Sub-Contract Dispute Clause Bars Import Of Arbitration Clause From Principal Contract: Gauhati HC

The Gauhati High Court on 3 June held that a sub-contract that contains its own specific dispute resolution clause cannot import the arbitration clause from the principal contract, even if it describes the principal contract as “part and parcel” of the sub-contract.

The Bench of Justice Sanjay Kumar Medhi dismissed a petition filed by Yumiko Global Infra Tech Private Limited (Yumiko) against PRL-Gepong JV (PRL) under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator in a contractual dispute arising from a sub-contract arrangement. He observed:

“As already mentioned above, the arbitration Clause contained in Clause 29 of the original agreement cannot have any application to the sub-contract, inasmuch as the sub-contract itself contains a specific clause for resolution of disputes namely Clause 5, which has been referred to hereinabove.”

Yumiko entered into a sub-contract with PRL-Gepong JV (PRL) for execution of works under a principal contract between PRL and the Government of Arunachal Pradesh. Disputes arose between the parties, and Yumiko moved the High Court under Section 11(6), ACA seeking appointment of an arbitrator. It initially invoked Clause 5 of the sub-contract but later shifted its reliance to Clause 29 of the principal contract after PRL raised objections.

Clause 1(f) of the sub-contract stated that the main contract would form part and parcel of the sub-contract and that, “wherever not mentioned”, provisions relating to scope, responsibility, risks and liabilities would bind the sub-contractor. Clause 5 of the sub-contract set out a dispute resolution mechanism but did not provide for arbitration. Clause 29 of the principal contract provided for reference of disputes to a Superintending Engineer appointed by the Secretary (PWD) acting as arbitrator.

Yumiko argued that Clause 1(f) incorporated the principal contract into the sub-contract and thereby brought Clause 29 into operation. It further submitted that Clause 5 did not exclude arbitration and that its reference to mediation implied that arbitration remained available.

PRL contended that Clause 5 operated as a complete and self-contained dispute resolution clause and excluded arbitration. It also argued that the words “wherever not mentioned” in Clause 1(f) prevented incorporation of Clause 29, since Clause 5 specifically governed dispute resolution.

The Court rejected Yumiko's submission and held that parties must specifically agree to arbitration and courts cannot imply it. It found that Clause 5 governed dispute resolution under the sub-contract and made no provision for arbitration. Since the sub-contract contained a specific mechanism, the Court refused to import Clause 29 of the principal contract.

Further, Justice Medhi held that no arbitration agreement existed in the sub-contract and Yumiko could not rely on the principal contract to invoke arbitration.

Accordingly, the High Court dismissed the petition.