Sanchayita Lahkar

The High Court of Telangana Single Bench of Justice K. Lakshman has allowed an application under Section 11 of the Arbitration and Conciliation Act, 1996, for the appointment of an arbitrator to resolve disputes arising out of a contract for setting up industrial infrastructure. The Court held that the arbitration clause in the contract remained enforceable despite the designated institution becoming defunct. Accordingly, the Court appointed a sole arbitrator to adjudicate the matter and dismissed the objection that the application was premature or procedurally flawed.

The applicant, a company incorporated under the Companies Act, 1956 and engaged in the design, engineering, and supply of steel plant equipment, had entered into a contract with the respondent on 28 April 2017 for setting up a Single Stand Reversing 4-HI Wide Plate Hot Rolling Mill for rolling plates (Phase-I) at the respondent’s premises in Hyderabad.

Also Read: Supreme Court Quashes FIR Filed By Woman Alleging Husband Lied About His Job | Finds Allegations Extraneous And No Offence Made Out

The contract encompassed the design, engineering, manufacture, and supply of plant and equipment, including technological structures and associated civil and structural works. As per Clause 4 of the Special Conditions of the Contract, delivery of equipment was to begin by the 15th month and conclude by the 24th month from the effective date. The erection and commissioning were scheduled between the 18th and 30th months, with a projected completion date of 28 October 2019.

The applicant claimed that the project completion was delayed by 26 months due to reasons attributable to the respondent, including delays in civil and structural works, readiness of utilities and cranes, late equipment delivery, slab unavailability, and complications caused by the dengue outbreak, COVID-19 pandemic, flooding, and fire damage. These factors, the applicant stated, led to increased costs and rescheduling.

The parties held discussions to align timelines and efficiency. Subsequently, the provisional acceptance certificate (PAC) dates for both project phases were pushed to 28 August 2020. The respondent extended completion timelines multiple times—initially to 31 March 2021 and eventually to 30 September 2021—acknowledging the delays, but reserved the right to impose liquidated damages.

Despite partial payments made by the respondent, the applicant claimed an outstanding amount of approximately Rs. 61 million as of July 2021. The applicant also alleged that on 8 May 2023, the respondent invited tenders using its proprietary and confidential technical drawings. Final acceptance was issued by the respondent on 31 May 2023, followed by a notice of 10% liquidated damages for delay.

The applicant opposed the imposition of liquidated damages via letters dated 12 and 14 July 2023, asserting that the delays were outside its control. It then issued a notice dated 11 December 2023 invoking the arbitration clause and sought to resolve the dispute through arbitration. The absence of any response from the respondent led to the filing of the present application under Section 11(6)(c) of the Act, 1996.

The respondent contended that the applicant was responsible for delays due to poor planning, late submission of structural drawings, subpar execution, and supply delays. It defended the imposition of liquidated damages and maintained that the applicant was required to initiate proceedings with the International Centre for Alternative Dispute Resolution (ICADR) before moving the Court. The respondent also argued that it held rights over the engineering drawings submitted as part of the deliverables under the contract.

The applicant responded that ICADR was defunct and had not replied to its arbitration notice, which made approaching the Court necessary. It also pointed to earlier proceedings before the Commercial Court and a Division Bench of the High Court, where the respondent was restrained from using confidential drawings beyond operational and maintenance needs.

The Court recorded: “There is no dispute with regard to the execution of agreement dated 28.04.2017 by and between the applicant and the respondent on the specific terms and conditions mentioned therein.”

It noted: “According to both the applicant and the respondent, there was a delay in the execution of the said project.” The Court observed: “The aforesaid aspects are factual facts, arbitrable disputes which the Arbitrator has to consider.”

Addressing the validity of the arbitration clause, the Court stated: “Article - 9 of the Contract Agreement, which is referred to Clause - 40 of the General Conditions of the Contract, deals with ‘arbitration’.” It cited the clause in full, confirming that disputes must be resolved in accordance with ICADR Arbitration Rules, 1996.

Considering the respondent’s objection regarding ICADR, the Court recorded: “It is the specific contention of the applicant that ICADR is defunct.” It noted: “The institution of ICADR has now been taken over by the India International Arbitration Centre under the aegis of the Central Government.”

The Court cited the preamble of the India International Arbitration Centre Act, 2019, and concluded: “The arbitral institution designated by the parties i.e., ICADR has now become defunct and no longer exists.”

It further observed: “When the intention to arbitrate is clear from the terms of the agreement, the Courts shall give effect to such an intention.” Citing the decision in Enercon (India) Ltd. v. Enercon GmbH, the Court stated: “A common sense approach has to be adopted to give effect to the intention of the parties to arbitrate.”

In addition, the Court referred to ACC Ltd. v. Global Cements Ltd., where it was held that a new arbitrator could be appointed if the named arbitrators became unavailable. The Court noted: “Merely because the designated arbitral institution no longer exists, the intention to arbitrate cannot be left unenforced.”

Finally, the Court concluded: “It is clear from the contentions of the parties that disputes have arisen under the Contract Agreement dated 28.04.2017. The same are arbitrable in nature and have to be adjudicated by an Arbitrator.”

The Court allowed the present arbitration application. While noting that the applicant had sought the appointment of a three-member arbitral tribunal, the Court recorded that the arbitration clause in the contract did not provide for a tribunal consisting of three arbitrators.

Also Read: Bombay High Court Slams Inaction On LED Fishing Ban | Enforces Stringent Measures To Protect Marine Life And Traditional Livelihoods

Consequently, the Court appointed Sri Justice L. Nageswara Rao, Former Judge of the Supreme Court of India, as the sole arbitrator to adjudicate the disputes between the applicant and the respondent.

It further stated that, in the circumstances of the case, there would be no order as to costs. The Court also directed that any miscellaneous applications pending in the arbitration application would stand closed.

Advocates Representing the Parties

For the Petitioners: Mr. S. Ram Babu, Advocate

For the Respondents: Ms. V. Uma Devi, Advocate

Case Title: M/s Danieli India Ltd. v. Mishra Dhatu Nigam Limited

Case Number: Arbitration Application No. 266 of 2024

Bench: Justice K. Lakshman

[Read/Download order]