M S A K Builders vs. Greater Mohali Area Development Authority Gmada

Facts

The petitioner, M/s A.K Builders, filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator. The petitioner and respondent, Greater Mohali Area Development Authority (GMADA), had an agreement with an arbitration clause. Disputes arose, and the petitioner submitted them to GMADA on August 2, 2024. The Divisional Engineer rejected the disputes on August 29, 2024. The petitioner then requested the appointment of an arbitrator on September 5, 2024, and again on November 19, 2024. The petitioner proposed a panel of independent arbitrators on March 8, 2025. GMADA referred only one dispute concerning the reimbursement of increased GST to an arbitrator, Sh. Deva Pampapathi Reddy IAS (Retd.), on April 3, 2025. The petitioner stated that an award was passed for this dispute, but other disputes were not referred for arbitration.

Held

The Court held that the pre-requisites for invoking power under Section 11(6) of the Arbitration and Conciliation Act, 1996, were satisfied. The Court found that Clause 25(v) of the arbitration agreement, which stipulated that disputes be referred to the Superintending Engineer of GMADA, was in direct contravention of Section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, 1996. This contravention rendered the provision for an arbitrator from within the respondent authority invalid, necessitating the appointment of an independent and impartial arbitrator. The Court relied on the principles laid down in Vidya Drolia Vs. Durga Trading Corporation and NTPC Ltd. Vs. SPML Infra Ltd., emphasizing that while the Arbitral Tribunal is generally the preferred authority to decide questions of non-arbitrability, the Court can interfere at the Section 11 stage if the arbitration agreement is manifestly and ex facie invalid. The Court allowed the application and appointed Mr. Justice Viney Mittal, former Judge of the High Court, as the Sole Arbitrator to adjudicate the dispute. The Arbitrator was granted the liberty to determine jurisdiction and rule on objections, including those concerning the existence or validity of the arbitration agreement, in accordance with Section 16 of the Act.

Key Issues

1. Whether the arbitration clause in the agreement, specifically Clause 25(v) referring disputes to a Superintending Engineer of GMADA, is in contravention of Section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, 1996, thus requiring the appointment of an independent arbitrator? Petitioner's arguments: The petitioner argued that Clause 25(v) of the agreement, which mandates referral of disputes to a Superintending Engineer of GMADA, is in direct contravention of Section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, 1996. This provision renders the arbitration agreement invalid due to the likelihood of bias or lack of independence, necessitating the appointment of an independent arbitrator by the Court. Respondent's arguments: The respondent, GMADA, stated that they have no objection to the appointment of an independent arbitrator. They did not dispute the execution of the arbitration agreement, the exhaustion of remedies by the applicant under the arbitration clause, the service of notice, the arbitrability of the dispute, or that the cause of action was not stale.