MULTI-TIER ARBITRATION CLAUSE
Multi-tier dispute resolution clauses in arbitration are being used very frequently particularly at the time of construction of the complex contract, joint ventures, and other contracts that are made for long term purposes. The scope of multi-tier clauses has increased after the recent amendment in Arbitration and Conciliation Act,1996, inter alia, regarding fixation of a particular time limit within which a dispute must be resolved through arbitration. Multi-tier arbitration clauses provide that when a dispute arises, parties are condition bound to perform certain steps before the commencement of an arbitration proceeding to solve the dispute.
Multi-tier arbitration clauses are often known as an escalation or filter clauses. They provide a proper series to the parties for alternate dispute resolution at each level before finally going for arbitration to resolve the dispute. Multi-tier clause in simple requires the parties to engage in certain steps before the commencement of arbitration proceedings, these steps includes negotiation at a lower level as well as at a higher-level representative, followed by mediation or conciliation proceedings, all for a definite period. The reason why Parties opt for a multi-tier clause is that the clause acts as an early signal to the parties, that before going for arbitration the parties should make efforts to settle the dispute before the arbitration. The inclusion of such clauses in today’s commercial transactions is governed by recognition of the understanding that several disputes do get settled and scripting a multi-tier arbitration clause ensures that parties will at least look for alternative modes of dispute resolution before moving towards the process of arbitration. However, the clause may lead to serious problems if the said procedure is not followed i.e. multi-tier dispute resolution clauses are not fulfilled and the defaulting party proceeds surpassing arbitration.
In the case of Simpark Infrastructure Pvt. Ltd. v. Jaipur Municipal Corporation, the High Court of Rajasthan stated that the procedure opted by the parties for dispute resolution has been made a condition precedent for invoking the arbitration clause, the said procedure is required to be followed by the parties. The Rajasthan High Court while delivering the said judgment relied upon the Supreme Court Judgement in the case of SBP & Co. vs Patel Engineering Co., the court held that the prescribed or mentioned procedure is required to be followed by the parties and further, a defaulting party cannot be allowed to take benefit from his wrongdoing. A review of section 11(6) also provides that, the party is required to perform as per the procedure agreed by them by signing the agreement with full consciousness, then it is not open to the parties to ignore the same and exercise their power under section 11(6) of the act.
The decision of Delhi High Court in the case of Ravindra Kumar Verma v. BPTP ltd.& Anr. took a different stance and held that the existence of such appeasement or mutual decision should not be a bar in seeking for the parties to file proceedings for reference of the matter to arbitration. The court said that the parties are free to approach the court even if the arbitration agreement provides for such a clause.