Works Contract Disputes Must Go To Statutory Tribunal, Not Private Arbitration: Gujarat High Court

The Gujarat High Court on 19 June held that payment disputes arising from agreements which are, in substance, public works contracts cannot be referred to private arbitration under the Arbitration and Conciliation Act, 1996 and must instead be adjudicated by the Gujarat Public Works Contracts Disputes Arbitration Tribunal under the Public Works Contracts Disputes Arbitration Tribunal Act, 1992.

Justice D.N. Ray dismissed a Section 11 petition filed by Soham Consultancy Services seeking appointment of an arbitrator in its Rs. 38.96 lakh payment dispute with Limbdi Nagarpalika. The Bench held:

"A conjoint reading of the 'scope of work' and the understanding of the petitioner as to its own scope of work as reflected in the pleadings before this Court leave no manner of doubt that the amount which is sought to be claimed from the respondent-Nagarpalika cannot be simply termed as 'fees' but rather as 'consideration' for a works contract."

The dispute arose after Limbdi Nagarpalika issued a public notice on 19 July 2018 inviting bids from consultants for various development works, including construction of a shopping centre, housing projects for economically weaker sections and water supply projects.

The municipality accepted Soham Consultancy Services' bid on 29 December 2018. The parties executed an agreement on 30 May 2019, a work order was issued, and the municipality's General Board approved the appointment through Resolution No. 5/202 dated 27 September 2019.

Soham Consultancy Services claimed that it prepared detailed project reports and rendered consultancy services for various municipal schemes. Alleging that bills amounting to Rs. 38,96,412.39 remained unpaid, it invoked Clause 7.0.0 of the agreement by notice dated 10 December 2022 seeking appointment of an arbitrator. When the municipality did not respond, it filed the present petition under Section 11 of the Arbitration and Conciliation Act, 1996.

The firm argued that the agreement was only for consultancy services and therefore did not qualify as a "works contract" under Section 2(1)(k) of the 1992 Act. It further contended that Limbdi Nagarpalika had not been notified as a "public undertaking" under Section 2(1)(i)(iii) of the Act and relied on Om Construction Co. v. Ahmedabad Municipal Corporation to submit that an arbitrator could be appointed under the 1996 Act.

Limbdi Nagarpalika raised a preliminary objection to the petition's maintainability, relying on a Government Notification dated 16 December 2024 notifying it as a "public undertaking" under Section 2(1)(i) of the 1992 Act. It also submitted that the agreement involved preparation of plans, estimates and execution of government projects, bringing it within the definition of a "works contract" under Section 2(1)(k).

Accepting the objection, the High Court held that the agreement envisaged execution of public works. It noted that Soham Consultancy Services itself had referred to a "work order" and execution of work in its pleadings.

Further, the Bench observed that the statutory definition of "works contract" is "very wide and comprehensive", the Court concluded that the firm's claim arose from a works contract and held that Soham Consultancy Services must pursue its remedy before the Gujarat Public Works Contracts Disputes Arbitration Tribunal.

Accordingly, the High Court dismissed the Section 11 petition.

Appearances for petitioner (M/s Soham Consultancy Services): Advocate Keyur K. Acharya.

Appearances for respondent (Limbdi Nagarpalika): Advocate Hriday Buch.