Jharkhand High Court
M/S Mecon Limited vs M/S U.R. Engineering Company on 24 September, 2025
Author: Sujit Narayan Prasad
Bench: Sujit Narayan Prasad
2025:JHHC:29766
IN THE HIGH COURT OF JHARKHAND AT RANCHI
Arbitration Application No.29 of 2023
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M/s MECON Limited, having its head office at Vivekanand Path, PO and PS- Doranda, District Ranchi, Jharkhand through its Sr. General Manger (Contracts and Legal), Shri Debabrata Acharya, Aged about 58 years, son of Late Tapan Kumar Acharya, resident of MECON Colony, Shyamali, PO & PS: Doranda, District Ranchi, Jharkhand-834002. ..... ..... Applicant Versus M/s U.R. Engineering Company, a proprietorship firm through its Proprietor Mr. Rajan Mishra, having its registered address at 52-B, Industrial Area No.1 (Near Premier Ind.) A.B. Road, Dewas, PO and PS Dewas, Madhya Pradesh- 455001. ..... ..... Respondent
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CORAM:HON'BLE MR. JUSTICE SUJIT NARAYAN PRASAD
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For the Applicant(s) : Mr. Shrestha Gautam, Advocate For the Respondent(s) : Mr. Rahul Lamba, Advocate Mr. Anish Kamal, Advocate
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th C.A.V. on: 17 September, 2025 Pronounced on:24/09/2025
1. The present application has been filed under section 11(6) of the Arbitration and Conciliation Act, 1996 (In short, the Act, 1996) for appointment of an arbitrator since the respondent has refused to nominate/appoint an arbitrator.
2. The brief facts of the case as per the averments made in the instant application are as under:
The Applicant is a 'Miniratna' central public sector enterprise of the Government of India under Ministry of Steel and is engaged in the business of consultancy and execution of construction and industrial projects throughout the country.
The Respondent is a proprietorship firm and is engaged in the business of manufacturing, selling and exporting cutting machines and sitting machines and also provides fabrication services on contract basis.
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2025:JHHC:29766 A tender enquiry bearing Tender Enquiry No. 11.51.10HV/ Mechanical Equipment/ 004 dated 29.09.2016 was floated by the Applicant herein, inviting bids from the qualified entities for works pertaining to "manufacture, fabrication, assembly, testing and supply of mechanical equipment of folding frame, sliding door, moving platform, thrust measuring system and calibration system required for establishment of Structural & Mechanical Systems of Integrated Engine Test Facility, complete in all respect as per Technical Specification on F.O.R. IPRC, Mahendragiri site basis" ["Tender"].
The Respondent, being an eligible entity, and desirous of procuring the award of the said works; applied under the aforementioned Tender and duly submitted its offer before the Applicant vide Offer No. URE/2016/TENDER/04 dated 08.11.2016 and the Respondent, having been emerged as L-1, was declared as the successful bidder.
Consequently, the Applicant and the Respondent entered into discussions, and upon finalization of the terms and conditions, a purchase order bearing Purchase Order No. 11.51.10HV/Mechanical Equipment/9258 dated 17.04.2017 was issued by the Applicant in favour of the Respondent, and the same was duly acknowledged by the Respondent.
As per the Purchase Order, the entire supplies as detailed in the scope of work was required to be delivered at the Project Site at ISRO Propulsion Complex, ISRO, Mahendragiri within 7 (seven) months from the date of the Purchase Order. In accordance with Clause 6.0 of the Purchase Order, the 2 2025:JHHC:29766 Respondent was required to furnish Security Deposit-cum- Performance Bank Guarantee, for a value of 10% of the Total Contract Price, in favour of the Applicant herein within two weeks from the date of issuance of the Purchase Order.
The Respondent herein after issuance of Purchase Order in its favour, failed to take any positive steps and no supplies, which were required to be made at the Site within 7 months, were made by the Respondent. In spite of timely issuance of fabrication drawings and other requisite instructions to the Respondent, there was no progress of works at the end of the Respondent since the very inception.
