Conflicting Contractual Clauses Do Not Override A Clear Arbitration Agreement: Bombay High Court

The Bombay High Court has held that when contractual clauses appear inconsistent or conflict with a clear arbitration clause, courts must lean in favour of arbitration, emphasising that such an approach is necessary to avoid frustrating valid arbitration agreements.

A bench of Justice Sandeep V. Marne made the observation while appointing a sole arbitrator in a dispute between Generic Engineering Construction Projects Ltd and the Maharashtra Maritime Board arising from termination of a construction contract, holding that the parties had clearly agreed to arbitrate even disputes relating to termination.

“In a case where few other clauses in the contract may be slightly inconsistent or may be in conflict with the main arbitration clause, the Courts will have to rule in favour of the arbitration rather than giving weightage to those confusing or conflicting clauses. Once there is clear agreement to arbitrate, the Courts would tend to ignore other clauses of contract which may create confusion about existence of arbitration agreement. After all arbitration is aimed at declogging the overburdened Courts and therefore Courts need to necessarily rule in favour of arbitration rather than concentrating on other inconsistent clauses for holding that specific arbitration clause present in the contract would get nullified by those clauses.”

The court was dealing with a petition filed by Generic Engineering Construction Projects Ltd seeking appointment of an arbitrator against the Maharashtra Maritime Board in disputes arising from a contract dated February 6, 2023, for construction of an office building at Bandra Kurla Complex valued at over Rs 68 crore.

The dispute arose after a show cause notice dated July 28, 2025 and termination of the contract on August 18, 2025. The Board also raised recovery claims of about Rs 7.37 crore and, after adjusting amounts payable to the contractor, demanded over ₹3 crore.

The contractor invoked arbitration after the Board failed to respond to its request dated August 16, 2025 for the appointment of a Dispute Review Expert and did not reply to the notice invoking arbitration issued on September 11, 2025.

Rejecting the Board's contention that only decisions of the Engineer, subject to review by a Dispute Review Expert, could be referred to arbitration, the court held that such an interpretation would effectively render termination disputes incapable of being arbitrated. It noted that termination decisions were admittedly taken by higher authorities such as the Chief Executive Officer.

“If Respondent's contention is accepted that only Engineer's decision can be referred to arbitration (after decision of reference by Dispute Review Expert) it would mean that no decision relating to termination can ever be referred to arbitration. This is because, it is Respondent's own case that decision to terminate the contract cannot be taken by the Executive Engineer and is always taken by the CEO”

The court held that a valid arbitration agreement existed between the parties and that disputes, including those arising from termination, were arbitrable. It further found that no workable pre-arbitration mechanism was available in the facts of the case, particularly since the contractual dispute resolution framework did not apply to decisions taken at the level of the CEO.

Accordingly, the court appointed former Bombay High Court judge Justice Anuja Prabhudesai as the sole arbitrator to adjudicate the disputes, while keeping all contentions of the parties open.