J&K High Court Appoints Sole Arbitrator in ERA Contract Dispute, Holds Pre-Arbitration DRE Step Was Not Available to Contractor

The Srinagar bench found that the Adjudicator/DRE forum was never properly constituted and that the employer’s termination decisions fell outside the DRE’s contractual remit entirely.

The High Court of Jammu & Kashmir and Ladakh at Srinagar has appointed former Chief Justice of the High Court, Justice Ali Mohammad Magrey, as Sole Arbitrator to adjudicate disputes between M/s Hassan Roads Construction Company and the J&K Economic Reconstruction Agency (ERA) arising from a Rs 34.88 crore construction contract. Justice Sanjay Dhar, sitting singly, disposed of Arb P No. 53/2025 on 22 May 2026, rejecting ERA’s argument that the contractor was barred from invoking arbitration without first exhausting the Adjudicator/Dispute Review Expert (DRE) mechanism. The court held that the DRE forum had never been properly constituted under the contract and that the employer’s termination-related actions were in any case beyond the DRE’s jurisdiction under Clause 24 of the General Conditions of Contract.

The Contract and the Dispute

ERA issued a Notice Inviting Tender for the construction of a Central Control Building to house an Emergency Operation Centre and SCADA System at Ompora, Budgam. Hassan Roads Construction Company submitted its bid on 16 March 2021 and was declared the lowest bidder. A letter of acceptance dated 30 June 2021 was issued, allotting the work at a contract cost of Rs 29,88,70,430 plus a provisional sum of Rs 5,00,00,000. The parties executed a formal contract agreement on 7 August 2021.

The original completion period was 12 months, with a scheduled completion date of 20 September 2022. According to ERA, despite four extensions granted up to 31 October 2024, the contractor failed to complete the work. ERA terminated the contract on 1 April 2025 under Clause 57.2 of the GCC for persistent non-performance and fundamental breach.

The contractor’s account differed. It submitted that it had completed approximately 90% of the allotted work and that delays were attributable to lapses on ERA’s part. After the termination, the contractor approached the Additional District Judge, Srinagar, by way of a civil suit. That court directed ERA to consider the contractor’s representation for an extension of time. ERA revoked the termination on 2 June 2025 and granted a further 90 days to complete the balance work. ERA subsequently confirmed on 1 September 2025 that the contract stood terminated with effect from 31 August 2025 after the contractor again failed to fulfil the conditions of the revocation order.

Post-termination, ERA encashed bank guarantees, initiated post-termination proceedings, and re-tendered the balance work. The contractor filed a petition under Section 9 of the J&K Arbitration and Conciliation Act, 1996 before the designated Commercial Court, Srinagar, seeking an injunction against encashment of the bank guarantee. That petition was dismissed on 6 October 2025. An appeal under Section 37 of the Act was stated to be pending before the Commercial Appellate Division of the High Court.

The contractor invoked the arbitration agreement under Clause 24.4 of the contract vide letter dated 30 September 2025, naming Sh. Rafiq Ahmad Rafiq, Ex-Chief Engineer, as its arbitrator and requesting ERA to name its arbitrator. ERA did not respond. The contractor then filed the present petition under Section 11(6) of the Act seeking court-appointed arbitration.

The contractor’s claimed amounts included Rs 4,64,44,734 for the 21st Interim Payment Certificate, Rs 1,32,02,210 for Variation No. 3, Rs 3,05,70,235 for non-BOQ items executed at site, Rs 1,04,48,189 as retention money, bank performance securities totalling Rs 4,88,36,312, Rs 44,49,007 as compensation for late release of payments, Rs 5,97,74,086 as compensation for contractual events under Condition 42, and Rs 25,00,000 as expenditure on legal proceedings. The contractor also claimed Rs 300 lacs in damages arising from ERA’s termination, which it said prevented it from obtaining bank guarantees without furnishing 100% cash security.

ERA’s Objections and the DRE Argument

ERA raised several objections. It questioned the authority of the person who had filed the petition on behalf of the contractor. It contended that no arbitrable dispute existed. It also argued that the contractor had already filed a civil suit before the Munsiff, Panthachok, had obtained an ex parte order dated 25 August 2025, and had filed a separate writ petition bearing WP(C) No. 40/2026 on the same subject matter.

