J&K High Court Holds SIDCO Managing Director Ineligible to Arbitrate NIFT Contract Dispute

The High Court of Jammu & Kashmir and Ladakh has appointed a retired district judge as sole arbitrator in a dispute arising from a NIFT construction contract, ruling that the Managing Director of SIDCO—the person designated as arbitrator in the agreement—is ineligible to serve due to his interest in the outcome.

Acting Chief Justice Sanjeev Kumar, presiding over the single-judge bench, allowed the petition filed by M/S Abraq Infrastructures LLP under Section 11(6) of the Arbitration and Conciliation Act, 1996, and named Mr. Mehraj-ud-Din Sofi, a Retired District and Sessions Judge, to adjudicate the matter.

Competing Claims and Preliminary Hurdles

The dispute stems from a 2018 agreement for construction of the National Institute of Fashion Technology (NIFT) Package-III at Ompora, Budgam, valued at approximately ₹44 crore. Abraq Infrastructures alleged that repeated interference by the respondent department and variations in work quantities led to the contract being terminated on February 5, 2024. The company had previously challenged the termination and subsequent tenders before the Additional District Judge (Commercial Court) and the High Court, eventually withdrawing some petitions with liberty to invoke arbitration.

The respondents—the Union Territory of Jammu and Kashmir and others—raised several preliminary objections. They argued that the contractor had defaulted, that the petition was barred by res judicata and estoppel, that payment for executed work had already been made, and that a similar arbitration application was pending before the commercial court.

The Court’s Limited Role at This Stage

Rejecting these arguments as premature, the Chief Justice observed that at the stage of a Section 11 petition, the court’s scrutiny is confined to examining the prima facie existence of a valid arbitration agreement. Contentious issues such as default, accord and satisfaction, limitation, and the effect of prior proceedings, he said, “are matters touching the merits and arbitrability of the claim” and must be decided by the Arbitral Tribunal under the principle of kompetenz-kompetenz .

The judgment explicitly left all objections open for the arbitrator to decide, noting: “This Court, therefore, refrains from returning any finding on the merits of the rival contentions of the parties.”

Neutrality Clause Scuttles Contractual Mechanism

The decisive issue concerned Clause 34(II) of the agreement, which provided that the Managing Director of the Jammu and Kashmir State Industrial Development Corporation (SIDCO)—or his nominee—would act as the sole arbitrator. The court held this clause unworkable, as the Managing Director is an employee of the respondent and thus disqualified under Section 12(5) read with the Seventh Schedule of the Arbitration Act.

“The Managing Director, SIDCO being an employee of respondent No. 1, and thus a person having an interest in the outcome of the dispute, is rendered ineligible,” the order stated.

Citing the Supreme Court’s decisions in TRF Ltd. v. Energo Engineering Projects Ltd. and Perkins Eastman Architects DPC v. HSCC (India) Ltd. , the Chief Justice explained that a person who is ineligible to act as an arbitrator cannot nominate another person to act as such, as that would defeat the neutrality requirement introduced by the 2015 amendment.

Final Order and Appointment

Finding the contractual appointment mechanism “rendered unworkable,” the court exercised its power under Section 11(6) to appoint an independent arbitrator. The petition was allowed, and Mr. Mehraj-ud-Din Sofi was appointed as the sole arbitrator to adjudicate all disputes arising from the 2018 contract.

The arbitrator has been directed to issue notices to the parties, proceed in accordance with the Arbitration and Conciliation Act, and charge fees as per the Fourth Schedule. The registry was ordered to communicate the appointment to the arbitrator forthwith.

With this order, the petition and all connected applications stand disposed of.