Another decision on The Importance of Following the Contractual Dispute Resolution Mechanism Before Arbitration: (Sobha Ltd v Nava Vishwa Shashi Vijaya & Ors)1
Following our summary of the Chhattisgarh High Court decision in Devanshi Construction v. Central Public Works Department, Region Bhopal, the Karnataka High Court has also held that when the parties have contractually agreed to a dispute resolution mechanism, then this must be followed before arbitration is invoked.
The defendant issued a work order for construction work in favour of the plaintiff, who completed the construction work and handed over possession to the defendant. However, the defendant failed to pay the balance amounts due despite repeated requests.
The plaintiff issued an arbitration notice to the defendant and its directors, even though the dispute resolution clause stated: “In the event of any dispute arises out of this work order, which could not be settled through conciliation between the parties concerned, shall be referred to the sole arbitrator...”.
The defendant did not respond to the arbitration notice so the plaintiff approached the Karnataka High Court for the appointment of an arbitrator.
The Karnataka High Court held that the dispute resolution clause makes it clear that parties are to attempt settlement by way of conciliation before referring a dispute to arbitration. The correspondence demonstrated that the plaintiff had made no effort to commence conciliation proceedings before issuing the arbitration notice, and the invocation of arbitration was therefore premature.
The Court followed the view taken by the Supreme Court in MK Shah Engineers & Contractors v State of MP2 which held that the contractual dispute resolution mechanism cannot be truncated so as to immediately invoke arbitration.
The Judgment reinforces that adherence to the contractual dispute resolution mechanism is mandatory and cannot be circumvented.
1. Judgment dated 10 June 2022 passed by the Karnataka High Court in CMP No. 24 of 2022.
2. MK Shah Engineers & Contractors v State of MP (1999) 2 SCC 594.
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