Pre-Arbitral steps cannot be insisted on after termination of a contract

The Hon’ble Delhi High Court vide its judgment dated 10.01.2024 in the matter of “Mr. Gajendra Mishra vs. Pokhrama Foundation & Anr.” had the occasion to deal with whether a party can insist on resorting to pre-arbitral steps once the contract between them gets terminated.

Factual Matrix:

The Petitioner and the Respondents had entered into an agreement dated 13.11.2021 as per which the Petitioner had to set up a school at Lakhi Sarai District, Bihar upon the Respondents making certain payments to the Petitioner.

Thereafter, certain disputes arose between the parties owing to the Respondents having not cleared various bills raised by the Petitioner which eventually led to the Respondents terminating the above-mentioned agreement vide a letter dated 13.11.2022. In response thereto, the Petitioner vide its letter dated 23.11.2022 refuted the Respondents contentions and demanded payment under various heads.

However, upon the Respondents failing to make any payments to the Petitioner, the Petitioner invoked arbitration vide letter dated 03.04.2023. The Respondents in reply to the same rejected the request for arbitration stating that the Petitioner had failed to comply with Clause 52 of the agreement which contained pre-arbitral steps and in the absence of compliance of Clause 52, no party could resort to Arbitration directly.

Aggrieved, the Petitioner filed the Arbitration Petition under Section 11(6) of the Arbitration & Conciliation Act, 1996 for appointment of an Arbitrator.

Analysis:

The Hon’ble Delhi High Court vide its judgment dated 10.01.2024 allowed the Arbitration Petition and appointed an Arbitrator to decide the dispute between the parties.

The Respondents objected to the present petition on the ground that the Petitioner was obligated to comply with Clause 52 which stipulated that any disputes arising between the parties need to be referred to the project manager first for conciliation. As the Petitioner had failed to comply with the same, he cannot seek arbitration directly.

The Hon’ble Delhi High Court rejected the said contention and held that by terminating the said agreement, the Respondents had themselves let go of the pre-arbitral steps/conciliation mechanism under Clause 52. The Respondents had also not approached the project manager with the disputes before terminating the contract and hence, are now estopped from raising this objection, more so due to the fact that upon termination of the said agreement, no “project manager” exists anymore.

(VM-01-2024)