J&K High Court Refers ₹34.88 Crore HRCC–ERA Dispute To Arbitration, Holds Non-Operational DRE No Bar

The Jammu & Kashmir and Ladakh High Court on 22 May held that the existence of a contractual pre-arbitration dispute resolution mechanism cannot defeat a party's right to invoke arbitration under Section 11(6) of the Arbitration and Conciliation Act, 1996, where such mechanism has not been operationalised.

A Single-Judge Bench of Justice Sanjay Dhar appointed former Chief Justice of the High Court, Justice Ali Mohammad Magrey, as sole arbitrator to adjudicate disputes between Hassan Roads Construction Company Private Limited (HRCC) and the J&K Economic Reconstruction Agency (ERA) arising from termination of a Rs. 34.88 crore infrastructure contract. It held:

“The argument raised by the learned counsel for the respondents, at its first blush, appears to be attractive but upon its detailed examination, it prima facie appears that resort to the mechanism of approaching the Adjudicator/DRE was not feasible and suitable for the petitioner in the facts and circumstances of the present case.”

The dispute arose from a contract awarded to HRCC through a letter of acceptance dated 30 June 2021 for construction of the Central Control Building for the Housing Emergency Operation Centre and SCADA System at Ompora, Budgam. The agreement was executed on 7 August 2021 at a contract value of Rs. 29.88 crore, along with a provisional sum of Rs. 5 crore.

HRCC alleged that it had completed nearly 90% of the work but delays occurred due to lapses attributable to ERA, including issues relating to approvals and procurement of electrical and mechanical components. It further raised claims for unpaid bills, variation claims, retention money, and termination-related losses.

ERA terminated the contract and proceeded to encash bank guarantees and re-tender the remaining work. It also contended that HRCC failed to complete the project despite repeated extensions, with the deadline extended from 20 September 2022 up to 31 October 2024 and thereafter by 90 days.

HRCC approached the High Court under Section 11(6) after ERA failed to respond to its arbitration notice, seeking appointment of an arbitral tribunal. ERA opposed the petition, arguing that HRCC had bypassed the mandatory pre-arbitration mechanism under Clauses 23 and 24 of the General Conditions of Contract, which required disputes to be first referred to an Adjudicator/Dispute Review Expert (DRE).

The Court examined the contractual framework and noted that although the Particular Conditions of Contract named a specific adjudicator, Clause 23.1.1 required execution of a separate agreement with the adjudicator. No such agreement was executed between the parties or the adjudicator, rendering the mechanism non-operational.

It held that an unimplemented adjudication mechanism could not bar arbitration, particularly where disputes arose from termination of the contract and subsequent actions such as encashment of bank guarantees and re-tendering, which were not effectively covered under the limited scope of the DRE mechanism. The Bench further observed that the arbitration clause under the contract was of wide amplitude and covered disputes not referable to the adjudication process.

Accordingly, the High Court referred all disputes between the parties to arbitration and appointed Justice Magrey as sole arbitrator.

Appearances for petitioner (M/s Hassan Roads Construction Company Private Limited): Senior Advocate Z. A. Qureshi; Advocates Rehana, Babar Billal Malik, Muzaam Nasir.

Appearances for respondent (J&K Economic Reconstruction Agency and ors.): Government Advocate Illyas Nazir Laway.