The High Court of Meghalaya has reaffirmed that the invocation of a force majeure clause does not nullify a contractual arbitration agreement. In a decisive order, the Court directed immediate referral of a commercial dispute between a private ferroalloys supplier and multiple SAIL units to a sole arbitrator, emphasizing that procedural compliance with arbitration clauses is non-negotiable even amid alleged external disruptions.
Background & Facts
The Dispute
The petitioner, RNB Carbides and Ferro Alloys Pvt. Ltd., entered into a supply agreement with various units of Steel Authority of India Limited (SAIL) for the delivery of Ferro Silicon. The petitioner invoked the Force Majeure clause in the contract due to operational constraints beyond its control, seeking extension of delivery timelines. In response, SAIL issued a communication dated 28.03.2025, directing the petitioner to supply all pending quantities within fifteen days, threatening risk purchase and contractual penalties despite the force majeure claim.
Procedural History
- The petitioner filed a writ petition under Article 226 challenging SAIL’s directive as arbitrary and in violation of the contract.
- SAIL resisted the petition, arguing that the petitioner had failed to substantiate force majeure and was in breach of contractual obligations.
- During proceedings, both parties jointly affirmed their intent to adhere to the arbitration mechanism stipulated in the Request for Quotation (RFQ).
Relief Sought
The petitioner sought quashing of SAIL’s directive and a declaration that the force majeure clause remained valid. Alternatively, the petitioner requested that the dispute be referred to arbitration as per the agreed contractual terms.
The Legal Issue
The central question was whether the invocation of a force majeure clause in a contract containing a mandatory arbitration clause suspends or extinguishes the obligation to arbitrate, or whether arbitration must proceed regardless of the nature of the dispute.
Arguments Presented
For the Petitioner
The petitioner relied on the express terms of the RFQ, which incorporated a binding arbitration clause and a recognized force majeure provision. Counsel cited S.B.S. Rajan v. M/s. Muthoot Finance Ltd. to argue that arbitration clauses are severable and survive disputes over performance, including those arising from force majeure. The petitioner emphasized that SAIL’s unilateral threat of risk purchase violated the agreed dispute resolution mechanism.
For the Respondent
SAIL contended that the force majeure claim was unsubstantiated and amounted to an excuse for non-performance. The respondents argued that the petitioner’s failure to deliver constituted a material breach, entitling SAIL to invoke contractual remedies, including procurement from alternative sources. They asserted that arbitration was not mandatory where one party had clearly defaulted.
The Court's Analysis
The Court examined the structure of the RFQ and found that the arbitration clause was explicit, unambiguous, and mutually agreed upon. It held that the existence of a force majeure clause does not negate the arbitration mechanism; rather, it forms part of the factual matrix to be adjudicated by the arbitrator. The Court observed that the parties had already agreed on a sole arbitrator from a pre-approved panel of retired Chief Justices, indicating their clear intent to resolve disputes through arbitration.
"The presence of a force majeure clause does not render the arbitration clause inoperative. The arbitrator is best placed to determine whether the event invoked qualifies as force majeure and whether it excuses non-performance."
The Court rejected SAIL’s argument that breach of contract automatically bypasses arbitration, citing Hindustan Construction Co. Ltd. v. Union of India to affirm that arbitration is the primary remedy where contractually mandated. The Court further noted that the parties’ joint submission on the arbitrator’s identity demonstrated a binding consensus on dispute resolution methodology.
The Verdict
The petitioner succeeded. The Court held that arbitration must proceed despite the invocation of force majeure, and appointed Justice Mohammad Rafiq as the sole arbitrator. All disputes arising from the contract, including the validity of the force majeure claim, are to be decided by the arbitrator.
What This Means For Similar Cases
Arbitration Clauses Override Unilateral Remedies
- Practitioners must advise clients that invoking contractual penalties or alternative procurement without first referring the matter to arbitration may constitute a breach of the arbitration agreement.
- Parties cannot circumvent arbitration by alleging breach; the arbitrator must determine whether a breach occurred.
Force Majeure Is an Arbitrable Issue
- Claims of force majeure are not self-executing; they require adjudication under the contract’s dispute resolution mechanism.
- Evidence supporting force majeure (e.g., government orders, supply chain disruptions) must be presented before the arbitrator, not the court.
Pre-Selected Arbitrators Bind the Parties
- When parties jointly nominate an arbitrator from a pre-approved list, courts will enforce that choice unless there is clear bias or conflict.
- Failure to comply with the agreed appointment process may result in dismissal of challenges to the arbitral process.
