Calcutta High Court Rules on Dispute Resolution by Expert Versus Arbitration

 

Introduction

In a pivotal judgment, the Calcutta High Court clarified the distinction between settlement of disputes by an expert and arbitration, emphasizing the necessity for clear intention to submit disputes to arbitration in contractual clauses. This ruling impacts how contracts should be drafted to ensure proper legal interpretation and application.

Case Background

The case involved a dispute between Mr. Birendra Bhagat and Arch Infra Properties Private Limited regarding a contract for constructing a residential complex. Bhagat sought recovery of approximately Rs. 6.68 crore, alleging breach of contract by Arch Infra Properties due to delayed payments and unfulfilled obligations. Bhagat filed a suit for recovery, while Arch Infra invoked the arbitration clause in the contract, seeking to resolve the dispute through arbitration as per the Arbitration and Conciliation Act, 1996.

Disputed Clauses

The contentious clauses, 29(a) and 28(a), titled “Disputes/Arbitrations,” pertained to resolving disputes regarding work quality, materials, and drawings by the architect's decision. Bhagat argued that these clauses did not constitute arbitration agreements but were mechanisms for resolving disputes related to work execution, contending that the architect was biased due to connections with Arch Infra.

High Court's Analysis

Justice Shampa Sarkar, examining the clauses, noted that they established an internal mechanism for dispute resolution rather than referring disputes to an independent arbitrator. Clause 29(a) specifically mentioned that the architect's decision on disputes related to work quality, materials, and drawings would be binding, which the court interpreted as an in-house resolution process.

The court emphasized that for a clause to be considered an arbitration agreement, it must reflect a clear intention to refer disputes to an independent tribunal. The absence of specific terms like "arbitrators" or "arbitration agreement" does not preclude a clause from being an arbitration agreement, but it must demonstrate the parties' intention to submit disputes to an independent adjudicative process.

Supreme Court Precedent

The High Court referred to the Supreme Court's decision in Jagdish Chander vs. Ramesh Chander and Ors. (2007), which held that the fundamental attributes of an arbitration agreement include a clear intention to refer disputes to an independent arbitrator. The court found that the clauses in question lacked these attributes, focusing instead on quality-related disputes and the architect's role in resolving them, without encompassing all present and future disputes or involving an independent tribunal.

Expert Determination vs. Arbitration

The court distinguished between arbitration and expert determination, noting that arbitration involves a tribunal applying the law to the evidence and submissions of the parties, whereas expert determination involves an expert making decisions based on their own enquiries and expertise. The clauses in question were deemed to reflect the latter, aimed at facilitating project execution rather than resolving legal disputes.

Conclusion and Implications

The High Court concluded that Clauses 29(a) and 28(a) of the contract did not constitute arbitration clauses, leading to the reversal of the Commercial Court's decision that had referred the parties to arbitration. This ruling highlights the importance of drafting clear and precise arbitration agreements in contracts to ensure that disputes can be resolved through arbitration if intended by the parties.

This judgment underscores the need for clarity in contractual dispute resolution clauses, ensuring that parties explicitly state their intention to arbitrate if that is their preferred method of dispute resolution.

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