[Arbitration Act] Courts Can Only Appoint Arbitrator U/s. 11(6) If Parties Fail To Refer Dispute To Arbitrator Even After Notice: Andhra Pradesh High Court

Brief Facts:

Respondent No.1, M/s Oil and Natural Gas Corporation Limited issued a tender for the hiring of services involving eight 25-seater AC shift buses for 24-hour duty on a regular monthly basis over four years to support its operations. The Petitioner successfully bid for the contract and subsequently entered into an agreement on 08.04.2019.

Disputes arose between the parties regarding the contract. The Respondent asked for recovery of an amount of Rs.65,61,300/- from the Petitioner's subsequent bills.

The Petitioner requested resolution of the matter by a letter, addressed to the Deputy Chief Legal Adviser, ONGC, urging referral to the Outside Expert Committee (OEC). Allegedly, no further action was taken by the Respondents. Feeling aggrieved, the Petitioner approached the Andhra Pradesh High Court (“High Court”) and filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for reference of the disputes to an independent Arbitrator.

Conversely, the Respondents argued that while the Petitioner requested resolution through the OEC as per clause 27.3 of the agreement, it failed to seek adjudication through arbitration as required under clause 27.1.3 and Section 21 of the Arbitration Act.

Observations by the High Court:

The High Court referred to clause 27.1 which unequivocally delineated that arbitration may only be invoked subsequent to the lapse of a 60-day period following the issuance of a Dispute Notice as mandated in the agreement.

Clause 27.3 further elaborated on the procedure for resolving disputes and emphasized the necessity of a written Dispute Notice to be tendered by either party to the identified officer of the opposing party. The parties are then obliged to exert all reasonable efforts to achieve an amicable resolution within the designated 60-day Dispute Notice Period, maintaining confidentiality as stipulated by Section 75 of the Arbitration Act.

The High Court observed that although the Petitioner ostensibly sought resolution of the disputes through conciliation by an OEC, there was a conspicuous absence of formal notice served upon the Respondents invoking the arbitration clause subsequent to the expiration of the 60-day period.

Furthermore, the High Court referred to Section 11(6) of the Arbitration Act which confers upon a party the right to make an application for the reference of disputes to an arbitrator in instances where a party fails to adhere to the prescribed procedure. Therefore, to sustain an application under Section 11(6), it held that the Petitioner was mandated to demonstrate that the Respondents failed to act in accordance with the clause and neglected to refer the disputes to the arbitrator subsequent to the service of a notice invoking the arbitration clause.

Further, the High Court held that an application under Section 11 of the Arbitration Act can only be initiated subsequent to the service of a notice of arbitration pertaining to the claims earmarked for arbitration.

However, due to the absence of any notice served upon the Respondents in accordance with clause 27.1.3 of the agreement in conjunction with Section 21 of the Arbitration Act, the High Court held that the disputes as solicited cannot be referred for adjudication to an independent arbitrator.

The Application was dismissed.

Case Title: M/s Shree Swaminarayan Travels vs M/s Oil Natural Gas Corporation Limited

Case Number: Arbitration Application No.13 of 2023

Advocate for the Applicant: K.V. Pavan Kumar

Advocate for the Respondent: D. S. Siva Darshan

Click Here To Read/Download Order