When Silence is Just as Loud: The Perils of Missing the Notice of Dissatisfaction
Introduction
Over the last 50 years, FIDIC contracts have been used for the standardisation of infrastructural and construction agreements for international projects. They are a series of standard form contracts intended to handle the legal and practical complexities that are commonplace in large-scale engineering and construction projects, especially those that include several jurisdictions. The cause for the popularity of these contracts is its risk allocation mechanism which encourages predictability by clearly defining the rights and obligations of all parties involved.
The Dispute Adjudication Board (“DAB”) or Dispute Review Board (“DRB”) under FIDIC contracts serves an essential function in the multi-tiered dispute resolution pyramid. Still, one of the most overlooked, yet consequential, elements of this process is the Nature of Dissatisfaction (NoD). Parties who fail to register dissatisfaction within 28 days of a DAB’s decision may find themselves stripped of their right to initiate arbitration altogether. In this regard, Indian courts have taken a strict stance on this requirement, allowing minimal scope for flexibility.
Clause 20.4 of the FIDIC Yellow Book 1999
Clause 20 of the FIDIC Conditions of Contract, specifically sub-clause 20.4, governs the process following a decision of the DAB. Sub-Clause 20.4 reads as follows:
“If the DAB has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days after it received the DAB’s decision, then the decision shall become final and binding upon both Parties.”
This subclause clearly states that if a party is dissatisfied with the DAB’s decision, it must serve a NoD before the end of 28 days from the date of receiving the said decision. Failure to serve such a notice within the stipulated period renders the DAB’s decision binding, and the party loses the contractual right to refer the dispute to arbitration or any other dispute resolution mechanism. Hence, it is a clear position according to the statute that the NoD requirement operates as a condition precedent to arbitration, meaning non-compliance breaks the contractual dispute resolution chain.
Is the NoD Timeline Truly Mandatory?
The Courts in countries such as the United Kingdom, Dubai, and Singapore have already held that if NoD is not served within the stipulated timeline, then the arbitration cannot be invoked. A similar precedent has been formed in India, and Indian courts have overwhelmingly held that the NoD clause in FIDIC contracts is not to be reduced to a mere formality but rather has the stature of a condition precedent to arbitration.
In GHV-EKK v. State of Kerala, the Kerala High Court established that, since the case at hand involved a World Bank-funded project, the conditions of the contract, consistent with FIDIC guidelines, would govern the issue. Neither the petitioners nor the respondents served any NoD against the recommendation of DAB within the timeline. In paragraphs 4 and 5 of the judgement, it reiterated that where neither party served a NoD within 28 days, the DAB’s recommendation attained finality, and the dispute could not be reopened. The court rejected the petitioner’s attempt to escalate the matter, even by arbitration, because the contractual chain had been broken at the NoD stage due to non-compliance.
Similarly, in Capacite Infraprojects Ltd. v. T. Bhimjyani Realty Pvt. Ltd., the Bombay High Court reiterated that failure to issue a timely NoD prevents a party from invoking arbitration. The court emphasized in paragraph 28 that notice of dissatisfaction has to be given and that the notice of contractual spirit of resolving disputes via technical adjudication must be honored, and failure to comply with pre-arbitral steps bars resorting to Section 11 of the Arbitration & Conciliation Act.
The Atlantic Shipping Clause
The authors believe that it is pertinent to mention the Atlantic Shipping clause herein as it can be used as an argument in case notice of dissatisfaction has been delayed. The Atlantic Shipping Clause is a contractual provision in an arbitration agreement that requires the parties to an agreement to take a substantial step to commence arbitration proceedings within a time fixed by the agreement, failing which their claim will be barred. It originated from the case Atlantic Shipping and Trading Company Limited v. Louis Dreyfus and ensures speedy dispute resolution by limiting the time to initiate arbitration. This clause effectively shortens the time to bring a claim not only in arbitration but also to initiate pre-arbitral steps. Pre-arbitral steps are also considered mandatory in India.
Indian courts have acknowledged the concept of “Atlantic Shipping” clauses or time-bar clauses, which confer the right to arbitrate only upon procedural compliance, that too within a pre-specified timeframe. In M.K. Shah Engineers v. State of Madhya Pradesh, the Supreme Court recognized that blanket enforcement of such clauses was imprudent, and exceptions must be carved out, especially in cases where the opposing party’s conduct amounts to a waiver, or where hardship would be unjust. The Court pointed namely three exceptions, in case where it would cause undue hardship, the arbitrator deems it to be fit & if the conduct of the opposite party is such that it precludes the relying time against the claimant.
The focus on this clause is necessary as it can be used by the parties as an exception for delay or not serving the NoD at all. However, such exceptions are rarely applied in practice. Most recent rulings lean heavily in favor of contractual certainty over equitable discretion. The burden is on the party seeking relief from timelines to show that the other side’s conduct justifies a waiver, and the threshold to prove the same is high.
Wider Consequences for Construction Arbitrations beyond FIDIC
Even in cases where the contract isn’t strictly under FIDIC but follows a similar tiered dispute resolution model, Indian courts have been clear on the instruction to follow through on contractual promises.
While FIDIC contracts often serve as the standard, the underlying principles apply broadly to all multi-tiered arbitration clauses. Courts are progressively treating pre-arbitral steps as filters to determine jurisdiction rather than procedural technicalities. In NHAI v. PATI-BEL, the Delhi High Court opined that even if a DRB is not constituted, a party must show a genuine, valid reasoning for not following the agreed terms. It eventually held that the pre-arbitral step of the DRB mechanism was mandatory in nature.
In Ved Prakash Mithal & Sons v. DDA, the Delhi High Court denied the appointment of an arbitrator because the contractor failed to follow the hierarchical, time-bound pre-arbitral process set out in Clause 25 of the GCC. The court was categorical in noting that non-compliance renders any arbitration request premature.
Another instructive case is L&T Construction v. PWD, in which the contractor had followed the mandatory provisions, as the Chief Engineer was supposed to render a decision within 30 days. The SE did not give any decision within the time period of 30 days, and therefore, an appeal was filed with the Principal Chief Engineer.The Delhi High Court held that the use of the word “must” in the pre-arbitral clause demonstrates a clear requirement for mandatory compliance and not optional conduct.
Conclusion
Indian jurisprudence, although still limited, shows a consistent trend of enforcing pre-arbitral timelines, such as the 28-day period for issuing a Notice of Dissatisfaction, as a strict condition for proceeding to arbitration. Courts have repeatedly treated this step as mandatory and have shown little inclination to condone silence or delay.
In such circumstances, the only realistic arguments for relief lie in the narrow exceptions that Indian courts have acknowledged in the context of time-bar clauses. These exceptions can be understood through the lens of the principles underlying Atlantic Shipping–style clauses and can serve as potential defences in rare cases where the NoD is not served within the time. A party could argue that its case falls within one of these three situations, thereby resisting the otherwise terminal consequence of a missed notice.
However, the present state of Indian jurisprudence remains straightforward. Courts have so far applied pre-arbitral time limits with near-total rigidity and have not entertained broader notions of fairness or substantial compliance. Unless a contract is drafted to allow for Atlantic Shipping–style flexibility or one of the recognized exceptions can be clearly invoked, failing to serve a NoD within 28 days almost always closes the door to arbitration. Silence, in these cases, is not just costly, it’s terminal.
*Aditi is a 5th year student from Dr. Ram Manohar Lohiya National Law University, Lucknow and Srishti is a 5th year student from Dharmashastra National Law University, Jabalpur