Facts: Sowil Limited applied under Section 11 of the Arbitration and Conciliation Act, 1996, for the appointment of an arbitrator to adjudicate disputes arising from a contract with the Deputy Chief Engineer (Construction) Bhusawal, Central Railways. The contract, valued at Rs. 84,52,157.61, contained a clause restricting arbitration to disputes involving claims up to 20% of the contract value. Sowil's estimated claim was Rs. 3 crores, leading the Railways to oppose the arbitrator's appointment. The contract was for the preparation of designs and structural drawings for bridges, but it was terminated by the Railways, leading to Sowil's claim for losses.
Procedural Posture: Sowil Limited filed a Commercial Arbitration Application in the Bombay High Court after being granted liberty by the court in a previous writ petition challenging the termination of their contract. The application sought the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. The Railways opposed the application, citing the restrictive arbitration clause limiting arbitrable claims to 20% of the contract value.
Issue: Can the High Court appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, when the arbitration agreement contains a restrictive clause limiting arbitration to claims not exceeding 20% of the contract value, and the applicant's claim exceeds this limit? Further, is such a restrictive clause valid and enforceable, or is it discriminatory and violative of Article 14 of the Constitution of India?
Holding: The High Court held that it could not appoint an arbitrator because the arbitration agreement contained a restrictive covenant limiting arbitration to claims up to 20% of the contract value, and the applicant's claim exceeded this limit. The court also found the restrictive clause to be valid and not discriminatory.
Reasoning: The Court reasoned that the principle of party autonomy allows parties to agree on the scope of arbitration, including limitations on the value of claims that can be arbitrated. Since the parties had expressly agreed that disputes exceeding 20% of the contract value would not be resolved through arbitration, the Court lacked jurisdiction to appoint an arbitrator for claims exceeding that limit. The Court distinguished the case from precedents where arbitration clauses were found to be discriminatory or violative of Article 14, noting that the restrictive clause in this case did not prevent the contractor from seeking adjudication of claims exceeding 20% of the contract value through other legal remedies, such as a civil suit. The Court also emphasized that it could examine the validity of conditions in the arbitration agreement but found no reason to invalidate the 20% limitation in this instance.