Vide letter dated 11.07.2017 the Applicant herein duly communicated to the Respondent that even after passage of a period of more than 3 (three) months from the date of issuance of Purchase Order, there was no progress of work at all at the end of the Respondent. Respondent had also not furnished the Security Deposit-cum-Performance Bank Guarantee, which was required to be furnished within 2 weeks from the date of issuance of Purchase Order, under Clause 6.0 of the said order.
It is stated that the Applicant herein made several requests to the Respondent to submit copies of the order placed on various vendors for procurement of raw material and other items, however, the same was also not paid heed to and no steps were taken by the Respondent. A site visit was conducted by the authorized personnel of the Applicant on 20.06.2017 and 21.06.2017, wherein it was discovered that there has been no progress of works at all by the Respondent against the concerned 3 2025:JHHC:29766 Purchase Order.Vide the aforementioned letter dated 11.07.2017 the Applicant herein requested the Respondents to expedite the progress of works and to comply with the provisions of the Purchase Order such as furnishing of Security Deposit and submitting progress reports indicating the status of procurement of raw materials and other components.
In spite of repeated requests and attempts made by the Applicant to expedite the progress of works, the Respondents did not take any steps towards the same and thus failed to abide by its obligations under the Purchase Order. The Respondent failed to reply to any/all the communications issued by the Applicant, and in a completely lackadaisical and arbitrary manner did not make any supply and execution of other works at the Site without any due intimation or information. The instant works were pertaining to development of India's space capacity, and despite being aware of the criticality of the works, the Respondent had been completely ignorant of its obligations and has failed to show diligence and sincerity vis-à-vis the execution of works under the Purchase Order. Owing to non-adherence of the Respondent to the time schedule, the overall completion schedule of the project was severely jeopardized and the responsibility for which lies solely with the Respondent.
It has further been stated that the Applicant herein made several attempts, and made various requests, to the respondent to undertake the works under the Purchase Order. The time period for supply of materials and equipment under the Purchase Order was 7 months, however, even after passage of almost 3 months 4 2025:JHHC:29766 from the date of issuance of Work Order, the Respondent had not taken any action at all, and no steps in furtherance of the works under the Purchase Order was taken by the Respondent.
It has been alleged that the Respondent has miserably failed to comply with, and adhere to, the obligations envisaged under the Purchase Order and as such has committed material/ fundamental breach of the terms of the said Purchase Order. Since the Respondent has committed material/ fundamental breach of the Purchase Order and as such the Applicant is entitled towards damages for the loss suffered by it on account of non-performance of its obligations by the Respondent. Owing to the critical and time-sensitive nature of the works, the Applicant herein was constrained to proceed with procurement of the mechanical equipment, such as folding frame, moving platform, thrust measuring system, calibration system etc., from alternate source.
Purchase Order clearly stipulated under Clause 26.0, that in case the Respondent fails to execute the works with due diligence, the Applicant, i.e.. MECON Ltd. shall have the right to get the works executed through another agency at the risk and cost of the Respondent.
It is stated that to the above end, the Applicant was forced to issue a 'Risk Purchase Notice dated 21.07.2017 in accordance with Clause 26.0 of the Purchase Order, vide which it was duly informed to the Respondent that the Applicant shall be proceeding with procurement of the said material and/or equipment from alternate sources at the risk and cost of the 5 2025:JHHC:29766 Respondent. After giving due notice to the Respondent about Applicant's decision to invoke Clause 26.0 of the Purchase Order, and since neither any response was received from the Respondent nor works were undertaken by the Respondent, the Applicant herein proceeded with procuring the said materials equipment from alternate sources at the risk and cost of the Respondent.
Applicant herein has duly acted in terms of the Purchase Order, and has got the balance works executed by alternative source at the risk and cost of the Respondent herein in accordance with Clause 26.0 of the Purchase Order. The Respondent is liable to make good and pay the additional costs incurred by the Applicant in execution of said works by an alternative source in terms of the Purchase Order. The supplies of entire mechanical equipment were completed by an alternate party at a total basic price of Rs. 2,41,86,169/- against the total basic price at which order was placed on the Respondent for the supply of same items at Rs. 2,18,47,332/.
