How can a govt. contract for ₹91.81 crore restrict arbitration to disputes of up to ₹50,000, asks HC

The Madras High Court has expressed surprise over a written agreement between the Tamil Nadu Urban Habitat Development Board (TNUHDB) and a private contractor, for constructing multistorey tenements at a cost of ₹91.81 crore at Kesavan Pillai Park, Pulianthope in Chennai, containing a clause that any dispute between them would be referred to arbitration only if the value of the claim was up to ₹50,000.

Justice N. Anand Venkatesh referred the matter to the Chief Secretary to ensure that any future agreements entered between government institutions and private contractors did not contain such “archaic” clauses. “If the authorities had applied their mind and had not acted in a mechanical fashion, they would not have fixed the value as ridiculous as ₹50,000,” the judge remarked while dismissing an application preferred by the TNUHDB.

The applicant had insisted upon referring a dispute between it and PST Engineering Construction, accused of poor quality of construction at the K.P. Park tenements, for arbitration. It was the case of the applicant that the private firm ought not to have filed a civil suit in the High Court and obtained an interim injunction against backlisting it without first resorting to the arbitration clause found in the 2017 agreement.

However, the judge refused to accept the TNUHDB’s contention and pointed out the total value of the contract was over ₹91 crore and even the private contractor had valued the civil suit to be ₹1.25 crore. He blamed the Board for having invited the dismissal order by including a faulty clause in the agreement which restricts arbitration only for claims up to ₹50,000. He said such a clause had absolutely no meaning in present day scenario.

“This court wanted to add this footnote to this order with the fond hope that the authorities will wake up to the reality and immediately take steps to revamp the entire arbitration clause in all their agreements. In order to take effective steps, there shall be a direction to mark a copy of this order to the Chief Secretary of the Government of Tamil Nadu, who will instruct all the departments to act upon the directions issued in this order,” the judge wrote.

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Printable version | May 17, 2022 10:44:15 am |