4. We deem it necessary, at this juncture, to delve into the facts giving rise to this controversy. While the factual matrices differ in detail, they converge on a common interpretative dissonance concerning the dispute resolution clauses. Consequently, although the distinct contextual backgrounds of these three legal proceedings may not be directly determinative of the ultimate adjudication, we have nonetheless set them out briefly, in seriatim, for clarity and completeness. 5. South Delhi Municipal Corporation v. SMS Limited [SLP (C) No. 16913/2017] (SMS Ltd. Case) 5.1. The Municipal Corporation of Delhi (MCD) executed a Concession Agreement with the Respondent, SMS Ltd. on 24.04.2012, for the construction of a multi-storeyed parking facility at Defence Colony, New Delhi, on a Design, Build, Finance, Operate, and Tran....
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....lity of the subsisting dispute, stating that its initial position was based on erroneous legal advice. Its novel position was that Article 20 of the Concession Agreement indubitably constituted an arbitration clause. On this basis, SMS Ltd. made further representations, seeking additional refunds and the appointment of an arbitrator. In response, SDMC, by its letter dated 23.09.2016, rejected SMS Ltd.'s request for arbitration as untenable. SDMC maintained that the meeting on 18.02.2014 had been convened by the Commissioner in pursuance of the mandate laid down by Article 20, which they understood to be as a clause prescribing mediation. It added that since the two parties had already concluded a negotiation session chaired by the Commissioner, any further claims for interest or damages were strictly precluded. 5.6. SMS Ltd. then approached the High Court by way of Arbitration Petition No. 793/2016 under Section 11(6)(a) read with Section 11(12)(b) of the Arbitration & Conciliation Act, 1996 (Arbitration Act) seeking appointment of an arbitrator. By way of the impugned judgment dated 09.03.2017, a learned Single Judge of the High Court overruled SDMC's objections, conclusive....
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....MCD, however, reiterated that the subject-Concession Agreement was already closed, apart from categorically denying the existence of any arbitration clause in the same. 6.5. Aggrieved by the MCD's refusal to accede to the arbitral process, DSC Ltd. approached the High Court by filing Arbitration Petition No. 234/2018, seeking the appointment of an arbitrator. However, vide the impugned judgment dated 29.07.2022, a learned Single Judge of the High Court dismissed DSC Ltd.'s petition, holding that Article 20 of the Concession Agreement provided for mediation, not arbitration. Furthermore, the High Court declined to follow the Co-ordinate Bench's stance in SMS Ltd.'s case, noting that it had been effectively stayed by this Court (vide order dated 07.07.2017 noted hereinabove). 6.6. The aggrieved DSC Ltd. has preferred this appeal, wherein notice was issued by this Court vide order dated 07.12.2022. 7. Municipal Corporation of Delhi v. M/s Consolidated Construction Consortium Limited [SLP (C) No. 17510/2023] (CCC Ltd. Case) 7.1. As in the previous instances, here too the MCD awarded a Concession Agreement on 30.07.2010 to M/s Consolidated Construction Consortium Limited (CC....
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....will appoint a officer from within or outside MCD who will look into the written documents; (i) a description of dispute; ii) a statement of that party's position; and (iii) copies of relevant documentary evidence in support of such position. Section 20.2 Performance during Dispute Resolution Pending the submission of a dispute, controversy or claim to the officer appointed by the MCD and thereafter until the final decision of the officer appointed by the MCD, as the case may be, the parties shall continue to perform all of their obligations under this Agreement, without prejudice to a final adjustment in accordance with such decision. Section 20.3 Survival The provisions relating to indemnification contained in Section 15.2, intellectual property contained in Section 18, confidentiality contained in Section 19.1 and the dispute resolution provisions contained in this Article 20 shall survive the termination of this Agreement." 9.2. Secondly, in the DSC Ltd. Case, Article 20 provides as follows: "ARTICLE 20: DISPUTES In the event that any dispute, controversy or claim arises among the Parties in connection with or under t....
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.... position; and iii) copies of relevant documentary evidence in support of such position. (f) The officer appointed by MCD may call for such further documentary evidence and/or interview such persons, as it may deem necessary in order to reach a decision. (g) The officer appointed by MCD shall give notice to the parties of its decision within 20 days of receipt of the documents provided by the parties pursuant to subsection (b) and (c) above. The decision of the officer appointed by MCD shall be binding. (h) The officer appointed by the MCD should give decision in writing. The decision of the MCD shall be final and binding on party..." B. CONTENTIONS 10. It is necessary for us at this juncture to delineate the contentions advanced by the rival parties. For the sake of clarity and coherence, we have categorized the submissions into two groups-(i) those made on behalf of SDMC/MCD, and (ii) those advanced by the private contractors (SMS Ltd., DSC Ltd., and CCC Ltd.). This classification reflects the evident similarities in their respective arguments, as well as the reliefs sought. 11. Mr. Sanjiv Sen, learned Senior Counsel appearing on behalf of SDMC....
