Overview
In this case, the Jammu and Kashmir and Ladakh High Court considered whether the disputes which arise from a construction contract can be referred to arbitration when the respondents had objected to the contractor’s default, earlier proceedings, payments, and another arbitration application.
The Court had to examine the scope of powers of a referral court under Section 11(6) which is read with Section 11(6A) of the Arbitration and Conciliation Act 1996 (the Act). It also had to consider whether as per the contract, the appointment of an arbitrator could be made when the Managing Director of SIDCO, an employee of the respondent, was named as the sole arbitrator or permitted to nominate one.
It also considered whether an independent arbitrator could be appointed when that mechanism was invalid.
Facts of the Case
Abraq Infrastructures LLP, the petitioner herein, was given the contract for construction of NIFT, Package III, Budgam, following an allotment which was made on 17 November 2017. The execution of the agreement happened on 16 August 2018, for ₹43,99,92,907.
It was alleged by the petitioner that due to continuous interference by the Department of the respondent and variations in work, certain disputes arose. Due to this, the contract was terminated on 5 February 2024.
Following the same, the respondents issued NITs on 10th February and 21 June 2024, for the remaining work.
The petitioner issued a Section 21 notice under the Act on 18 December 2025, while invoking Clause No. 34 of the agreement. There was no reply by the respondents.
The petitioner challenged the same before the Commercial Court. On 18 April 2026, two writ petitions were taken back with the liberty to invoke arbitration.
The respondents alleged before the Court that the petitioner had not completed the work, had been paid for the work which was executed and was restricted by res judicata and estoppel due to earlier proceedings.
Legal Issues
- Whether the Court should appoint an arbitrator under Section 11(6) when the arbitration agreement was undisputed.
- Whether disputes as to default, payment, prior proceedings and arbitrability should be decided by the Court or the Arbitral Tribunal.
- Whether the SIDCO Managing Director or his nominee could act as an arbitrator under Clause 34(II).
Decision
The High Court allowed the petition and Mr. Mehrajud-Din Sofi, Rtd. District and Sessions Judge was appointed as the Sole Arbitrator.
It was held by the Court that at this stage of Section 11, the examination was limited to the prima facie existence of a valid arbitration agreement. Questions as to the alleged default of the contractor, satisfaction, limitation, and earlier proceedings were left for the Tribunal to decide under Section 16 of the Act.
The Court further held that the SIDCO Managing Director was an employee of the respondent and was therefore ineligible to act as an arbitrator.
Following the case of TRF Ltd. v. Energo Engineering Projects Ltd. and Perkins Eastman v. HSCC Ltd., the Court held that an arbitrator who is ineligible cannot nominate another arbitrator. Clause 34(II) was rendered unworkable, requiring appointment of an independent arbitrator under Section 11(6).
