Palghar Road Project Private Limited vs. The State Of Maharashtra

Facts

Palghar Road Project Private Limited (Petitioner) entered into a concession agreement dated 08.08.2018 with the State of Maharashtra (Respondent) for a road construction project. The project cost was Rs.198.20 Crores excluding GST. Payments were to be made upon completion of five milestones, with 60% of the bid project cost payable upon milestone completion and the remaining 40% in biannual installments. The Petitioner claims the Respondent failed to pay GST on milestone payments. The Petitioner sent multiple letters between May 2020 and April 2024 requesting payment of GST. Receiving no response, the Petitioner invoked arbitration on 21.05.2024 under Clause 38.3 of the agreement, arguing the pre-arbitration conciliation mechanism was not mandatory and proposing a sole arbitrator instead of a three-member tribunal. The Respondent replied on 10.06.2024, refuting the GST claims.

Held

The Court held that the pre-arbitration conciliation clause (Clause 38.2) in the concession agreement is directory and not mandatory. Relying on precedents such as Demarara Distilleries Pvt. Ltd., Ravindra Kumar Verma v. BPTP Ltd., Ranjit Construction Company v. Gujarat State Road & Building Department, and Jhajharia Nirman Ltd. v. South Western Railways, the Court found that in the absence of a formal protocol or stipulated time period for amicable resolution, pursuing such avenues would not yield worthwhile results. The Court also noted that the appointment of an arbitrator would not prevent amicable resolution if it became possible. Furthermore, the Court held that it has the power to appoint a sole arbitrator even if the arbitration clause envisages a three-member tribunal, citing Union of India (UOI) vs. Singh Builders Syndicate and M/s Twenty Four-Secure Services Pvt. Ltd. v. M/s. Competent Automobiles Company Limited. Consequently, the Court appointed Mr. Justice (Retd.) Vineet Saran as the Sole Arbitrator to adjudicate the disputes. Objections regarding jurisdiction and arbitrability are to be raised before the Arbitrator. The seat of arbitration is Delhi, but Mumbai may be used as a venue. The Court made no expression on the merits of the case.

Key Issues

1. Whether the pre-arbitration conciliation mechanism under Clause 38.2 of the concession agreement is mandatory, thereby barring the initiation of arbitral proceedings in the absence of its exhaustion? (Question of law, turning on Clause 38.2 of the concession agreement). Petitioner's arguments: The Petitioner contended that the conciliation clause is directory, not mandatory, citing judgments like Demarara Distilleries Pvt. Ltd. and Ravindra Kumar Verma v. BPTP Ltd. They argued that their attempts to resolve the dispute amicably had failed due to the Respondent's lack of response, and that further conciliation would be futile. They also argued that the agreement did not specify a formal protocol or time period for conciliation before arbitration could be invoked. Respondent's arguments: The Respondent's arguments are not explicitly recorded in the provided text regarding the mandatory nature of the conciliation clause. However, their refusal to pay GST and their reply refuting the claims suggest a dispute on the merits of the Petitioner's claims.