Thus, the Applicant has incurred additional expenditure amounting to Rs. 23,38,837/-plus overheads. Since the EMD Bank Guarantee submitted by the Respondent amounting to Rs. 50,000/-was encashed by the Applicant, the balance total basic amount of Rs. 22,88,836/ plus overheads were payable to the Applicant by the Respondent.
Consequently, vide letter 07.12.2020, the Applicant herein raised its demand for payment of Rs. 22,88,836/- upon the Respondent on account of procurement of mechanical 6 2025:JHHC:29766 equipments at the risk and cost of the Respondent. The aforesaid demand notice dated 07.12.2020 was duly served upon the Respondent.
However, in spite of receiving the aforesaid letter, the Respondent did not oblige with the said request and kept the same in abeyance. Applicant herein vide email dated 08.03.2021 duly reminded the Respondent to pay the outstanding amount of Rs. 22,88,836 to the Applicant immediately, failing which necessary legal action was proposed to be taken against the Respondent.
It is stated that a reminder email dated 27.05.2021 was again sent to the Respondent by the Applicant to pay the abovementioned outstanding amount to the Applicant for the cost incurred by it on account of procuring the equipment, as envisaged under the Purchase Order, from alternate source. In spite of due reminders by the Applicant, the Respondent did not make any payment towards the costs incurred by the Applicant in executing the balance works under the Purchase Order by an alternate source.
It has been pleaded that the acts and actions of the Respondent by not paying the additional amount incurred by the Applicant for executing the balance works at the risk and cost of the Respondent is illegal, arbitrary and unjust, and gives rise to a valid dispute between the Parties. Thus, there exists a clear and valid dispute between the Parties herein, and in light of the arbitration clause contained in the Purchase Order, the same is 7 2025:JHHC:29766 liable to be adjudicated through arbitration. Hence this Application.
Submission of the learned counsel for the applicant:
3. Mr. Shrestha Gautam, the learned counsel for the applicant has submitted that in-spite of endeavour taken, the arbitrator, has not been appointed and, as such, present application has been filed for appointment of an arbitrator so that the matter may be adjudicated.
Submission of the learned counsel for the respondent:
4. Per contra, Mr. Rahul Lamba, the learned counsel for the respondent has submitted by referring objection that it is not a case where arbitration clause is to be invoked due to non-compliance of the pre-arbitration proceeding which was by way of conciliation as would be evident from clause34.0 of the contract.
5. It has been contended that no endeavour has ever been taken for settlement of dispute through conciliation which is the pre-requisite condition for appointment of an arbitrator. The further ground has been taken that since the endeavour has not been taken for settlement of dispute through conciliation proceeding, the occasion for appointment of arbitrator has not crept up.
Response of the learned counsel for the applicant:
6. The learned counsel for the applicant, in response, has submitted that it is incorrect on the part of the respondent that no endeavour has been taken for settlement of dispute through conciliation, rather, a communication dated 29th October, 2022 which would be evident from the E-mail dated 29th September, 2023, wherein the communication dated 29th October, 2022 has been annexed and the same is appended to the rejoinder-affidavit dated 09.04.2025.
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7. Per contra, the learned counsel for the respondent has submitted that since pre-arbitration process has not been followed, hence, the stage of appointment of an arbitrator has not come, hence, present application is fit to be dismissed.
Analysis
8. We have heard the learned counsel for the parties and gone through the pleadings made in the instant application along with other affidavits filed on behalf of the respective parties.
9. On the basis of the contention raised by the learned counsel for the parties that the issues which require consideration in the present case are as follows:
(i) Whether without following the pre-arbitration mechanism provided under clause-34 of the contract, can there be an order under section 11(6) of the Arbitration & Conciliation Act, 1996?
(ii) Whether making request through communication dated 29th October, 2022 undisputed by the respondent but not taking any endeavour for settlement of dispute through conciliation, can such dispute be adjudicated by the arbitrator, if, appointment of arbitrator is the follow up action after the process of conciliation for settlement of dispute?
