A pre-arbitral mechanism for amicable settlement is not a mandatory prerequisite if the opposing party has already demonstrated an unwillingness to negotiate, making such a step a useless formality that would only delay the resolution of disputes.

P C :

This is an application filed under Section 11 of the Arbitration and Conciliation Act, 1996 (for short, “the Act of 1996”), seeking the appointment of an arbitrator for adjudication of disputes arising out of and in connection with the Work Order and Work Contract, dated 07.07.2018.

Briefly stated, the material facts are as under:

The applicant is a company which claims to be engaged in diverse business activities, including establishment and maintenance of hotels, holiday resorts, etc. It is stated that the applicant purchased land at Vijayawada and thereafter obtained permission for construction of a hotel under the name and style of “Green Park” Vijayawada.

It is stated that during the course of completion of the Hotel construction work, the applicant issued a Letter of Award dated 31.05.2018, for providing Mechanical, Electrical and Plumbing Engineering Services. Pursuant to the Letter of Award, two separate work orders were stated to have been issued for supply of material and execution of works on 07.07.2018, worth Rs.10,80,00,000/-. An amount of Rs.1,10,00,000/- is stated to have been transferred to the account of the respondents, which was agreed to be recovered from the running account. This was done even before the works contract was executed between the parties, as a mobilization advance.

The respondents were alleged to have failed in their obligation to perform the works and finally, by virtue of e-mail dated 21.09.2018, expressed their willingness to foreclose the Work Order and Work Contract dated 07.07.2018.

Joint measurements were taken by an independent agency and a report dated 17.10.2018 was prepared accordingly.

As per the joint measurement report, the applicant claims that the respondents had not executed the work for an amount of Rs.81,51,175/-, which was lying with the respondents as on the date they exited from the contract. It is also stated that the respondents completed the work only to the tune of Rs.28,48,825/-.

The applicant is stated to have issued a legal notice, dated 07.03.2019, invoking the arbitration clause in terms of the agreement, after attempts by the applicant for refund of the mobilization advance along with interest, failed.

By virtue of a reply notice dated 02.04.2019, the respondents denied their liability and rejected the request of the applicant for reference of the matter to arbitration, hence, the present application under Section 11(5) of the Act, 1996.

In the objections filed by the respondents, the stand taken is that the present arbitration application was premature, inasmuch as the pre-arbitral mechanism which was envisaged to be followed in terms of the contract had not been resorted to by the applicant.

It was urged that the pre-arbitral mechanism was mandatory and ought to have been followed for the purpose of reference. The arbitration clause, as contained in the agreement, is reproduced hereunder:

“Arbitration:

All disputes and differences of any kind whatsoever, arising out of or in connection with the contract, or supply of the material (whether during the supply or after their completion and whether before or after the determination, abandonment or breach of the contract), any claims relating to the meaning of specifications, design, "drawings and instruction herein before mentioned and so as to the quality of materials, of claims, right, matter whatsoever arising out of or relating to this contract be referred to in writing as a notice to be given to the project in-charge as pursuant to this contract, and amicably settled by M/s Shore View Hospitality Pvt. Ltd through friendly negotiations and agreement with the contractor. A written notice specifying the decisions shall be issued within 30 (thirty) days by the M/s Shore View Hospitality Pvt. Ltd.

In case the matters referred to above in the immediately preceding clause cannot be settled amicably and PSP Assoc