ERA’s principal legal argument was that under Clauses 23 and 24 of the GCC, the contractor was required to first refer any disputed decision of the Project Manager to the Adjudicator/DRE before invoking arbitration. Clause 24.3 of the GCC expressly provided that the Arbitral Tribunal would entertain only those issues which had been earlier referred to the Adjudicator/DRE and on which either party was dissatisfied with the DRE’s decision. Since the contractor had not approached the DRE at all, ERA argued that the arbitration petition was not maintainable.

The PCC named Sh. Mohd. Iqbal, retired Chief Engineer (PWD), as the designated Adjudicator/DRE, and designated the Chairman, Institution of Engineers, Srinagar Chapter, as the appointing authority. Clause 23.1.1 of the GCC required that an agreement be signed with the Adjudicator/DRE jointly by the Employer and the Contractor in the form set out in Appendix 3 to the contract.

How the Court Reasoned

Justice Sanjay Dhar addressed the authority objection first. The contractor placed on record a Board resolution dated 1 July 2021 authorising the signatory to institute and pursue the petition. The court treated this as sufficient and moved to the merits.

On the DRE argument, the court acknowledged that ERA’s position had initial appeal but found it unsustainable on two independent grounds.

The first ground was structural: the DRE forum had never been properly constituted. Clause 23.1.1 required a formal agreement to be signed with the named Adjudicator/DRE jointly by both parties in the form prescribed in Appendix 3. When the court examined the original contract produced by the contractor, Appendix 3 was absent. ERA had neither pleaded nor placed on record any such executed agreement. The court held that the condition in Clause 23.1.1 had not been satisfied and that the DRE forum was therefore not available to the contractor.

The second ground went to the scope of the DRE’s jurisdiction. Clause 24.1 of the GCC confined the DRE’s remit to decisions taken by the Project Manager. The court drew a clear distinction between the Project Manager, described in Clause 4 of the GCC as the decision-making authority on contractual matters, and the Employer. The actions of which the contractor was primarily aggrieved — termination of the contract, encashment of bank guarantees, initiation of post-termination proceedings, and re-tendering of the balance work — were all actions taken by ERA as Employer, not by the Project Manager. Those disputes could not, as a matter of contractual construction, have been placed before the DRE under Clause 24.

The court then turned to the arbitration clause in the PCC, which it found to be of wide amplitude. Unlike the narrower language in Clause 24.3 of the GCC, the PCC clause covered “any matter arising out of or connected with this agreement” and directed settlement in accordance with the Arbitration and Conciliation Act, 1996. The court held that disputes not falling within the DRE’s remit could be referred directly to arbitration under the PCC clause.

The court also found support in the communications exchanged between the parties, which indicated that settlement through the DRE was not a realistic possibility given the nature of the disputes.

Justice Dhar relied on the Supreme Court’s decision in Visa International Limited v. Continental Resources (USA) Ltd., (2009) 2 SCC 55, and the Bombay High Court’s decision in Quick Heal Technologies Ltd. v. NCS Computech Pvt. Ltd., 2020 SCC Online Bombay 687. He also cited the Bombay High Court’s recent decision in Generic Engineering Construction and Project Ltd. v. Maharashtra Maritime Board, 2026 SCC Online Bom 2733, which held that where clauses in a contract are slightly inconsistent with the main arbitration clause, courts must rule in favour of arbitration rather than allowing confusing or conflicting clauses to nullify a clear agreement to arbitrate.

The court further invoked the Supreme Court’s direction in Maharashtra State Electricity Distribution Company Limited (MSEDCL) v. R Z Malpani, 2026 LiveLaw (SC) 356, that courts should follow the principle of “when in doubt, do refer” and lean towards referring matters to arbitration where an arbitration agreement is prima facie existent. The court added that under Section 16 of the Act, the arbitral tribunal is competent to rule on its own jurisdiction, leaving ERA free to raise jurisdictional objections before the tribunal.

Order

Justice Sanjay Dhar disposed of Arb P No. 53/2025 and referred all disputes and differences covered by the agreement to arbitration. The following directions were issued:

Justice Ali Mohammad Magrey, former Chief Justice of the High Court of J&K and Ladakh, was appointed as Sole Arbitrator. The Registry was directed to communicate a copy of the order to the Sole Arbitrator within ten days. The Sole Arbitrator was requested to forward the statutory statement of disclosure under Section 11(8) read with Section 12(1) of the Act to the parties within two weeks of receiving the order. The parties were directed to appear before the Sole Arbitrator on a date and at a place to be fixed by him. Arbitral costs and the fee of the Arbitral Tribunal are to be borne equally by the parties, subject to the final award on costs.