Madras High Court Constitutes 3-Member Arbitral Tribunal In L&T's ₹74.36 Cr. Rajkot Smart City Dispute
On 8 October, the Madras High Court constituted a three-member arbitral tribunal to resolve a Rs. 74.36 crore dispute between Larsen & Toubro and sub-contractor Radhe Krishna Infrastructure over the Rajkot Smart City project.
Chief Justice Sushrut Arvind Dharmadhikari held that determining whether a later work order superseded earlier contractual terms falls within the domain of the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act, 1996. The Bench observed:
“Detailed examination of contractual supersession or the inter se priority of inter-related contractual documents is a matter that falls within the domain of the Arbitral Tribunal under Section 16 of the Act.”
The dispute arose from infrastructure work awarded by L&T to a contractor for Rajkot Smart City Development Limited under the Rajkot Municipal Corporation. The project covered roads, drains, culverts, bridges, water supply, sewerage and power systems.
L&T issued a letter of intent on 21 December 2019. The parties entered into a subcontract agreement on 23 December 2019, followed by a work order dated 27 January 2020.
According to the contractor, its bid was valued at Rs. 115.253 crore, and the work was to be completed within 20 months, by 19 August 2021. It alleged that L&T issued 23 amendment orders over 50 months, with the scope of work finalised only on 9 February 2024. It also claimed to have completed nearly all of the approximately 22 kilometres of roadwork despite delays in site access, interference by other contractors, material shortages and unpaid bills.
L&T alleged that the contractor failed to complete the work, halted operations and abandoned the site on 17 February 2024. It terminated the subcontract on 26 March 2024. Following extended correspondence, the parties held an unsuccessful settlement and conciliation meeting in Chennai on 19 September 2024.
The contractor issued a notice invoking arbitration on 1 November 2024, claiming Rs. 74.36 crore and nominating former Bombay High Court judge Justice M.G. Gaikwad as its arbitrator. After L&T failed to nominate an arbitrator within 30 days, the contractor approached the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the constitution of the tribunal.
It relied on Clause 41 of the subcontract agreement, which provides for a three-member tribunal. L&T relied on Clause 17.3 of the general conditions attached to an amended work order dated 9 February 2024, which provides for a sole arbitrator.
L&T sought Rs. 23.18 crore in counterclaims towards the cost of completing the remaining work, rectifying defective construction, excess payments and liquidated damages.
The Court noted that the parties did not dispute the arbitrability of their commercial claims. It left the question of whether the later work order superseded the earlier contractual terms, and which arbitration clause would prevail, to the arbitral tribunal for determination under Section 16 of the Act.
Considering the scale of the claims and counterclaims, it appointed former Supreme Court judge Justice R. Banumathi as the presiding arbitrator, Justice M.G. Gaikwad as the contractor's nominee and Senior Advocate M. Aravind Subramaniam as L&T's nominee.
It stated that Chennai will be the seat and venue of arbitration, and the proceedings will be conducted through the Madras High Court Arbitration Centre. It also left the parties' contentions on the merits open for consideration by the tribunal and made no order as to costs.
Accordingly, the High Court allowed the petition.
Appearances for petitioner (contractor): Advocates R. Sripriya.
Appearances for respondent (L&T): Advocates Anirudh Krishnan.