Invocation Of Arbitration Has To Be In Clear Terms; Merely Stating Claims Would Not Suffice: Bombay High Court
The Bombay High Court has ruled that invocation of arbitration has to be in clear terms, as specified in Section 21 of the Arbitration and Conciliation Act, 1996 (A&C Act), and that a mere reference to the claims and disputes sought to be raised by a party, and the existence of an arbitration clause, would not itself mean that arbitration has been invoked by such a party. The...
The Bombay High Court has ruled that invocation of arbitration has to be in clear terms, as specified in Section 21 of the Arbitration and Conciliation Act, 1996 (A&C Act), and that a mere reference to the claims and disputes sought to be raised by a party, and the existence of an arbitration clause, would not itself mean that arbitration has been invoked by such a party.
The Single Bench of Justice Manish Pitale observed that Section 21 of the A&C Act specifically refers to a request for the dispute to be referred to arbitration as regards the commencement of the arbitral proceedings. Hence, the Court ruled that unless there is a request by a party that the dispute is to be referred to arbitration, merely stating the claims and disputes in a notice would not suffice.
The respondent M/s. Vishvaraj Environment Pvt. Ltd. issued a work order in favour of the applicant M/s. D.P. Construction. After the execution of the work by the applicant, certain disagreements occurred between the parties.
The applicant sent a legal notice to the respondent, stating its grievances and claims. The applicant averred in the said legal notice that if the payment was not released to it within one month, as requested, the applicant would seek redressal of its grievances by approaching the competent court of law.
After the respondent repudiated the claims made by the applicant, the applicant filed an application before the Bombay High Court under Section 11(6) of the A&C Act, seeking appointment of sole Arbitrator.
The respondent M/s. Vishvaraj Environment Pvt. Ltd. raised a preliminary objection before the High Court, contending that the application under Section 11(6) of the A&C Act was not maintainable.
The respondent submitted that in the legal notice issued by the applicant, the applicant did not make any reference to the arbitration clause. The respondent averred that no statement was made by the applicant regarding invocation of arbitration before a sole Arbitrator in terms of the arbitration clause. The respondent averred that even in the reply to the said legal notice, the respondent did not refer to the arbitration clause. Hence, the respondent contended that the said legal notice did not amount to a notice invoking arbitration under Section 21 of the A&C Act. The respondent, therefore, submitted that since the procedure agreed between the parties was not resorted to, the Court could not invoke jurisdiction under Section 11(6) of the A&C Act.
The respondent added that the applicant was required to invoke the arbitration clause in clear terms and that a mere legal notice raising claims would not amount to invoking the arbitration clause under Section 21 of the A&C Act. The respondent submitted that though there was a dispute between the parties, but since the process of arbitration was not triggered, therefore, the stage of applying before the Court under Section 11(6) of the A&C Act had not yet arrived.
The applicant M/s. D.P. Construction contended that it had clearly stated the claims raised by it in the legal notice issued to the respondent. The applicant added that a specific amount along with interest was demanded by it in the said legal notice. The applicant averred that in the said legal notice issued to the respondent, the applicant had stated that in case of failure on the part of the respondent to pay the amount demanded, the applicant would seek redressal of its grievances. The applicant averred that this amounted to invocation of arbitration, as contemplated under Section 21 of the A&C Act.
The applicant submitted that since the respondent did not respond to the notice issued by the applicant, the applicant was entitled to invoke Section 11(6) of the A&C Act for appointment of sole Arbitrator.
The Court held that the Court can be called upon to exercise jurisdiction under Section 11(6) of the A&C Act, only when the procedure agreed to between the parties under Section 11(2) of the A&C Act regarding appointment of arbitrator(s) has failed. The Court added that exercise of jurisdiction under Section 11(6) presupposes the initiation of the procedure agreed to between the parties.
The Court observed that Section 21 of the A&C Act specifically states that the arbitral proceedings stand commenced on the date on which a request for that dispute to be referred to arbitration is received by the respondent. Thus, the Court ruled that for commencement of arbitral proceedings, there has to be a request for the dispute to be referred to arbitration. The Court added that unless there is a request for referring the dispute to arbitration, it cannot be said that arbitration has been invoked by a party.
The Court noted that the Supreme Court in the case of BSNL versus M/s. Nortel Networks Pvt. Ltd. (2021) had ruled that an application under Section 11 for appointment of Arbitrator can be filed only after a notice for referring the dispute to arbitration, as contemplated under Section 21 of the A&C Act, has been made and there is failure to make the appointment.
The Court observed that in the case of Veena versus Seth Industries Ltd. (2010), the Bombay High Court had held that even if the notice invoking arbitration does not state the claims proposed to be made in the reference, it would be necessary in the said notice to indicate the disputes that had arisen and to state that the arbitration clause was being invoked by the party.
Thus, the Court held that invocation of arbitration has to be in clear terms, as specified in Section 21 of the A&C Act, and that a mere reference to the claims and disputes sought to be raised by a party, and the existence of an arbitration clause, would not itself mean that arbitration has been invoked by such a party.
The Court ruled that the applicant, despite raising claims and demanding a specific amount along with interest from the respondent, did not refer to the arbitration clause contained in the work order at any place in the said legal notice. The Court added that in the said legal notice, there was no reference to the intent of the applicant to invoke arbitration.
The Court held that the notice invoking arbitration ought to be absolutely clear with a reference to the arbitration clause. The Court added that the notice invoking arbitration should have a clear intent of calling upon the rival party to proceed for appointment of an Arbitrator and for referring the disputes to arbitration. The Court observed that Section 21 of the A&C Act specifically refers to a request for the dispute to be referred to arbitration as regards the commencement of the arbitral proceedings. Hence, the Court held that unless there is a request by a party that the dispute is to be referred to arbitration, merely stating the claims and disputes in the notice would not suffice.
Thus, the Court ruled that arbitration itself was not invoked by either of the parties as per the agreed procedure under Section 11(2) read with Section 21 of the A&C Act.
"In absence of the agreed procedure being triggered by either party for reference of the dispute to arbitration, the question of failure thereof would not arise and hence, the precondition for invoking Section 11(6) of the said Act for approaching this Court was not satisfied", the Court said.
The Court added that this aspect went to the very root of the matter and hit at the very jurisdiction of the Court to entertain the application for appointment of Arbitrator under Section 11(6) of the A&C Act.
The Court held that there are legal consequences to invoking of arbitration as contemplated under Section 21 of the A&C Act, which include the aspect of limitation.
Therefore, the Court ruled that merely because there is an arbitration clause, it cannot be said that the Court ought to exercise jurisdiction under Section 11(6) of the A&C Act.
The Court, hence dismissed the application on the ground that it could not exercise jurisdiction under Section 11(6) of the A&C Act.
Case Title: M/s. D.P. Construction versus M/s. Vishvaraj Environment Pvt. Ltd.
Citation: 2022 LiveLaw (Bom) 246
Dated: 06.07.2022 (Bombay High Court)
Counsel for the Applicant: Mr. Naresh R. Nebhani with Mr. V. P. Kukday
Counsel for the Respondent: Mr. Kartik N. Shukul