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TMI Blog2025 (5) TMI 1123X X X X Extracts X X X X X X X X Extracts X X X X ..... s alleged ambiguity has led to protracted litigation before multiple fora. 3. To further contextualise, the private contractors assert that these dispute resolution clauses necessarily mandate arbitration; whereas the Municipal Corporations contend that they be construed as those prescribing mediation. A. FACTS 4. We deem it necessary, at this juncture, to delve into the facts giving rise to this controversy. While the factual matrices differ in detail, they converge on a common interpretative dissonance concerning the dispute resolution clauses. Consequently, although the distinct contextual backgrounds of these three legal proceedings may not be directly determinative of the ultimate adjudication, we have nonetheless set them out briefly, in seriatim, for clarity and completeness. 5. South Delhi Municipal Corporation v. SMS Limited [SLP (C) No. 16913/2017] (SMS Ltd. Case) 5.1. The Municipal Corporation of Delhi (MCD) executed a Concession Agreement with the Respondent, SMS Ltd. on 24.04.2012, for the construction of a multi-storeyed parking facility at Defence Colony, New Delhi, on a Design, Build, Finance, Operate, and Transfer (DBFOT) basis. Subsequently, the MCD was trifu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition was based on erroneous legal advice. Its novel position was that Article 20 of the Concession Agreement indubitably constituted an arbitration clause. On this basis, SMS Ltd. made further representations, seeking additional refunds and the appointment of an arbitrator. In response, SDMC, by its letter dated 23.09.2016, rejected SMS Ltd.'s request for arbitration as untenable. SDMC maintained that the meeting on 18.02.2014 had been convened by the Commissioner in pursuance of the mandate laid down by Article 20, which they understood to be as a clause prescribing mediation. It added that since the two parties had already concluded a negotiation session chaired by the Commissioner, any further claims for interest or damages were strictly precluded. 5.6. SMS Ltd. then approached the High Court by way of Arbitration Petition No. 793/2016 under Section 11(6)(a) read with Section 11(12)(b) of the Arbitration & Conciliation Act, 1996 (Arbitration Act) seeking appointment of an arbitrator. By way of the impugned judgment dated 09.03.2017, a learned Single Judge of the High Court overruled SDMC's objections, conclusively holding that Article 20 of the Concession Agreement consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y closed, apart from categorically denying the existence of any arbitration clause in the same. 6.5. Aggrieved by the MCD's refusal to accede to the arbitral process, DSC Ltd. approached the High Court by filing Arbitration Petition No. 234/2018, seeking the appointment of an arbitrator. However, vide the impugned judgment dated 29.07.2022, a learned Single Judge of the High Court dismissed DSC Ltd.'s petition, holding that Article 20 of the Concession Agreement provided for mediation, not arbitration. Furthermore, the High Court declined to follow the Co-ordinate Bench's stance in SMS Ltd.'s case, noting that it had been effectively stayed by this Court (vide order dated 07.07.2017 noted hereinabove). 6.6. The aggrieved DSC Ltd. has preferred this appeal, wherein notice was issued by this Court vide order dated 07.12.2022. 7. Municipal Corporation of Delhi v. M/s Consolidated Construction Consortium Limited [SLP (C) No. 17510/2023] (CCC Ltd. Case) 7.1. As in the previous instances, here too the MCD awarded a Concession Agreement on 30.07.2010 to M/s Consolidated Construction Consortium Limited (CCC Ltd.) pursuant to a tender issued for the development of a multi-level automate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; ii) a statement of that party's position; and (iii) copies of relevant documentary evidence in support of such position. Section 20.2 Performance during Dispute Resolution Pending the submission of a dispute, controversy or claim to the officer appointed by the MCD and thereafter until the final decision of the officer appointed by the MCD, as the case may be, the parties shall continue to perform all of their obligations under this Agreement, without prejudice to a final adjustment in accordance with such decision. Section 20.3 Survival The provisions relating to indemnification contained in Section 15.2, intellectual property contained in Section 18, confidentiality contained in Section 19.1 and the dispute resolution provisions contained in this Article 20 shall survive the termination of this Agreement." 9.2. Secondly, in the DSC Ltd. Case, Article 20 provides as follows: "ARTICLE 20: DISPUTES In the event that any dispute, controversy or claim arises among the Parties in connection with or under this Agreement or the interpretation of any of its provisions or upon the occurrence of an event of Default any party shall refer the dispute, controversy or claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to reach a decision. (g) The officer appointed by MCD shall give notice to the parties of its decision within 20 days of receipt of the documents provided by the parties pursuant to subsection (b) and (c) above. The decision of the officer appointed by MCD shall be binding. (h) The officer appointed by the MCD should give decision in writing. The decision of the MCD shall be final and binding on party..." B. CONTENTIONS 10. It is necessary for us at this juncture to delineate the contentions advanced by the rival parties. For the sake of clarity and coherence, we have categorized the submissions into two groups-(i) those made on behalf of SDMC/MCD, and (ii) those advanced by the private contractors (SMS Ltd., DSC Ltd., and CCC Ltd.). This classification reflects the evident similarities in their respective arguments, as well as the reliefs sought. 