On January 31, 2023, the Division Bench of the High Court of Gujarat at Ahmedabad in the case of, Pahal Engineers v. The Gujarat Water Supply and Sewerage Board, held that a claim filed under the Arbitration and Conciliation Act, 1996 (“Act”) cannot be dismissed merely on the ground that the Statement of Claim was not verified in terms of Order VI Rule 15 of the Code of Civil Procedure, 1908 (“CPC").

Facts: 

1. Pahal Engineers (“the Appellant”) was the successful bidder for a contract of building a water treatment plant and laying down pipelines floated by the Gujarat Water Supply and Sewerage Board (“the Respondent”). 
2. Disputes arose between the Appellant and the Respondent, resulting in the Appellant filing an Application under Section 11 (6) of the Act seeking appointment of an Arbitrator. Consequently, an Arbitrator was appointed vide Order dated December 08, 2017. 
3. In terms of the order passed the Ld. Arbitrator, the Appellant filed its Statement of Claim, the Respondent filed its Statement of Defence and Counter Claim and the Appellant also filed its Reply to the Counter Claim in the matter. 
4. During the course of arguments, the Appellant sought an amendment of the Statement of Claim, which amendment was allowed and subsequently, the amended Statement of Claim was filed. 
5. The Respondent took an objection to the maintainability of the Statement of Claimant for the first time contending, inter alia, that the Statement of Claim was not maintainable on account of the same not having been verified in terms of Order VI Rule 15 of the CPC. 
6. The Ld. Sole Arbitrator upheld the objection of the Respondent and dismissed the Statement of Claim vide Order dated April 24, 2019 (“Impugned Order”). 
7. Aggrieved by the Impugned Order, the Appellant filed a Civil Application No. 8727 of 2019 before the High Court of Gujarat at Ahmedabad and the Ld. Single Judge upheld the Impugned Order on the ground that a writ application filed under Article 226 of the Constitution of India was not maintainable. The Court did not deal with the defect pointed out by the Ld. Tribunal or the procedural irregularity. The Court further held that a statutory remedy under Section 34 of the Act was available to the Appellant. 
8. The Appellant, thus, filed the present intra court Letters Patent Appeal before the Division Bench of the High Court of Gujarat at Ahmedabad.

Issue: 

Whether a Statement of Claim can be dismissed on the ground that the same is not verified in terms of Order VI Rule 15 of the CPC and whether CPC would apply to pleadings in arbitration proceedings?

Decision:

1. Section 19 of the Act clearly states that an arbitral tribunal shall not be bound by the CPC and the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings. In case, the parties are unable to agree on a procedure, the arbitral tribunal itself is empowered to regulate the proceedings in the manner it deems fit. 
2. Procedural law, if any, which undisputedly did not apply to the arbitral proceedings commenced under the Act would not be fatal and the Arbitral Tribunal was not justified in dismissing the Statement of Claim, without going into the merits. 
3. The Letters Patent Appeal was allowed. The Order passed by the Ld. Single Judge in Special Civil Application No. 8727 of 2019 and the said Application was allowed. The Ld. Division Bench also, consequently, quashed the Order dated April 24, 2019 passed by the Arbitrator.

Comment:

This Judgment while reiterating that arbitration proceedings are not governed by the CPC, has provided much needed clarity in arbitrations as parties, as a matter of practice, tend to apply the procedure under the CPC while filing pleadings, including the verification clause in terms of Order VI Rule 15 of the CPC. Consequently, in the absence of such verification clause, a preliminary objection is usually taken qua the Statement of Claim not being in compliance with CPC. This Judgment puts such an objection to rest and clarifies that a Statement of Claim cannot be dismissed merely on the ground that the same is not in compliance with Order VI Rule 15 of the CPC.

Please find attached a copy of the judgment.

This update has been contributed by Namitha Mathews (Partner) and Poorva Pant (Senior Associate).

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