[Arbitration Act] Petition Is Not Premature Due To Not Attempting Friendly Negotiations Before Issuing Section 21 Notice: Delhi High Court

Brief facts of the case:

The present dispute arises vis-à-vis a Lease Deed dated 30.07.2021, in which certain premises were leased by the petitioner to the respondent. Article 16 of the deed states that parties should resolve disputes by arbitration. Then, the petitioner addressed various emails to the respondent raising monetary claims, but the dispute remains unresolved. The petitioner invoked the arbitration clause present in the Lease Deed, by sending notice under Section 21 of the Arbitration & Conciliation Act, 1996. After that the respondent replied by denying any liability and further stated that the reference to arbitration was premature since the petitioner had not attempted any friendly consultation with the respondent before sending Section 21 notice. That's why, the present petition was filed under Section 11(6) of the Arbitration Act for reference of the dispute between the parties to arbitration.

Observation of the Court:

The court noted that before issuing a Section 21 notice, the petitioner had addressed numerous e-mails to the respondent raising its claims, the respondent never condescended to respond. It was for the first time, by way of response to the petitioner's Section 21 notice, that the respondent sought to contend that the petitioner ought to have attempted friendly negotiations before invoking arbitration.

The court relied on the case of Visa International Ltd v. Continental Resources USA Ltd (2009) and Demerara Distilleries Pvt Ltd v Demerara Distillers Ltd (2015) wherein it was held that arbitral clause which envisages an undertaking of exercise of negotiation between the parties before arbitration is invoked, have to be realistically interpreted. Where the parties have joined issue on the entitlement of one to claims from the other, and the Section 21 notice issued by one has either not been responded or refuted by the other, it would be futile to relegate the parties to “friendly negotiations” at this stage.

The court also relied on the decision of Supreme Court in SBI General Insurance Co Ltd v. Krish Spinning (2024) wherein it was held that Section 21 court has to examine whether there exists an arbitration agreement and whether the Section 11(6) petition has been filed within 3 years of the issuance of Section 21 notice.

The petition was allowed the petition and held that the present petition is not premature on account of the petitioner having not formally attempted “friendly negotiations” before issuing the Section 21 notice.

Case Title: M/S N. J. GARMENTS PRIVATE LIMITED Versus M/S CAPITALGRAM MARKETING AND TECHNOLOGY PVT LTD

Case Number: ARB.P. 642/2024

Advocate for the Petitioner: Mr. Zeeshan Hashmi, Mr. S.A. Hashmi, Mr. Salman Hashmi and Ms. Sana Hashmi, Advs.

Advocate for the Respondent: Ms. Mansi Binjrajka, Adv.

Date of Judgment: 09.08.2024