Notice Stating Right To Initiate Arbitration Not A Notice Under Section 21 of A&C Act: Delhi High Court
The Delhi High Court has ruled that a notice issued by a party, merely stating its right to initiate arbitral proceedings, which it would subsequently initiate if the payment was not made by the opposite party, is a unilateral communication which does not qualify as a notice under Section 21 of the Arbitration and Conciliation Act, 1996 (A&C Act). The Division Bench of Justices...
The Delhi High Court has ruled that a notice issued by a party, merely stating its right to initiate arbitral proceedings, which it would subsequently initiate if the payment was not made by the opposite party, is a unilateral communication which does not qualify as a notice under Section 21 of the Arbitration and Conciliation Act, 1996 (A&C Act).
The Division Bench of Justices Rajiv Shakdher and Tara Vitasta Ganju reiterated that the A&C Act does not contemplate unilateral appointment of an arbitrator by one of the parties and that there must be a consensus between the parties for appointment of the arbitrator. The Court added that commencement of arbitral proceedings is incumbent on the receipt of such request or notice, as provided under Section 21 of the A&C Act.
The respondent Narender Singh purchased a vehicle on loan from the appellant- Shriram Transport Finance Co. Ltd., under a Loan Agreement. After some disputes arose between the parties, the vehicle was repossessed and consequently sold by the appellant Company. Thereafter, the appellant Company sent a notice of demand to the respondent, demanding payment of a particular amount. Subsequently, a Sole Arbitrator was appointed by the appellant, who passed an ex-parte arbitral award in favour of the appellant. Against this, the respondent filed a petition under Section 34 of the A&C Act before the District Court. The respondent contended that it was not served a notice intimating the commencement of arbitral proceedings. Further, it argued that the Sole Arbitrator appointed by the appellant was frequently appointed as an Arbitrator for the appellant Company, who had passed ex-parte awards in favour of the appellant in the past. Holding that there was no compliance with the provisions of Sections 12 and 21 of the A&C Act, the lower Court allowed the petition and set aside the arbitral award.
Challenging the order of the lower Court, the appellant filed an appeal under Section 37(1)(c) of the A&C Act before the Delhi High Court.
The Court, perusing the letter issued by the appellant company to the respondent, observed that the appellant had merely stated that it had the right to initiate arbitration proceedings and if the payment was not made by respondent, it would initiate arbitral proceedings. Further, it noted that the said letter did not name any person as an arbitrator nor the procedure being followed for the appointment of the arbitrator.
Also, the bench observed that the appellant had subsequently issued a letter to the Arbitrator, appointing him as the Sole Arbitrator to adjudicate the disputes between the parties, which was not sent to the respondent.
Adding that the arbitral proceedings commence on the date on which the request for the dispute to be referred to arbitration is received by the opposite party, the Court ruled that the commencement of arbitral proceedings is incumbent on the "receipt of such request or notice", as provided under Section 21 of the A&C Act.
While ruling that the arbitration notice should not only be sent but also be received by the opposite party, the Court stated that if no notice is received, there can be no commencement of arbitral proceedings at all.
Referring to the judgment of the Delhi Court in Alupro Building Systems Pvt. Ltd. versus Ozone Overseas Pvt. Ltd. (2017), the Court reiterated that the A&C Act does not contemplate unilateral appointment of an arbitrator by one of the parties and that there must be a consensus for such appointment of the arbitrator. Also, the notice under Section 21 of the A&C Act serves an important purpose of facilitating such a consensus on the appointment of an arbitrator. Further, the Court noted that though the parties may opt to waive the requirement of notice under Section 21 of the A&C Act, however, in the absence of such a waiver, Section 21 must be given full effect to.
Hence, the bench held that in the absence of the issue of a notice regarding commencement of arbitral proceedings, a party seeking reference of disputes to arbitration will be unable to proceed under Section 11(6) of the A&C Act, if the opposite party fails to adhere to such request for arbitration.
While ruling that the letter issued by the appellant to the respondent was a unilateral communication, which merely stated its right to initiate arbitral proceedings, the Court held that the said letter did not qualify as a notice under Section 21 of the A&C Act.
"The Appellant Company has relied on the letters dated 20.09.2018 and 27.09.2018 to show compliance with Section 21 of the Act. This reliance by the Appellant Company is completely misconceived. The letter of 20.09.2018 was a unilateral communication sent by the Appellant Company to the Respondent. As discussed above, the letter did not set-forth any details about who was being appointed as an Arbitrator or the procedure being followed. The Appellant Company merely stated that they have a right to initiate Arbitral proceedings and so they will initiate Arbitral proceedings. There was no person named as an Arbitrator therein nor was any consensus sought in such appointment. There is no evidence of this letter ever being received by the Respondent on record either. As such, the letter dated 20.09.2018 would not qualify as notice under Section 21 of the Act."
Observing that the letter sent by the appellant to the arbitrator, appointing him as the Sole Arbitrator, was not received by the respondent, the Court held that the said letter also did not qualify as a notice of commencement of arbitral proceedings.
Noting that the parties had no agreement regarding waiver of the notice under Section 21 of the A&C Act, the Court ruled that appointment of the arbitrator made by the appellant was not in accordance with the provisions of Section 21 of the A&C Act.
Further, the High Court took into account the fact that the Sole Arbitrator was a regular arbitrator, who had acted on various occasions for the appellant company; however, the same was not disclosed by the Sole Arbitrator to the parties in the format specified in the A&C Act. Hence, the arbitrator had failed to make the declaration required under Section 12 of the A&C Act, stating that it had previously appeared as an arbitrator for the appellant Company.
"As already discussed above, in the present case, there has been non-compliance with Section 21 of the Act by the Appellant Company. Further, the Arbitrator's disclosure as mandated in Section 12 of the Act read with the Fifth and Sixth Schedules of the Act, is also absent. Thus, any Award rendered by such an Arbitrator, as such, cannot be sustained", the bench said.
Hence, the Court dismissed the appeal.
Case Title: Shriram Transport Finance Co. Ltd. versus Narender Singh
Citation: 2022 LiveLaw (Del) 989
Dated: 13.10.2022 (Delhi High Court)
Counsel for the Appellant: Mr Bharat Singh with Mr Suraj K. Singh and Mr Devesh Gupta