Facts of the Case

Army Welfare Housing Organisation (AWHO) awarded a construction contract to Shapoorji Pallonji and Company Private Limited for a residential project at Greater Noida. The respondent subsequently awarded the electrical works to Brilltech Engineers Private Limited under a Work Order dated 19.12.2011.

The petitioner completed the electrical works and raised running account bills. It claimed that substantial amounts towards pending bills, security deposit, and interest remained unpaid despite completion of the project. Demand notices were issued and proceedings were initiated before MSME Samadhaan and later before the NCLT under Section 9 of the Insolvency and Bankruptcy Code.

As the disputes remained unresolved, the petitioner invoked the arbitration clause and filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator. A connected petition under Section 9 of the Act sought interim protection by directing the respondent to maintain funds sufficient to secure the claim.

 

Issues Involved

  1. Whether arbitrable disputes existed between the parties despite the petitioner having earlier initiated proceedings before the NCLT.
  2. Whether filing proceedings under the Insolvency and Bankruptcy Code amounted to forum shopping.
  3. Whether the arbitration petition was maintainable without a separate notice under Section 21 of the Arbitration and Conciliation Act.
  4. Whether the disputes were liable to be referred to arbitration under Clause 13 of the Work Order.
  5. Whether interim protection under Section 9 of the Arbitration and Conciliation Act should be granted.

 

Petitioner's Arguments

  • The petitioner contended that the respondent had failed to release legitimate payments for completed work despite certification and completion of the project.
  • Clause 13 of the Work Order contained a valid arbitration agreement requiring disputes to be referred to arbitration.
  • Genuine disputes had arisen regarding unpaid bills, security deposit, and interest.
  • The respondent had wrongfully withheld payments despite receiving corresponding payments from AWHO.
  • The demand notice and subsequent correspondence sufficiently conveyed the intention to invoke legal remedies including arbitration.
  • Interim protection was necessary to safeguard the claim amount pending arbitration.

 

Respondent's Arguments

  • The respondent argued that by approaching the NCLT under Section 9 of the Insolvency and Bankruptcy Code, the petitioner had admitted that there were no arbitrable disputes.
  • It contended that the petitioner had failed to comply with the dispute resolution procedure prescribed in Clause 13 before invoking arbitration.
  • No valid notice under Section 21 of the Arbitration and Conciliation Act had been served prior to filing the petition under Section 11.
  • The petitioner had raised inconsistent claims before different forums, amounting to forum shopping.
  • According to the respondent, all payments due under the contract had already been made after permissible deductions and no amount remained payable.

 

Court Findings / Order

The Delhi High Court held that:

  • The existence of proceedings before the NCLT did not eliminate the existence of arbitrable disputes. The respondent had consistently disputed the petitioner's claims, thereby establishing the presence of genuine disputes.
  • Mere initiation of proceedings under the Insolvency and Bankruptcy Code did not amount to forum shopping since proceedings under the IBC and arbitration serve different legal purposes.
  • Although a separate notice under Section 21 was disputed, the demand notice, subsequent correspondence, and the respondent's conduct sufficiently demonstrated awareness of the disputes and the intention to resort to arbitration. The requirement of Section 21 stood substantially complied with.
  • The arbitration clause contained in Clause 13 of the Work Order was valid and enforceable.
  • The disputes were referable to arbitration.
  • Ms. R. Kiran Nath (Retired District & Sessions Judge) was appointed as the Sole Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.
  • The respondent was directed to maintain a balance of ₹99,87,760/- until adjudication of the disputes, subject to modification by the Arbitrator. Both the petitions under Sections 11 and 9 of the Arbitration and Conciliation Act were allowed.

 

Important Clarification

  • Filing proceedings under the Insolvency and Bankruptcy Code does not automatically bar arbitration where genuine disputes exist.
  • Different statutory remedies with distinct objectives can be pursued without attracting the doctrine of forum shopping.
  • A separate formal notice under Section 21 may not always be fatal where the intention to invoke arbitration has been clearly communicated and the opposite party has fully understood the dispute.
  • Courts will adopt a practical approach while examining compliance with Section 21 where parties have already engaged in extensive dispute resolution proceedings.
  • The judgment reinforces the pro-arbitration approach adopted by Indian courts while interpreting procedural requirements under the Arbitration and Conciliation Act, 1996.

Sections Involved

  • Section 9, Arbitration and Conciliation Act, 1996
  • Section 11(6), Arbitration and Conciliation Act, 1996
  • Section 21, Arbitration and Conciliation Act, 1996
  • Section 12(1) & Section 12(5), Arbitration and Conciliation Act, 1996
  • Section 9, Insolvency and Bankruptcy Code, 2016
  • Clause 13 of the Work Order (Arbitration Clause)


Link to download the order -

https://mytaxexpert.co.in/uploads/1782970139_177compressed.pdf

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