Facts of the Case

The petitioner, M/s Rajat Enterprise, filed an arbitration application seeking appointment of an arbitrator under Sections 10 and 11 of the Arbitration and Conciliation Act, 1996. The dispute arose because the respondents failed to release the payment due under the contract despite repeated reminders and notices. The petitioner invoked the arbitration clause contained in the agreement and requested appointment of an arbitrator.

During the proceedings, the respondents contended that they had already paid the outstanding principal amount along with the applicable GST after receiving the legal notice. However, the petitioner maintained that the entire claim had not been satisfied, as the outstanding interest on the delayed payment from 2018 onwards remained unpaid.

Issues Involved

  1. Whether an arbitrator can be appointed under Sections 10 and 11 of the Arbitration and Conciliation Act, 1996 when the principal amount has been paid during the pendency of proceedings.
  2. Whether a surviving dispute regarding interest is sufficient to justify reference of the matter to arbitration.
  3. Whether the existence of a valid arbitration clause mandates appointment of an arbitrator despite partial settlement of claims.

Petitioner’s Arguments

  • The agreement contained a valid arbitration clause providing for resolution of disputes through arbitration.
  • Despite repeated reminders and legal notices, the respondents failed to make timely payment.
  • Although certain payments were made after issuance of the legal notice, the respondents failed to pay the entire amount claimed.
  • The petitioner specifically asserted that interest on delayed payment remained outstanding from the year 2018.
  • Since disputes continued to exist between the parties, appointment of an arbitrator was necessary in accordance with the arbitration agreement.

Respondent’s Arguments

  • The respondents submitted that the entire outstanding principal amount of ₹25,89,689, along with GST of ₹1,55,455, had already been paid to the petitioner.
  • It was argued that, in view of such payment, no dispute survived requiring appointment of an arbitrator.

Court Order / Findings

The Rajasthan High Court observed that:

  • The agreement between the parties admittedly contained a valid arbitration clause.
  • The petitioner had invoked the arbitration clause through appropriate notices.
  • Although the respondents released the principal amount after receiving the legal notice, the petitioner continued to dispute the non-payment of interest.
  • Since the dispute regarding interest remained unresolved, a live dispute continued to subsist between the parties.
  • The existence of a surviving dispute was sufficient to invoke arbitration.
  • Accordingly, the Court allowed the arbitration application and appointed Mr. K.K. Bagri (Retired District Judge) as the Sole Arbitrator, subject to the disclosures required under Section 12 of the Arbitration and Conciliation Act, 1996 regarding independence, impartiality, and availability.

Important Clarification

  • Payment of the principal amount during the pendency of arbitration proceedings does not automatically extinguish the arbitration clause.
  • If disputes relating to interest, balance claims, or other contractual liabilities continue to survive, the Court may still appoint an arbitrator.
  • At the stage of appointment under Sections 10 and 11 of the Arbitration and Conciliation Act, the Court primarily examines whether an arbitration agreement exists and whether a genuine arbitrable dispute survives between the parties.

Sections Involved

  • Section 10 of the Arbitration and Conciliation Act, 1996
  • Section 11 of the Arbitration and Conciliation Act, 1996
  • Section 12 of the Arbitration and Conciliation Act, 1996

Link to Download the Order https://www.mytaxexpert.co.in/uploads/1785144670_2087compressed.pdf

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