The Madras High Court has constituted a three-member arbitral tribunal to resolve a ₹74.36 crore dispute between Larsen & Toubro (L&T) and sub-contractor Radhe Krishna Infrastructure over the Rajkot Smart City project, leaving the contested question of which arbitration clause governs to the tribunal itself.

Chief Justice Sushrut Arvind Dharmadhikari held that determining whether a later work order superseded earlier contractual terms falls within the domain of the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act, 1996.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 court was hearing a petition by the contractor under Section 11(6) of the Act seeking constitution of the tribunal after L&T failed to nominate its arbitrator within the prescribed 30 days.

The dispute arises from infrastructure work that L&T awarded to the contractor for Rajkot Smart City Development Limited, an initiative undertaken 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, and a work order followed on 27 January 2020.

A claim built on 23 amendment orders

According to the contractor, its bid was valued at ₹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 final scope of work settled only on 9 February 2024. The contractor 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's account is markedly different. It alleged that the contractor failed to complete the work, halted operations and abandoned the site on 17 February 2024, leading to termination of the subcontract on 26 March 2024. L&T has asserted counterclaims of ₹23.18 crore towards the cost of completing the remaining work, rectifying defective construction, excess payments and liquidated damages.

Extended correspondence between the parties failed to yield a settlement, and a conciliation meeting held in Chennai on 19 September 2024 was unsuccessful. The contractor then issued a notice invoking arbitration on 1 November 2024, claiming ₹74.36 crore and nominating former Bombay High Court judge Justice M.G. Gaikwad as its arbitrator. When L&T did not nominate its arbitrator within 30 days, the contractor moved the High Court under Section 11(6) of the Act.

Two conflicting arbitration clauses

The core controversy before the High Court was which arbitration agreement governed the parties' disputes. The contractor relied on Clause 41 of the subcontract agreement, which provides for a three-member tribunal. L&T, in contrast, relied on Clause 17.3 of the general conditions attached to the amended work order dated 9 February 2024, which provides for a sole arbitrator.

The court observed that the parties did not dispute the arbitrability of their commercial claims. The only question was whether the later work order superseded the earlier contractual terms, and which clause would therefore prevail. The High Court concluded that this was not an exercise for the referral court to undertake.

"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 Bench observed.

Section 16 of the Arbitration and Conciliation Act embodies the competence-competence principle, allowing an arbitral tribunal to rule on its own jurisdiction, including questions about the existence, validity and scope of the arbitration agreement. By deferring the supersession question to the tribunal, the High Court kept the Section 11 referral stage narrow and preserved the tribunal's authority to determine which clause governs.

Three arbitrators, Chennai as seat

Considering the scale of the claims and counterclaims, the High Court 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.

The court directed that Chennai will be the seat and venue of arbitration and that proceedings will be conducted through the Madras High Court Arbitration Centre. It left the parties' contentions on the merits open for consideration by the tribunal and made no order as to costs. Accordingly, the petition was allowed.

The practical consequence is that the arbitral tribunal will now decide not only the merits of the ₹74.36 crore claim and the ₹23.18 crore counterclaims, but also the preliminary question of which arbitration clause survives the amended work order. Since the composition of the tribunal was itself disputed — three arbitrators versus a sole arbitrator — the tribunal may be called upon to revisit that question under Section 16.

For the construction and infrastructure sector, the ruling clarifies that courts at the referral stage will not conduct a detailed examination of competing contractual documents where arbitrability is undisputed. Conflicts over whether later work orders supersede earlier agreements, and which arbitration clause prevails, are matters for the arbitral tribunal.

The case now moves before the newly constituted tribunal, with arbitration seated in Chennai.