(iii) Whether without issuance of notice under section 21 of the Act, 1996 the power conferred to the High Court under section 11(6) of the Act, 1996 can be invoked?
10. Issue Nos. (i) and (ii) are interlinked and, therefore, both are being taken up together.
11. This Court before considering the aforesaid issues pleases to refer herein clause 34.0 & 34.1 of the contract which read as under: 9
2025:JHHC:29766 "34.0 ARBITRATION 34.1 Any dispute, differences, whatsoever, arising between the parties out of or relating to the construction, meaning,scope, operation or effect of this Order shall be settled between MECON and the Contractor amicably, if however, the MECON and the Contractor are not able to resolve their disputes/differences amicably as aforesaid, the said disputes/differences shall be settled by Arbitration in accordance with the Rules of Arbitration and the award made in pursuance thereof shall be binding on the parties. Conciliation shall be resorted to prior to invoking Arbitration."
12. It is evident from the aforesaid arbitration clause that any dispute or differences, whatsoever, arising between the parties relating to the construction, meaning, scope, operation or effect of this order shall be settled between MECON and the contractor amicably. If, however, the MECON and the Contractor are not able to resolve their disputes/differences amicably as aforesaid, the said disputes/differences shall be settled by arbitration, in accordance with the Rules of Arbitration and the Award made in pursuance thereof shall be binding on the parties but conciliation shall be resorted to prior to invoking Arbitration.
13. It is evident from the aforesaid contract to which the parties have agreed that for the purpose of redressal of dispute or resolution thereof, two mechanisms have been carved out, (i) the conciliation for amicable settlement and (ii) through the arbitration proceeding.
14. The dispute amicably be settled is the bearing upon the said contract and, for the aforesaid purpose, the reference of the above conciliation, has been referred therein to the specific stipulation that the conciliation shall be resorted prior to invoking arbitration, meaning thereby, the arbitration proceeding is to be the last resort.
15. Prior to invoking the arbitration clauses, the efforts must be taken for amicable settlement through conciliation and if the dispute is not settled 10 2025:JHHC:29766 amicably in the conciliation proceeding then only the situation will arise for appointment of arbitrator, by making request under section 21 of the Act, 1996 and in case of non-appointment of an arbitrator, the power conferred to this court under section 11(6) of the Act, 1996 is to be invoked.
16. The dispute has been raised on behalf of the respondent that the present application filed under section 11(6) of the Act, 1996 is not maintainable as first endeavourfor amicable settlement through conciliation has never been taken.
17. However, the learned counsel for the applicant has submitted that such effort has been taken but no response was there. The learned counsel for the applicant demonstrated by showing the communication dated 29th October, 2022 which has been sent by the applicant through e-mail dated 29th September, 2023making request for settlement of the dispute, as appended in the rejoinder affidavit dated 09.04.2025.
18. Learned counsel for the applicant has submitted that even if there is dispute with respect to not making request for amicable settlement through conciliation is accepted to be true then also the said aspect of the matter being in dispute can well be adjudicated by the arbitrator.Therefore, the arbitrator may be appointed exercising power conferred under section 11(6) of the Arbitration and Conciliation Act, 1996 but this court is not in agreement with such submission, reason being, that if the arbitration clause is there in the contract, the same is strictly to be adhered to, without deviating from here and there. The parties have agreed for settlement of dispute through two mechanisms, i.e., through amicable settlement through conciliation and if it fails then only arbitration.
19. The issue of not making any effort for amicable settlement of dispute through conciliation cannot be subject matter before the arbitrator, since, the 11 2025:JHHC:29766 contract clarifies the position that arbitrator can only be appointed if the efforts for amicable settlement through conciliation fails.
20. This court is of the view that if the contention of the applicant will be accepted then very purpose of the dispute settlement mechanism as provided under clause 34.0 of the contract will be diluted and the terms and conditions as agreed between the parties for amicable settlement of dispute through conciliation will also be bone of contention before the arbitrator who is to decide the dispute in case of failure of the settlement in course of conciliation proceeding.
