Court Denies State's Bid for Arbitration After Seven Years of Judicial Proceedings in L&T's Hydro Power Case
In a significant ruling, the Himachal Pradesh High Court has dismissed applications filed by the Government of Himachal Pradesh seeking to refer a prolonged dispute with L&T Himachal Hydro Power Limited to arbitration. The applications, submitted under Section 8 of the Arbitration and Conciliation Act, 1996, aimed to enforce an arbitration clause contained in the Pre-Implementation Agreement (PIA) dated March 15, 2011, between the parties.
Presiding over the matter, Justice Jiya Lal Bhardwaj highlighted the legislative intent behind the 2015 amendment to Section 8 of the Act, which emphasizes the need for timely invocation of arbitration proceedings. The Court underscored that the application for arbitration must be filed "not later than the date of submitting the first statement on the substance of the dispute." The respondents, representing the state government, had raised an objection regarding the maintainability of the writ petition on the grounds of an existing arbitration clause but failed to take proactive steps to invoke arbitration at the appropriate stage.
The legal battle, stemming from L&T's desire to withdraw from the Reoli-Dugli Hydro Electric Power Project in Lahaul & Spiti, has been ongoing since 2018. L&T claims that the project has become economically unviable and seeks the return of an upfront premium deposit of INR 84 crores, along with interest. The state government's attempt to shift the dispute to arbitration after seven years of judicial proceedings was deemed a waiver of their arbitration rights, as they had already participated in the court's jurisdiction without timely invoking the arbitration clause.
The Court drew upon precedents including the Supreme Court judgment in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., which underscores the necessity of filing arbitration applications at the earliest possible opportunity to prevent dilatory tactics. Justice Bhardwaj reiterated that the mere mention of an arbitration clause in legal pleadings does not suffice to defer matters to arbitration unless accompanied by substantive action within the stipulated timeframe.
In dismissing the applications, the Court affirmed that the respondents' prolonged participation in the judicial process constituted a waiver of their right to arbitration. The case is slated to continue in the High Court, with further hearings scheduled for later this month.
Bottom line:-
Arbitration and Conciliation Act, 1996 - Application under Section 8 must be filed not later than the submission of the first statement on the substance of the dispute - Mere mention of arbitration clause in the reply to the writ petition does not suffice to seek reference to arbitration if no proactive steps are taken within the stipulated time.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 8