11. Mr. Sanjiv Sen, learned Senior Counsel appearing on behalf of SDMC/MCD, sought to assail the High Court's interpretation of the disputed clauses contained in Article 20 of the respective Concession Agreements as one mandating arbitration (SMS Ltd. and CCC Ltd. Cases). In the same vein, he urged in favour of upholding the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. initially issued a notice under Section 80 of the Code of Civil Procedure, 1908, which is a procedural requirement before instituting a civil suit, thereby contradicting its later assertion that an arbitration agreement existed. DSC Ltd. similarly misconstrued Article 20 to claim existence of an arbitration agreement, where none existed. e) The High Court's decision in CCC Ltd., rendered after this Court's unequivocal ruling in Tollways (supra), is clearly per incuriam, as it failed to consider that a similar dispute resolution clause had already been held to not constitute arbitration. Furthermore, the High Court's ruling in CCC Ltd. stands in stark contrast to its own decision in DSC Ltd., wherein the learned Single Judge correctly applied the principles laid down in Tollways (supra) and refused to read an arbitration agreement into the Concession Agreement. f) The private contractor, at all relevant times, had access to non- exclusive remedies, as expressly contemplated under Article 21 of the Concession Agreements, which recognizes the availability of remedies under applicable law (Section 21.3 of Article 21) and lays down the governing legal framework (Section 21.7 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; intent. Rukmanibai Gupta v. Collector, Jabalpur, (1989) 4 SCC 556; Punjab State v. Dina Nath, (2007) 5 SCC 28. Even in the absence of the explicit use of the words 'arbitration' or 'arbitrator', the substance of the clause determines its true character. Jagdish Chander v. Ramesh Chander and ors., 2007 (5) SCC 719. The intent to submit disputes to arbitration must be ascertained from a holistic reading of the contract rather than an isolated textual analysis of Article 20. MTNL v. Canara Bank, 2020 (12) SCC 767. c) The conduct of the MCD in similar contractual arrangements contradicts its present stance. In a comparable dispute, SMS Parking Solutions Private Limited v. North Delhi Municipal Corporation, Arb. P. 166/2017. the MCD had previously admitted that an analogous clause amounted to an arbitration agreement and even participated in arbitral proceedings, resulting in an arbitral award in its favour. The MCD cannot now be permitted to approbate and reprobate, adopting contradictory positions at its convenience. Such an inconsistent stance is legally impermissible and renders MCD's present objection untenable. d) The cases in hand are factually distinguishable from To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements, constitute a valid arbitration agreement between the parties? D. ANALYSIS 14. While considering the singular issue as formulated above, we find that its analysis necessitates a two-pronged inquiry: (i) what are the necessary ingredients of an enforceable arbitration agreement; and (ii) whether Article 20 of the subject-Concession Agreements contain those ingredients. D.1 What are the ingredients of an arbitration agreement? 15. We must first explicate what a valid arbitration agreement contains under Indian law, as we are sufficiently cognizant of the factum that an agreement for arbitration is the sine qua non for invocation of the arbitral process-as is prayed for by the private contractors in the instant appeals. D.1.1. The Indian Position 16. The Indian statutory framework governing arbitration gains primacy in our quest to untie the knot projected by the parties before us. The Arbitration Act serves as the principal legislation which forms a holistic code on the subject. Since its enactment back in 1996, it has been supplemented by several key Amendments, in the years 2015, 2019, and 2021. These changes have been a consistent endeavour to grant greater autonomy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y approach is one which prioritises substance over form in the case of valid arbitration agreements, which ultimately culminate in an arbitral award, enforceable under Section 36 of the Arbitration Act. 21. In the decisions cited by the parties before us, it is evident that this Court has consistently attempted to de-fog the surroundings of a proper arbitration clause, to make its precise form and substance more discernible. For instance, in Encon Builders (supra), this Court held that the essential elements of an arbitration agreement comprise the parties' consensual intent to settle a present or future difference through a private tribunal, and that such a decision would be binding upon them. In other words, consensus and intent of both parties is given elaborate weightage in the determination of an arbitration agreement. 22. K. K. Modi (supra) adroitly consolidated and reiterated the law relating to arbitration agreements, and held as follows: "17. Among the attributes which must be present for an agreement to be considered as an arbitration agreement are: (1) The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. Section 5 thereof stipulates that an arbitration agreement must be in writing, while Section 6(1) defines such an agreement as one under which parties agree to submit present or future disputes to arbitration. This Act does not expressly require that the legal relationship be contractual; however, the context of a defined relationship is presumed. 26. In the United States of America, the Federal Arbitration Act, 9 U.S.C. § 2, provides that an arbitration clause must be in writing and contained within a contract involving commerce. The provision must also evince the parties' agreement to submit future disputes to arbitration. While the Federal Arbitration Act applies primarily to inter- state commerce, in purely domestic contexts, several States within the United States have enacted complementary statutes mirroring its core requirement of a written agreement to arbitrate disputes arising from a contractual relationship. 