Labelling Clause As 'Arbitration' Doesn't Create Arbitration Agreement Without Mechanism For It: Punjab & Haryana HC

The Punjab and Haryana High Court has held that merely labelling a clause as “Arbitration and Applicable Laws” does not make it an arbitration agreement, refusing to appoint an arbitrator where the clause itself did not provide for the reference of disputes to arbitration.

A bench of Justice Jasgurpreet Singh Puri held that Clause 8 of the Memorandum of Understanding dated January 13, 2020, executed between Rayat Educational and Research Trust and the Punjab Skill Development Mission, does not contain any provision for arbitration and instead provides for reference of disputes to the Empowered Committee for DDUGKY under the Ministry of Rural Development.

“A perusal of the aforesaid Clause 8.1 would show that although the heading of the Clause is stated as “Arbitration and Applicable Laws” but the substance of the Clause provides that any dispute arising in connection with the MOU, which cannot be resolved amicably, shall be referred to the Empowered Committee for DDUGKY in the Ministry of Rural Development, Government of India. Therefore, in the Clause itself, there is no such reference made to arbitration or to follow any arbitration process and the mere fact that the heading of the Clause states “Arbitration and Applicable Laws” would not mean that the same can be given the meaning of an arbitration clause,” the court observed.

“Once the Clause itself does not provide for the matter to be referred to arbitration, then the mere fact that the heading of the Clause is 'Arbitration and Applicable Laws' would not mean that there was intention of the parties to refer the matter to arbitration,” the court added.

The MoU provided that disputes not resolved amicably would be referred to the Empowered Committee for Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDUGKY), whose decision would be final and binding on the parties.

After disputes arose, the trust issued a notice dated March 15, 2024 proposing the name of an arbitrator. Upon receiving no response, it approached the High Court under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator.

The trust contended that the clause should be treated as an arbitration agreement and relied upon Section 7(4)(c) of the Act, submitting that in earlier proceedings under Section 9, the respondent had acknowledged the clause.

Opposing the plea, the Punjab Skill Development Mission submitted that the clause does not provide for arbitration and only contemplates reference of disputes to the Empowered Committee. It also relied on a prior decision of the High Court involving an identical clause, where the appointment of an arbitrator was refused.

The court held that the clause does not indicate any intention of the parties to refer disputes to arbitration and that the substance of the clause does not provide for any arbitration process.

Rejecting the reliance on Section 7(4)(c), the court held that the respondent had only acknowledged the existence of the clause and had not admitted that disputes were to be referred to arbitration.

It noted that the respondent had consistently taken the stand that disputes were to be referred to the Empowered Committee and had even stated that notice under Section 21 should be issued to the Committee and not to any arbitrator.

Holding that the clause does not satisfy the requirements of an arbitration agreement under the 1996 Act, the court dismissed the application for appointment of an arbitrator.

For Rayat Educational and Research Trust: Advocates Mehak Kapoor, Jatin Bansal.

For Punjab Skill Development Mission: Advocate D. S. Bhinder.