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.... intended to prolong and complicate the dispute resolution process. In the case of SMS Ltd., the legal notice issued by the contractor expressly sought the initiation of mediation and, significantly, acknowledged that no arbitration agreement subsisted between the parties. Similarly, CCC Ltd. initially issued a notice under Section 80 of the Code of Civil Procedure, 1908, which is a procedural requirement before instituting a civil suit, thereby contradicting its later assertion that an arbitration agreement existed. DSC Ltd. similarly misconstrued Article 20 to claim existence of an arbitration agreement, where none existed. e) The High Court's decision in CCC Ltd., rendered after this Court's unequivocal ruling in Tollways (supra), is clearly per incuriam, as it failed to consider that a similar dispute resolution clause had already been held to not constitute arbitration. Furthermore, the High Court's ruling in CCC Ltd. stands in stark contrast to its own decision in DSC Ltd., wherein the learned Single Judge correctly applied the principles laid down in Tollways (supra) and refused to read an arbitration agreement into the Concession Agreement. f) The private ....
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....n 20.2 of Article 20 explicitly provides that the decision of the appointed authority shall be final, further strengthening the claim that the clause creates an arbitration framework. b) It is a settled principle that an arbitration agreement need not be in any specific form; what is determinative is the parties' intent. Rukmanibai Gupta v. Collector, Jabalpur, (1989) 4 SCC 556; Punjab State v. Dina Nath, (2007) 5 SCC 28. Even in the absence of the explicit use of the words 'arbitration' or 'arbitrator', the substance of the clause determines its true character. Jagdish Chander v. Ramesh Chander and ors., 2007 (5) SCC 719. The intent to submit disputes to arbitration must be ascertained from a holistic reading of the contract rather than an isolated textual analysis of Article 20. MTNL v. Canara Bank, 2020 (12) SCC 767. c) The conduct of the MCD in similar contractual arrangements contradicts its present stance. In a comparable dispute, SMS Parking Solutions Private Limited v. North Delhi Municipal Corporation, Arb. P. 166/2017. the MCD had previously admitted that an analogous clause amounted to an arbitration agreement and even participated in arbitral proce....
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....ivate parties' rights. C. ISSUES 13. After considering the rival contentions, the voluminous record, the statutory framework, as well as the factual circumstances colouring these appeals, we find that the singular issue that falls for our consideration is: i. Whether the dispute resolution clauses viz. Article 20 in the subject-Concession Agreements, constitute a valid arbitration agreement between the parties? D. ANALYSIS 14. While considering the singular issue as formulated above, we find that its analysis necessitates a two-pronged inquiry: (i) what are the necessary ingredients of an enforceable arbitration agreement; and (ii) whether Article 20 of the subject-Concession Agreements contain those ingredients. D.1 What are the ingredients of an arbitration agreement? 15. We must first explicate what a valid arbitration agreement contains under Indian law, as we are sufficiently cognizant of the factum that an agreement for arbitration is the sine qua non for invocation of the arbitral process-as is prayed for by the private contractors in the instant appeals. D.1.1. The Indian Position 16. The Indian statutory framework governing arbitration gain....
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....gh a formally signed document, an exchange of communications, or even unchallenged pleadings-reflects the Legislature's intent to liberally accommodate the realities of modern commercial communication, including electronic correspondence. 20. Another notable feature is found in sub-section (5), which serves to widen the expression 'arbitration clause' by expressly providing for incorporation by reference. Overall, this statutory approach is one which prioritises substance over form in the case of valid arbitration agreements, which ultimately culminate in an arbitral award, enforceable under Section 36 of the Arbitration Act. 21. In the decisions cited by the parties before us, it is evident that this Court has consistently attempted to de-fog the surroundings of a proper arbitration clause, to make its precise form and substance more discernible. For instance, in Encon Builders (supra), this Court held that the essential elements of an arbitration agreement comprise the parties' consensual intent to settle a present or future difference through a private tribunal, and that such a decision would be binding upon them. In other words, consensus and intent of both parties is giv....
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.... structure of valid arbitration agreements across jurisdictions reveals a broadly consistent understanding of arbitration, with Indian law largely aligning with international norms derived from the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985, which has significantly influenced arbitral legislation worldwide. 25. For example, in the United Kingdom, the Arbitration Act, 1996 governs both domestic and international arbitrations. Section 5 thereof stipulates that an arbitration agreement must be in writing, while Section 6(1) defines such an agreement as one under which parties agree to submit present or future disputes to arbitration. This Act does not expressly require that the legal relationship be contractual; however, the context of a defined relationship is presumed. 26. In the United States of America, the Federal Arbitration Act, 9 U.S.C. § 2, provides that an arbitration clause must be in writing and contained within a contract involving commerce. The provision must also evince the parties' agreement to submit future disputes to arbitration. While the Federal Arbitration Act applies primaril....
