Gujarat High Court: Issuance of 'No Claim Certificate' Doesn't Prima Facie Render Dispute Non-Arbitrable

Gujarat High Court: Issuance of 'No Claim Certificate' Doesn't Prima Facie Render Dispute Non-Arbitrable

The Gujarat High Court approved a Section 11 application under the Arbitration and Conciliation Act, facilitating the appointment of an arbitrator. The court dismissed the respondent's argument that the dispute had lost its arbitrability due to the petitioner's issuance of a 'No Claim Certificate,' which allegedly rendered the dispute stale.

The bench reiterated that its role was limited to a prima facie assessment, as per the general rule of law, and emphasized that the decision on arbitrability primarily falls within the ambit of the arbitrator.

The agreement between the petitioner, Poll Cont Associates, and the respondent, Narmada Clean Tech Ltd., included an arbitration clause. Disputes arose between the parties, prompting the petitioner to issue a notice regarding a claim to the respondent. The respondent disputed the claim and initiated a suit under Section 8 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). The Senior Civil Judge, Ankleshwar, allowed the Section 8 application, referring the dispute to arbitration.

Subsequently, the petitioner requested the respondent's consent for the appointment of an arbitrator from the suggested list. However, the respondent contested the notice, arguing that the petitioner had previously issued a 'No Claim Certificate' and accepted the payment as per the contract terms. As a result, the claims were now considered barred, rendering the dispute non-arbitrable at such a late stage.

In response to this contention, the petitioner filed an application under Section 11 of the Arbitration Act in the High Court of Gujarat, seeking the appointment of an arbitrator.

Initially, the High Court dismissed the respondent's argument that the disputes had become ineligible for arbitration due to its staleness. The court invoked the 'Eye of the Needle' principle established by the Supreme Court in NTPC Limited v. SPML Infra Limited. This principle dictates that the court's jurisdiction under Section 11(6) of the Arbitration Act is exceedingly narrow, entailing only two inquiries. The primary inquiry concerns the existence of an arbitration agreement between the parties, which includes examining the question of privity of contract. The secondary inquiry involves determining the arbitrability of the dispute. The High Court clarified that, as a general rule, the determination of arbitrability lies within the arbitrator's jurisdiction. Nonetheless, the referral court may reject claims that are prima facie and evidently non-arbitrable.

Consequently, the High Court focused solely on determining the presence of an arbitration agreement and the existence of a privity of contract between the applicant and the respondent. With respect to the arbitrability of the dispute, the High Court affirmed that the arbitral tribunal will be the most suitable authority to make such a determination. It reiterated that even in cases of the slightest doubt, the standard practice is to refer the dispute to arbitration.

The court observed that, on a preliminary examination of the evidence, it cannot be definitively concluded that the dispute is non-arbitrable or that the petitioner's claim has become stale due to the issuance of a 'No Claim Certificate'. It is evident that the petitioner continued to pursue the dispute by issuing a notice of claim. The arbitration application under Section 11(6) was filed subsequent to the dismissal of the commercial suit and the respondent's refusal to respond to the notice under Section 21 of the Arbitration and Conciliation Act, 1996.

Consequently, the petition was granted, and Mr. Ashutosh J. Shastri, a former judge, was appointed as the sole arbitrator to adjudicate the disputes between the parties in accordance with the Arbitration Centre (Domestic and International), High Court of Gujarat Rules, 2021.