In a recent decision, the Delhi High Court ruled that the membership of arbitral institution not pre-requisite for invoking arbitration.
The disputes between the parties have arisen on various counts, interalia, the alleged failure on the part of the respondent to pay the legitimate dues of the petitioner against the executed quantities of work, alleged inability of the respondent in making available 90% of the land free from encumbrances at the time of declaration of the appointed date, the deduction of substantial amount from the bills of the petitioner towards liquidated damages, alleged losses sustained by the petitioner on account of prolongation of the work etc.
Disputes having arisen between the parties, the petitioner invoked the conciliation proceedings before the Authority’s Engineer in terms of the Article 26.2 of the EPC Agreement. Evidently, the attempt on the part of the petitioner to resolve the disputes through conciliation, did not meet with any success and the conciliation failed.
It was the contention of the petitioner that thereafter, the petitioner sought redressal of the disputes between the parties through arbitration. The petitioner proposed that the disputes be adjudicated by a three-member arbitral tribunal in accordance with the A&C Act, 1996 and sought to appoint the nominee arbitrator. The petitioner admittedly did not take recourse to the rules of the arbitration of the “Society for Affordable Redressal of Disputes (SAROD)” provided under Article 26.3 of the EPC Agreement on the ground that in Rule 4.4 of the SAROD Arbitration Rules, it has been specifically provided as under :- “4.4 Primary Membership of SAROD shall be a pre-requisite for invoking arbitration under these Rules.”
A Single Bench of Justice Sachin Datta observed that “I find merit in the contention of the petitioner that an arbitration agreement under which the parties agree on conducting arbitration as per rules of a particular arbitral institution, cannot be construed as subsuming within it, an additional obligation to become member/s of that arbitral institution. Becoming a member of an arbitral institution, which is a society registered under the Societies Registration Act, 1860, carries with it additional obligation/s which has nothing to do with the agreement between the parties to arbitrate.”
“Such an obligation cannot be insisted as a prerequisite for taking recourse to arbitration. In the present case, insistence on the part of the SAROD that the parties must take membership of SAROD as a pre-condition for taking necessary steps to constitute an arbitral tribunal as per its rules, impinges on the validity of the appointment procedure; amounts to failure to perform the function entrusted to the concerned institute under the procedure agreed to by the parties, and consequently attracts Section 11(6)(c) of the A&C Act, 1996 and making it incumbent on this Court to take requisite steps to constitute the arbitral tribunal” the Court noted.
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