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....djudicatory Process The arbitration agreement must contemplate a binding and enforceable resolution of disputes. The process must culminate in a final and conclusive award, not a non-binding recommendation or mediation outcome. In essence, the result of the arbitral process should be final and binding on both the parties. iii. Compliance with Arbitration Norms While the statutory minimums do not universally require specification of seat, venue, or applicable procedural rules, best practices and several foreign jurisdictions encourage clarity in these respects to ensure legal certainty. The agreement should allow for party autonomy in the appointment of arbitrators and procedural conduct, subject to statutory safeguards. The adversarial process, which inheres in the institution of arbitration, must also be given due credence via provision for an impartial adjudicatory body, whose decisions involve deference to the principles of natural justice. 31. We may, however, hasten to add that the aforementioned elemental test is a conjunctive one, and not a disjunctive one. In other words, all the elements identified hereinabove must co-exist, apart from being d....
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....(a) It may be noted that the subject-clause itself is titled as 'Mediation by Commissioner', which immediately raises a conundrum as to the mode of dispute resolution. We are well aware of the judicial precedents that waive the need for express reference to arbitration or an excessive focus on nomenclature. Infrastructure Leasing & Financial Services Ltd. v. HDFC Bank Ltd., 2023 SCC OnLine SC 1371; Yellapu Uma Maheswari v. Buddha Jagadheeswararao, (2015) 16 SCC 787; Assam Small Scale Ind. Dev. Corp. Ltd. & Ors. v. J.D. Pharmaceuticals & Anr, 2005 Supp (4) SCR 232. However, such principles cannot be stretched so far so as to make them wholly unworkable. It is inconceivable to us as to why two parties, who are ad idem in wanting to settle their disputes through arbitration, would label the dispute resolution clause in such a befuddling manner. The title of the clause (Section 20.1 of Article 20) unequivocally indicates a non-adjudicatory and conciliatory process rather than an arbitration mechanism. (b) What adds fuel to the fire is the conspicuous absence of the words 'arbitration' or 'arbitrator' from the dispute resolution clauses. Even the expression `Arbitration Act' is....
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.... contemporary arbitration, it will generally be unworkable and essentially dead letter. What is also envisaged under this element is the compliance with the Arbitration Act and its subsequent Amendments. 43. It may be clarified here that there is no straitjacket formula for listing arbitral norms exhaustively, as these norms may vary from time to time. While we cannot delineate arbitral norms from stem to stern, we have short-listed some of these norms for the purposes of these appeals, which unfortunately do not find any explicit or implicit mention in the subject-dispute resolution clauses. D.2.3.1. Party Autonomy in Arbitrator Appointment 44. Clearly, in the facts of the instant appeals, the officer who decides the dispute(s) is appointed exclusively by MCD/SDMC, with no input from the other contracting party, i.e. the private contractors. In contrast, valid arbitration agreements invariably provide for a mutually agreed- upon arbitrator or an independent appointing authority, such as a Court or an arbitral institution lest they run afoul of the settled principles of bi-partisanship and equality. D.2.3.2. Adversarial Process 45. In Encon Builders (supra), this Cou....
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....ential to any adjudicatory mechanism. 49. In conclusion, a holistic analysis of Article 20 across the subject Concession Agreements leads us to the inescapable conclusion that it does not satisfy the requirements of an arbitration agreement under Section 7 of the Arbitration Act. While certain textual elements-such as the use of the phrase 'final and binding' in the cases of DSC Ltd. and CCC Ltd.-may superficially resemble arbitration, a deeper examination reveals that the clause is procedurally and structurally deficient in ways that render it incapable of operating as an arbitration clause in law. 50. Article 20 lacks the judicial element that lends arbitration its distinct credibility as an adjudicatory mechanism. It is not an arbitration clause either in letter, or in spirit and effect. Its ambiguity and lack of procedural integrity have, if anything, resulted in greater litigation rather than expeditious resolution, thereby undermining the very purpose of arbitration. 51. Accordingly, we hold that Article 20 does not constitute an arbitration agreement under the Arbitration Act. The impugned judgments of the High Court in the cases SMS Ltd. and CCC Ltd., dated 09.03.2....
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....e country. 57. What is most shocking to our judicial conscience is the incontrovertible reality that the parties in the present cases have spent nigh a decade acrimoniously litigating over the method of dispute resolution itself, while their actual qualms against each other remain deeply buried under the surface-effectively stuck in limbo. A legal dispute that lingers for years over the mere mode of adjudication, before even touching the merits, is akin to a traveller stranded at a crossroads, endlessly debating which path to take while the journey itself remains unbegun. Justice, like the destination, recedes further into the horizon, not for lack of resolution but for want of a decision on how to resolve. 58. This willful and wanton wastage of judicial time is similarly a practice that is highly deplorable, to say the least. It is high time that arbitration clauses are worded with piercing precision and clarity, and that they are not couched in ambiguous phraseology. This is a responsibility and onus that every legal counsel, advisor, and practitioner must shoulder most dutifully. We would, in fact, take this opportunity to advise, if not caution and warn, the legal fratern....