Party Ignores Section 21 Notice; Should Seek Court Intervention, Arbitrator Can't Unilaterally Summon Parties: Delhi High Court
The Delhi High Court bench of Justice C. Hari Shankar has held that if a party seeking arbitration faces a situation where the opposing party does not respond to a Section 21 notice or refuses to agree to arbitration, the only recourse is to approach the Court under Section 11(5) or Section 11(6) of the Arbitration and Conciliation Act, 1996, depending on the circumstances.
The bench held that party cannot unilaterally grant jurisdiction to the arbitrator, even if the arbitrator is already named. Similarly, it held that the arbitrator cannot independently summon the opposing party to attend the arbitration proceedings.
Brief Facts:
Meenakshi Agrawal (Petitioner) and M/s Rototech (Respondent) entered into a Lease Deed under which the Petitioner leased premises located in New Delhi to the Respondent. Disputes later arose between the parties concerning the terms of this Lease Deed. Clause 11 of the Lease Deed stipulated that any disputes arising from the agreement would be resolved through arbitration. This clause specified that the disputes should be settled by Atul Kumar who was mutually agreed upon by both parties as the arbitrator. The arbitration was to be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996, and the resulting award would be binding.
On November 14, 2022, the Petitioner issued a notice to the Respondent under Section 21 of the Arbitration Act requesting the referral of the disputes to arbitration by Atul Kumar as named in the Lease Deed. However, the Respondent did not respond to this notice. Instead of approaching the court under Section 11(5) of the Arbitration Act to seek the appointment of Atul Kumar as the arbitrator, the Petitioner mistakenly allowed Atul Kumar to issue a notice directly to the respondent. When the Respondent failed to appear for arbitration, Mr. Kumar proceeded with the arbitration ex-parte.
As Mr. Atul Kumar's mandate as the arbitrator was nearing expiration, the Petitioner filed an application for the extension of the arbitrator's mandate. Subsequently, the Petitioner withdrew this application and filed the another petition in the High Court seeking the termination of Atul Kumar's mandate and the appointment of a substitute arbitrator.
Observations by the High Court:
The High Court noted that the Petitioner's request for appointing an arbitrator was misplaced. The lease deed between the parties specifically named Atul Kumar as the arbitrator. Given this clear provision, there was no basis for appointing an alternative arbitrator. It held that the Petitioner's failure was in not approaching the court under Section 11(5) of the Arbitration Act after the Respondent did not reply to the Section 21 notice.
Additionally, the High Court noted that the arbitrator made an error by unilaterally issuing a notice to the Respondent to attend the arbitration. The correct procedure, as outlined in the Arbitration Act, is for the litigant to seek intervention from the court under Section 11(5) or Section 11(6) when the opposing party does not respond to a Section 21 notice or agree to arbitration. It held that the arbitrator could not independently confer jurisdiction upon himself, nor could he unilaterally summon the Respondent to arbitration proceedings.
As a result of these procedural missteps, the High Court found Atul Kumar to be legally ineligible to continue as the arbitrator. Consequently, his mandate was deemed invalid under Section 14(1)(a) of the Arbitration Act.
Regarding the appointment of a substitute arbitrator, the High Court noted that both parties agreed on reappointing Atul Kumar as the arbitrator. However, the Respondent insisted that the arbitration process should start anew since it had not participated in the initial proceedings.
Therefore, the High Court decided to reappoint Atul Kumar as the arbitrator to address the disputes between the parties. The proceedings were to commence afresh, with both parties scheduled to present themselves before the arbitrator on 17 September 2024.
Case Title: Meenakshi Agrawal Vs M/S Rototech
Case Number: O.M.P. (T) (COMM.) 60/2024
Advocate for the Petitioner: Mr. Lokesh Bhola, and Mr. Abhishek Singh Chauhan, Advs.
Advocate for the Respondent: Ms. Divya Singh and Ms. Larika Khandelwal, Advs.
Date of Judgment: 03.09.2024