21. Further, if the efforts have been taken by the parties for amicable settlement through conciliation proceeding and if no decision has been taken by either of the parties, then certainly the arbitrator will have a jurisdiction to straightaway go into the rival claims of the parties for the purpose of adjudication.
22. The conciliation and arbitration are in two different stages as per terms and conditions stipulated under clause 34 of the contract and once the stages have been carved out in the contract, both cannot be intermingled by conferring jurisdiction to the arbitrator.
23. The law is well-settled that the court having jurisdiction under section 11(6) of the Act, 1996 will strictly to go by the terms and conditions of the agreement as per the judgment rendered by the Hon'ble Apex Court in the case of Rajasthan Small Industries Corpn. Ltd. v. Ganesh Containers Movers Syndicate reported in (2019) 3 SCC 282.
For ready reference relevant paragraphs are being quoted hereunder:-
"33. After analysis of the scheme of Sections 11, 14 and 15, in SBP & Co. (2) v. Patel Engg. Ltd. [SBP & Co. (2) v. Patel Engg. Ltd., (2009) 10 SCC 293 : (2009) 4 SCC (Civ) 183] , this Court held that the legislature has repeatedly laid emphasis on the necessity of 12 2025:JHHC:29766 adherence to the terms of agreement between the parties in the matter of appointment of arbitrators and procedure to be followed for such appointment. In para 31, it was held as under: (SCC p. 306) "31. ... Even Section 15(2), which regulates appointment of a substitute arbitrator, requires that such an appointment shall be made according to the rules which were applicable to the appointment of an original arbitrator. The term "rules" used in this sub-section is not confined to statutory rules or the rules framed by the competent authority in exercise of the power of delegated legislation but also includes the terms of agreement entered into between the parties."
24. Issue Nos. (i) and (ii) are, accordingly, answered.
25. This court in order to consider the issue No.(iii) with respect to the requirement of the issuance of notice by making request for appointment of an arbitrator as provided under section 21 of the Act, 1996 needs to refer herein provisions of sections 11(4),11(5) and 11(6) of the Act, 1996.
(4) If the appointment procedure in sub-section (3) applies and-- (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by 1 [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court]; (5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by 1 [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court]. (6) Where, under an appointment procedure agreed upon by the parties,-- (a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request 1 [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the 13 2025:JHHC:29766 agreement on the appointment procedure provides other means for securing the appointment.
26. It is evident from the provisions of sections 11(4) and 11(5) of the Act, 1996 together which provide the procedure for appointing an arbitrator. It is evident from reading of both the provisions that there should be first a request and if the same has not been responded then the endevours to be taken by filing application under section 11(6) of the Arbitration & Conciliation Act, 1996.
27. Further at this juncture Section 21 thereof is also required to be referred herein which reads as under:
"21. Commencement of arbitral proceedings.--Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent."
28. It is evident from the reading of section 21 of the Arbitration & Conciliation Act, 1996 which indicates that unless otherwise agreed by the parties, the arbitral proceeding, in respect of the dispute would commence from the date on which the request for resolving the dispute through arbitration, is received by the respondent.
29. A plain reading of the provision shows that in the absence of an agreement between the parties, arbitral proceedings are deemed to have commenced when the respondent receives a request to refer disputes to arbitration. It is clear that Section 21 does not expressly mandate the claimant to send a notice invoking arbitration to the respondents.
30. However, the provision necessarily mandates such notice as its receipt by the respondent is required to commence arbitral proceedings, unless the parties have mutually agreed on another date/event for determining when the arbitral proceedings have commenced.
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31. It is, thus, evident after going through the sections 11(4), 11(5) and 11(6) of the Act, 1996 that statutory mandates as contained therein would come into play only when the respondent fails to act.
