Overview of Judgments Relating to Multi-tier Dispute Resolution Mechanism for Contractual Disputes in India

Author: Manisha Kalra.

Resolving disputes by inserting multi-tier dispute resolution clauses in Contracts is one of the techniques of resolving the dispute through Alternative Dispute Resolution (ADR) models. In Contractual Dispute matters the amount which is at stake is usually amounts to huge investment. Moreover, trying to solve it first to non-adjudicatory methods is one of the best ways of resolving dispute.

The Multi-tier dispute resolution mechanism includes the stages of dispute resolution starting with Negotiation, then Mediation, then Conciliation, then Arbitration, and final option is Litigation. Basically it includes method of trying to resolve the dispute first through non-binding or non-adjudicatory methods then through binding or adjudicatory methods.

Generally parties try to resolve the dispute amicably to preserve their business relations and then if the dispute doesn’t get resolved then they can go for multi-tier dispute resolution mechanism. The advantage of multi-tier dispute resolution mechanism is to reap the benefits of non-adversarial dispute resolution mechanism over the adversarial dispute resolution mechanism. On the other side it has disadvantage like it is ultimately depends on the acceptance or rejection of the agreement signed by the parties.¹)

In this article author has discussed few important judgments relating to multi-tier dispute resolution mechanism for contractual disputes in India.

Judgements relating to Multi-tier Dispute Resolution Mechanism in India

There is diversity in Judgements delivered by the Indian Courts regarding the enforceability, waiving or non-compliance of escalating tiers in a specified manner. One of the main contentions is regarding the enforceability of the second or subsequent tiers sated in the agreement.

In case of Nirman Sindia v. Indal Electromelts² the questions were addressed by the Kerala High Court in which the it was stated in the contract that in case of any dispute arise it will be first referred to an Engineer (also Adjudicator) and if dissatisfied with his decision then the dispute will be resolved through Arbitration. The Applicant without following or exhausting the first tier (Engineer clause) contented that “since the contract was unilaterally and illegally terminated” by the Respondent; in this case that the first dispute will be brought before an Engineer also comes to an end. The Court by rejecting this contention and dismissing the application of appointment of an Arbitrator stated that without exhausting/ resorting to the 1^st tier the parties can’t jump to the 2^nd tier or the final tier of dispute resolution mechanism which was agreed between them while framing the agreement. 

In case of M/s Simpark Infrastructure Pvt. Ltd. v. Jaipur Municipal Corporation³ similar approach was adopted by the Rajasthan High Court by stating that parties first try to solve dispute amicably through Conciliation and if doesn’t succeed then go for Arbitration.

In Sunil Manchanda v. Ansal Housing and Construction Ltd.⁴ the condition precedent before going for Arbitration was discussion between the parties will take place and it should be initiated within 15 days from the arise of dispute and failure to the Conciliation the parties shall refer to the sole Arbitrator. “The application before the Court for appointment of Arbitrator & was also asked to deliberate upon the nature of its appointing power under Section 11 of the Arbitration and Conciliation Act, 1996 that whether its judicial power resulting in an adjudicatory order or a mere appointing power”. The Court after applying the judgement given in Konkan Railway Corp. Ltd. v. Rani Construction (P) Ltd.⁵ stated that it was “not obliged to examine the question as to whether the procedure prescribed in the arbitration agreement has, in fact, been followed before the invocation of the arbitration and seeking appointment of the arbitrator…”.

In Sushil Kumar Sharma v. Union of India⁶, the Supreme Court held that case where the parties agreed that the dispute resolution clause is mandatory with regard to the steps preceding arbitration that procedure must be followed and if not followed the Arbitral tribunal will not have any jurisdiction to entertain such disputes.

In case of Visa International Ltd. v. Continental Resources (USA) Ltd.⁷ the pre-condition stated in the contract was that an attempt should be made to settle the dispute in an amicable way before going for Arbitration. The Supreme Court held that the communication through letters and correspondences took place between the parties after the dispute have arisen is the proof that the dispute can’t be settle amicably and thus it is pre-condition is complied with.

In case of Swiss Timing Ltd. v. Commonwealth Games 2010 Organizing Committee ⁸, the subject clause in the contract which came before the Supreme Court contemplated that “parties seeking to resolve a dispute must notify the existence and nature of the dispute to the other party and thereon should use their respective reasonable endeavors to negotiate to resolve the dispute.” The Supreme Court stated that various discussion has taken place on the subject matter of dispute and it is a proof that the parties have tried to negotiate the matter and tried to resolve the dispute through it.

In case of Ravindra Kumar v. BPTP Limited⁹, the Delhi High Court took a divergent view by stating that the multi-tier dispute resolution mechanism should not bar filing proceedings to refer a matter to Arbitration. Further the Court relied on Section 77 of the Arbitration and Conciliation Act, 1996 which states that “in spite of conciliation proceedings going on, the existence of the same will not prevent any of the parties to exercise its rights in accordance with the law”.

In S Kumar Construction Anr v. Municipal Corporation¹⁰, the full bench of the Bombay High Court decided on the issue of prior compliance with pre-arbitration procedures as negative. The Court stated that such cases will depend on the clauses in the contract are worded their language and then it will be decided on a case to case basis by looking at the facts of the case. “The Court didn’t specifically hold that all pre-arbitration procedures are optional, instead opining that it could be essential if the tribunal felt so depending on the language of the clause.”

Conclusion

It can be seen that there is no similarity in judgements given by various Courts of India as some state that following the pre-conditions is mandatory while in some cases the acts of parties proved that the necessary steps were taken to resolve the dispute amicably. Further it can be said that till date it is not clear in India that pre-conditions to Arbitration is mandatory in nature or just directory. There is still no straight forward rule which can be followed to solve the cases as still there is difference of opinions in the enforcement of multi-tier dispute clause.

1. Shivek Sahai Endlaw, MULTI-TIER DISPUTE RESOLUTION CLAUSES AND THEIR ENFORCEABILITY IN INDIA, available at https://ijlpp.com/multi-tiered-dispute-resolution-clauses-and-their-enforceability-in-india/. (visited on 24-05-2022[↩]
2. 1999 SCC OnLine Ker 149.[↩]
3. 2012 SCC OnLine Raj 2738.[↩]
4. (2004) 3 Arb LR 100 (Del).[↩]
5. (2000) 8 SCC 159.[↩]
6. (2005) 6 SCC 281.[↩]
7. 2009 2 SCC 55.[↩]
8. 2014 6 SCC 677.[↩]
9. 2014 SCC Online Del 6602.[↩]
10. 2016 SCC OnLine Bom 13324.[↩]