Pre-Arbitration Conciliation: Mandatory or Directory? Insights from Centaurus Green Energy Vs. Rajshree Trust

Introduction:

The Delhi High Court’s judgment in Centaurus Green Energy Pvt. Ltd. Vs. Rajshree Educational Trust offers a nuanced understanding of arbitration initiation under the Arbitration and Conciliation Act, 1996. This case addresses the intersection of pre-arbitration conciliation requirements and the Court’s power to appoint an arbitrator under Section 11(6). The Court affirmed that procedural stipulations such as conciliation are directory rather than mandatory, paving the way for arbitration proceedings to proceed even when such steps are bypassed. This decision reinforces the pro-arbitration stance of Indian courts while safeguarding party rights within contractual frameworks.

Background:

In this case, Centaurus Green Energy Pvt. Ltd. (Petitioner) entered into a Power Purchase Agreement (PPA) on October 14, 2017, with Rajshree Educational Trust (Respondent). The agreement concerned the design, supply, installation, and operation of a 1000KW rooftop solar photovoltaic power system for 25 years.

Clause 17.7(c) of the PPA outlined a dispute resolution process requiring pre-arbitration conciliation, failing which arbitration proceedings would be invoked. Disputes arose over payment defaults, prompting the Petitioner to issue a notice invoking arbitration on July 12, 2023. With no response from the Respondent, the Petitioner approached the Delhi High Court under Section 11(6) of the A&C Act, seeking the appointment of an independent arbitrator.

The respondent opposed the petition, arguing that the petitioner had failed to comply with the mandatory conciliation requirement in Clause 17.7(c).

Questions of Law:

1. Can arbitration proceedings be initiated without adhering to a pre-arbitration conciliation requirement?
2. Does bypassing conciliation render a Section 11(6) petition for arbitrator appointment untenable?

Findings and Rationale:

1. Nature of Pre-Arbitration Conciliation: The Court delved into whether the conciliation requirement in the PPA was mandatory or directory. Citing Ravindra Kumar Verma v. BPTP Ltd. and Saraswati Construction Co. v. Cooperative Group Housing Society Ltd., the Court emphasized that procedural preconditions like conciliation should be interpreted as directory unless they explicitly affect substantive rights or obligations.The Court clarified that making conciliation mandatory could prejudice a party by consuming valuable time, potentially leading to a limitation period lapse. Relying on Section 77 of the A&C Act, which permits parties to initiate arbitration proceedings to preserve their rights even during conciliation, the Court found that conciliation was not a prerequisite for arbitration in this case.
2. Pro-Arbitration Stance of Indian Courts: The Court reiterated the principle of “when in doubt, do refer,” as articulated in Vidya Drolia v. Durga Trading Corporation. It held that arbitration clauses should be enforced unless the disputes fall within a clear exception, such as non-arbitrable subject matters. Here, the PPA explicitly provided for arbitration, and the petitioner’s actions were deemed sufficient to trigger the arbitration clause.
3. Appointment of Arbitrator: Recognizing the existence of a valid arbitration agreement, the Court appointed Mr. Sunil Ambwani, Former Chief Justice of Rajasthan High Court, as the sole arbitrator. The arbitration was directed to proceed under the Delhi International Arbitration Centre (DIAC) rules, with all claims and counterclaims to be resolved by the arbitrator on their merits.The Court emphasized that objections regarding arbitrability or procedural lapses could still be raised before the arbitrator, preserving the respondent’s rights while ensuring the arbitration’s progression.

Conclusion:

The Delhi High Court’s judgment in Centaurus Green Energy Pvt. Ltd. Vs. Rajshree Educational Trust highlights the judiciary’s commitment to fostering arbitration as an effective dispute resolution mechanism. By deeming pre-arbitration conciliation a directory requirement, the Court balanced procedural adherence with the need to avoid undue prejudice to parties seeking arbitration.

This decision underscores the pro-arbitration stance of Indian courts, reinforcing that contractual clauses facilitating dispute resolution should not be interpreted in a manner that hinders arbitration. It serves as a significant precedent for ensuring that technical procedural requirements do not obstruct substantive justice in arbitration proceedings.