32. It is further evident from the sections 11(4),11(5) and 11(6) of the Act, 1996 there must be a request from one party to the other party to which the other party disagrees or fails to respond. Section 11(4) of the Act, 1996 relates to a case wherein an arbitration agreement consisting of three arbitrators, the applicant suggests the name of the arbitrators and calls upon the other to appoint his arbitrator and the respondent fails to do so, the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court. Section 11(5) contemplates a situation wherein an arbitration agreement agrees consisting of sole arbitrator, the applicant names an arbitrator and the respondent fails to respond. Section 11(6) of the Act, 1996 will arise in cases where parties agree to a procedure for appointing arbitrator(s) but fail to act as required by the procedure. It is, thus, evident that the provisions of section 11(6) of the Act,1996 is to be attracted when there will be failure on the part of either of the party in appointing an arbitrator and that occasion will only arise if a request made to the other party as contemplated under section 21 of the Act, 1996.
33. The Hon'ble Apex Court in the case of Adavya Projects Pvt. Ltd vs. Vishal Structurals Pvt. Ltd and Ors. reported in 2025 SCC OnLine SC 806 clarifies that issuing a notice under section 21 of the Act,1996 is mandatory as it fixes the date of commencement of arbitration and is a pre-requisite for the applicant seeking appointment of an arbitrator, however, non-service of the arbitration notice upon a person, does not deprive the jurisdiction of the 15 2025:JHHC:29766 arbitral tribunal under section 16 of the Act, 1996. The reference of the relevant paragraphs needs to be referred herein under which is as under:
"30.2 While we agree with the decision insofar as holding that the notice under Section 21 is mandatory, unless the contract provides otherwise, we do not agree with the conclusion that non-service of such notice on a party nullifies the arbitral tribunal's jurisdiction over him. The purpose of the Section 21 notice is clear - by fixing the date of commencement of arbitration, it enables the calculation of limitation and it is a necessary precondition for filing an application under Section 11 of the ACA. The other purposes served by such notice - of informing the respondent about the claims, giving the respondent an opportunity to admit and contest claims and raise counter-claims, and to object to proposed arbitrators - are only incidental and secondary. We have already held that the contents of the notice do not restrict the claims, and any objections regarding limitation and maintainability can be raised before the arbitral tribunal, and the ACA provides mechanisms for challenging the appointment of arbitrators on various grounds. Hence, while a Section 21 notice may perform these functions, it is not the primary or only mechanism envisaged by the ACA.
40. Summary of Conclusions : Our legal analysis of the issues that we set out above, as well as our findings in the facts of the given appeal, can be stated as follows:
I. A notice invoking arbitration under Section 21 of the ACA is mandatory as it fixes the date of commencement of arbitration, which is essential for determining limitation periods and the applicable law, and it is a prerequisite to filing an application under Section 11. However, merely because such a notice was not issued to certain persons who are parties to the arbitration agreement does not denude the arbitral tribunal of its jurisdiction to implead them as parties during the arbitral proceedings."
34. This court is of the view that the requirement to take endeavour by making representation as required under section 21 of the Act, 1996 is mandatory.
Accordingly, the issue No.(iii) has been answered. 16
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35. Adverting to the factual aspect of the present case, this court has not found that the applicant has made any request for appointment of an arbitrator in terms of section 21 of the Act, 1996.
36. The arguments advanced have taken note while answering the issue nos. (i) and (ii) that the request has been made for amicable settlement of the dispute and there is no response by the respondent and, as such, the application under section 11(6) of the Act, 1996 has been preferred.
37. This court is not satisfied while dealing with issue nos.(i) and (ii) and needs to refer herein, that claim is being agitated, stating that efforts have been made for settlement of dispute through conciliation process, by communication through letter on 29.10.2022, even the same is accepted, then also the instant application cannot be said to be maintainable, reason being, that the applicant ought to have made a request for appointment of an arbitrator in terms of section 21 of the Act, 1996 but no pleading or application in this regard has been appended in the present application.
38. This court based upon the issues having been answered and the discussions as referred hereinabove by adverting to the factual aspect of the present case, is of the view that the present application is not maintainable and, hence, it is dismissed.
39. However, the applicant is at liberty to take recourse, strictly in pursuance of clause no. 34 of the contract to which the learned counsel for the respondent has also not expressed any opposition.
40. Interlocutory Application(s), if any, stands disposed of.
(Sujit Narayan Prasad, J.) Jharkhand High Court Date: 24/09 / 2025 KNR/AFR 17