The Madras High Court on 8 October held that Section 16 of the Arbitration and Conciliation Act, 1996, cannot be used to constitute an arbitral tribunal when the parties have not agreed to arbitration, as the provision empowers an existing tribunal and presupposes an arbitration agreement.

Chief Justice Sushrut Arvind Dharmadhikari dismissed BGR Energy Systems' petition seeking appointment of a sole arbitrator to resolve contractual disputes with the Tamil Nadu Generation and Distribution Corporation (TANGEDCO) over a Rs. 2,600.02 crore contract for the North Chennai Thermal Power Project Stage III. The Bench held:

“This court is unable to accept such submission. Section 16 of the Act empowers an Arbitral Tribunal that already exists. It assumes that there is an arbitration agreement under which a tribunal has been constituted. It cannot be used to bring a tribunal into being where the parties never agreed to arbitrate.”

BGR Energy entered into a contract with TANGEDCO for the Balance of Plant package and allied civil works at the 800 MW North Chennai Supercritical Thermal Power Project, Stage III. It alleged that TANGEDCO delayed site handover, approvals and payments, failed to resolve post-GST tax issues, and disrupted the work through a National Green Tribunal stay on a bridge across the Kosasthalaiyar River.

It also claimed that it completed nearly 95% of the work despite the COVID-19 pandemic. TANGEDCO invoked a project bank guarantee on 27 March 2024, prompting BGR Energy to challenge the invocation before the High Court. The plant was commissioned on 7 March 2025. The Court closed its earlier proceedings under Section 9 of the Act on 9 September 2025. BGR Energy then issued a notice invoking arbitration on 1 November 2025 and sought appointment of an arbitrator.

The Court rejected BGR Energy's argument that Clause 94 of the contract agreement constituted an arbitration agreement. It relied on the Supreme Court's decision in South Delhi Municipal Corporation, to hold that the Chief Engineer's duty to hear the contractor and consider evidence did not turn the departmental dispute resolution process into arbitration. The clause did not require an independent decision-maker or establish the parties' agreement to accept the decision as an arbitral award.

It observed that “the Supreme Court observed in South Delhi Municipal Corporation (supra) that expert determinations, departmental adjudications and administrative reviews do not become arbitration even when their results are final and binding. What makes arbitration different is the independence of the decision-maker and the parties' agreement to be bound by the decision. Neither is present here.”

Further, the Bench held that the heading “Settlement of Disputes” could not supply the essential elements that the clause lacked. It concluded that Clause 94 did not constitute an arbitration agreement under Section 7 of the Act.

Accordingly, the High Court allowed BGR Energy to pursue its claims and remedies before the competent court in accordance with law. It left open whether the competent court could exclude the time BGR Energy spent in these proceedings under Section 14 of the Limitation Act, 1963.

Lastly, it clarified that it had not examined the merits of the dispute and that its order would not affect the pending writ petition.

For Petitioner: P.H.Arvind Pandian Senior Counsel for Mr.A.Sarangan

For Respondent: T.Gowthaman Addl. Advocate General assisted by Mr.D.R.Arun Kumar Standing Counsel

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Case Title :  BGR Energy Systems Pvt. Ltd vs Tamil Nadu General and DistributionCorporationCase Number :  Arb.O.P.(Com.Div.) No. 157 of 2026CITATION :  2026 LLBiz HC (MAD) 307
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