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Arbitration – Absence of express intention

21 April, 2014

Supreme Court of India has on 7-4-2014 held that in the absence of an arbitration clause (or intention for same) in an agreement, as defined in sub-section (4) of Section 7 of the Arbitration and Conciliation Act, 1996, the dispute between Power Transmission Corporation Limited v. Deepak Cables (India) Ltd. cannot be referred to the arbitral tribunal for adjudication. The court in this regard noted that according to Section 7, there has to be intention, expressing the consensual acceptance to refer the dispute to an arbitrator. Referring to various precedents of the court relating to circumstances when a clause in an agreement can be construed as an arbitration agreement, the court while scrutinizing clause 48 of the agreement, observed that said clause provides for the parties to amicably settle any disputes or differences and that if the same related to performance of the works, to refer to and be settled by the engineer within 30 days.

Noting that it was clear that said clause did not provide any procedure which would remotely indicate that the engineer was required to act judicially as an adjudicator, the court held that the language employed did not show the intention of the parties to get disputes adjudicated through arbitration, more so as another clause provided for settlement of disputes. It was also noted that the said clause had stipulation that the decision of the engineer in respect of matter so referred to him shall be final and binding on the parties and was required to be given effect to by the contractor who shall proceed with the works with due diligence. Further, noting that elements and attributes to constitute an arbitration clause, as stated in Jagdish Chander were absent, the Apex Court set aside the High Court judgment appointing an arbitrator.
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