Arbitration Agreement Survives The Termination Of The Main Contract Facilitating The Resolution Of Disputes Arising Under Or In Connection With The Contract

Posted On - 29 August, 2024 • By - King Stubb & Kasiva

Summary:

    [1]This case involves a dispute between Ebix Cash Pvt. Ltd. and the Aurangabad Smart City Development Corporation Limited (ASCDCL), a government entity under the State of Maharashtra. The dispute arose when ASCDCL issued a termination notice to Ebix Cash, ending their contract for the implementation of an e-ticketing system for city buses in Aurangabad. Ebix Cash challenged the termination in the High Court of Judicature at Bombay, Aurangabad Bench, under Article 226 of the Constitution of India, seeking judicial review of the decision. The Aurangabad Bench of the Hon’ble High Court of Bombay has held that an arbitration agreement survives the termination of the main contract facilitating the resolution of disputes arising under or in connection with the contract. Therefore, the bench dismissed a writ petition noting that the dispute was arbitral and fell within the ambit of the arbitration clause.

    Facts:

    • Ebix Cash Pvt. Ltd. was awarded a contract for implementing an e-ticketing system for city buses in Aurangabad on 18.02.2020, following a tender process initiated in 2019. The company successfully implemented the system, and a “Go Live Certificate” was issued by ASCDCL on 01.11.2021.
    • ASCDCL issued a new tender on 05.02.2024 for procuring Electronic Ticket Issuing Machines (ETIM). Ebix Cash objected, arguing that the new tender’s scope overlapped with their ongoing contract.
    • On 23.02.2024, ASCDCL issued a show cause notice to Ebix Cash, citing penalties for software downtime and a functionality issue with ETIMs that allegedly caused revenue losses.Ebix Cash responded to the show cause notice, asserting that the software issues were minor and resolved quickly, and that the ETIM functionality was as per the original tender specifications.
    • Despite this, ASCDCL terminated the contract on 13.06.2024, leading Ebix Cash to file a writ petition challenging the termination as arbitrary and in violation of the contract terms.

    Issue:

    1. Was the termination of the contract by ASCDCL arbitrary, unreasonable, and unauthorized?
    2. Did ASCDCL follow the proper termination procedure as outlined in the contract?
    3. Is the dispute subject to judicial review under Article 226, or should it be resolved through arbitration as per the contract’s dispute resolution clause?

    Judgment:

    1. Arbitration Clause and Contractual Termination:

    The court noted that the contract between the parties contained an arbitration clause, which remained valid even after the contract’s termination. The court emphasized that disputes of this nature, involving interpretation and execution of contractual terms, are typically subject to arbitration rather than judicial review.

    1. Disputed Questions of Fact:

    The court observed that the case involved several disputed facts, such as the alleged delays and penalties, which were best resolved through arbitration rather than in a writ petition.

    1. Legal Precedents:

    The court referred to several Supreme Court judgments to support its decision:

    • Subodh Kumar Singh Rathour v. The Chief Executive Officers Ors. Civil Appeal No.6741/2024.

    This case emphasized that relief against state entities in contractual matters can be sought under writ jurisdiction, but it is discretionary and should only be exercised to correct arbitrary actions.

    • M. P. Power Management Company Limited Jabalpur v. Sky Power Southeast Solar India Private Limited and Ors., (2023) 2 SCC 703.

    This case clarified that even though disputes arising purely from contracts are typically not amenable to writ jurisdiction, the power to issue writs under Article 226 can be used in cases where contractual power is being used for public purposes, making it subject to judicial review.

    • Uttar Pradesh Power Transmission Corporation Ltd. And Ors. v CG Power and Industrial Solutions Ltd. and Ors., (2021) SCC 383:

    The case held that even though disputes concerning contractual modalities are usually not entertained in writ jurisdiction, writs can be issued when actions are palpably unauthorized or arbitrary.

    • SBI General Insurance Co. Ltd. v Krish Spinning (2024):

    This case reiterated the principle that arbitration clauses survive the termination of the main contract, underlining the doctrine of separability in arbitration law.

    1. Dismissal of the Writ Petition:

    Based on the above reasoning, the court dismissed the writ petition, directing that the matter should be resolved through arbitration as stipulated in the contract.

    Analysis:

    The court’s decision upholds the principle that contractual disputes, especially those requiring specialized expertise, are best resolved through arbitration. This approach ensures that experts in the field handle complex matters, rather than general judicial review. The court emphasized the doctrine of separability, which allows arbitration clauses to survive even if the main contract is terminated, providing a mechanism for dispute resolution.

    [1] BEFORE THE HON’BLE HIGH COURT OF BOMBAY

    EBIX Cash Pvt. Ltd v. State of Maharashtra & Ors.

    WRIT PETITION NO. 6707 OF 2024

    Judgment dated 22rd July 2024

    https://ksandk.com/wp-content/uploads/ebix-552484.pdf