27. The Arbitration Act (Cap. 10) in Singapore governs domestic arbitrations and requires an arbitration agreement to firstly be in writing. The agreement must pertain to disputes arising from a defined legal relationship, contractual or otherwise, and mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncourage clarity in these respects to ensure legal certainty. The agreement should allow for party autonomy in the appointment of arbitrators and procedural conduct, subject to statutory safeguards. The adversarial process, which inheres in the institution of arbitration, must also be given due credence via provision for an impartial adjudicatory body, whose decisions involve deference to the principles of natural justice. 31. We may, however, hasten to add that the aforementioned elemental test is a conjunctive one, and not a disjunctive one. In other words, all the elements identified hereinabove must co-exist, apart from being duly proven by the party which seeks to assert that an arbitration agreement subsists. 32. Consequently, it stands clarified that a dispute resolution clause may only rise to the level of a valid arbitration clause or agreement when it signifies a clear intent to arbitrate, entails a binding adjudicatory process, and contemplates compliance with general arbitral norms. D.2. Does Article 20 of the subject-Concession Agreements constitute an arbitration agreement? 33. The second limb of this issue, concerns the consideration of the facts and circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles cannot be stretched so far so as to make them wholly unworkable. It is inconceivable to us as to why two parties, who are ad idem in wanting to settle their disputes through arbitration, would label the dispute resolution clause in such a befuddling manner. The title of the clause (Section 20.1 of Article 20) unequivocally indicates a non-adjudicatory and conciliatory process rather than an arbitration mechanism. (b) What adds fuel to the fire is the conspicuous absence of the words 'arbitration' or 'arbitrator' from the dispute resolution clauses. Even the expression `Arbitration Act' is itself entirely missing. These terms are generally included in arbitration agreements to reflect the parties' true intention. (c) Moreover, the reference is to the 'Commissioner, MCD,' rather than to an arbitral tribunal or an independent third-party adjudicator. This suggests an internal dispute resolution mechanism rather than an external arbitration forum. (d) The DSC Ltd. and CCC Ltd. agreements introduce further procedural details, such as the officer calling for additional documents and conducting interviews. However, none of these procedural steps alter the fundamental natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Arbitrator Appointment 44. Clearly, in the facts of the instant appeals, the officer who decides the dispute(s) is appointed exclusively by MCD/SDMC, with no input from the other contracting party, i.e. the private contractors. In contrast, valid arbitration agreements invariably provide for a mutually agreed- upon arbitrator or an independent appointing authority, such as a Court or an arbitral institution lest they run afoul of the settled principles of bi-partisanship and equality. D.2.3.2. Adversarial Process 45. In Encon Builders (supra), this Court held that arbitration must be a structured adjudicatory process, where parties are afforded the opportunity to argue their case before a neutral and independent decision-maker. In our considered opinion, Article 20 lacks such an inquiry. It is admitted that there are no provisions for (i) oral hearings; (ii) examination and cross-examination of witnesses; and (iii) application of formal rules of evidence or procedure in the impugned clauses. The appointed officer merely reviews written submissions and, at most, may seek additional documents or conduct interviews. 46. We have thus no hesitation in holding that Article 20 lac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... element that lends arbitration its distinct credibility as an adjudicatory mechanism. It is not an arbitration clause either in letter, or in spirit and effect. Its ambiguity and lack of procedural integrity have, if anything, resulted in greater litigation rather than expeditious resolution, thereby undermining the very purpose of arbitration. 51. Accordingly, we hold that Article 20 does not constitute an arbitration agreement under the Arbitration Act. The impugned judgments of the High Court in the cases SMS Ltd. and CCC Ltd., dated 09.03.2017 and 02.11.2022 respectively, which construed it as such, are set aside. The view taken in DSC Ltd. vide judgment dated 29.07.2022, which correctly rejected arbitration, is affirmed. 52. We may also clarify that the controversy this Court was faced with in Tollways (supra) was broadly similar to the instant appeals. The dispute resolution clauses in Tollways (supra) and the present cases both evidently lack the ingredients that we have comprehensively set out hereinabove. Consequently, we see no reason to take a different view than the one taken by a Co-ordinate Bench of this Court in Tollways (supra), which is hereby reiterated. E. EPI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution but for want of a decision on how to resolve. 58. This willful and wanton wastage of judicial time is similarly a practice that is highly deplorable, to say the least. It is high time that arbitration clauses are worded with piercing precision and clarity, and that they are not couched in ambiguous phraseology. This is a responsibility and onus that every legal counsel, advisor, and practitioner must shoulder most dutifully. We would, in fact, take this opportunity to advise, if not caution and warn, the legal fraternity against engaging in such practices which result in a criminal wastage of precious judicial time. Indeed, their professional credentials will not earn any stripes if they indulge in such juggling of words. 59. Equally, the Courts or judicial fora of our country-as a matter of judicial best policy-must show an unwavering tendency towards rejecting shoddily drafted clauses at the very threshold. Such cases, which prima facie disclose mala fides woven into the very Agreement they seek adjudication over, must be thrown out of the Court, as they have been indulged for far too long. We would complementarily urge the Courts to invoke their suo moto powers in a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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