Requirement Of Notice Of Arbitration Is Not A Mere Technicality: Delhi High Court

The bench of Justice Prateek Jalan held that requirement of a notice of arbitration is not a mere technicality and its non-compliance cannot be ignored merely because the instrument was a family settlement agreement.

The Court also held that the finding of the Court, regarding the non-existence of the arbitration agreement, made on an application under Section 8 of the A&C Act would be final and binding on the parties if remains unchallenged before the filing of the petition under Section 11 of the A&C Act.

Moreover, the Court held that suppression of the fact by petitioner regarding the rejection of its application under Section 8 of the Act would disentitle it from seeking the appointment under Section 11 of the Act.

Facts

The controversy relates to a Memorandum of Family Settlement (Agreement) entered into between the parties on 23.07.2016. By the agreement certain assets held by the family were to be divided between three groups. The first group comprised of the Atul (respondent no.1) and his family (respondents), the second ground comprised of the Rahul (Petitioner no.1) and his family (petitioners) and the third group consisted of their mother (respondent). Both Atul and Rahul entered into the agreement in their individual capacities as well as for and on behalf of their families and the members of the families, except for the son of Atul (Apoorv), signed the agreement in concurrence thereof.

Certain disputes arose related to the conduct of business, control and ownership of assets. The agreement provided for arbitration for resolving the disputes and had also provided the name of the arbitrator. Accordingly, the petitioner, without issuing the formal notice of arbitration to the parties concerned, issued the notice of arbitration to the named arbitrator who then directed the petitioner to issue notices to the parties and then called for a meeting. On receiving the notice of arbitrator, the respondents raised several objections which ultimately led to the recusal by the named arbitrator. Thereafter, the petitioner approached the Court under Section 11 of the A&C Act.

There was also a suit filed by one of the respondents against the petitioners and the application of petitioner for reference to arbitration under Section 8 of the Act was dismissed by the Court.

Contention Of The Parties

The petitioner sought the appointment of the arbitrator on the following grounds:

• At the stage of appointment of arbitrator, the Court is only required to see the existence of the arbitration clause and the agreement has an arbitration clause, therefore, the parties are to be referred to arbitration.
• Allegations of fraud, misrepresentation, undue influence, etc, ate to be decided on evidence, therefore, must be decided by the arbitrator only.
• While interpreting a family settlement agreement, the Court should endeavour to ensure the implementation of the agreement and not take a hyper-technical view.
• The agreement qua Apoorv is enforceable despite lack of his signatures for the reason that for his benefit, the agreement was entered into by his father on his behalf. Moreover, in the suit filed by him against the petitioners, he has placed reliance on the agreement thereby admitting as to the existence of the agreement and its applicability to him. Moreover, he has never challenged the authority of his father to enter into an agreement on his behalf, therefore, he cannot resile from it.
• The dismissal of the application under Section 8 of the Act was on the ground that it was filed after the submission of the written statement. Moreover, the rejection of application under Section 8 does not deprive a party to seek appointment under Section 11 of the Act.
• Validity of invocation can be decided by the arbitrator, moreover, the communications sent by the arbitrator to the parties concerned satisfied the requirement of a valid invocation.

The respondents raised several objections to the maintainability of the petition, these are as follows:

• The agreement is unstamped and unregistered, therefore, the same cannot be acted upon.
• The manner and mode of division as provided under the agreement is not workable, thus, the parties are required to enter into a further understanding regarding their respective rights. Moreover, the agreement is not a final agreement but merely a draft for future discussions.
• Many of the business concerns as given under the agreement are not made party to the petition.
• The petition has been filed without compliance with the mandatory requirement of Section 21 notice.
• The petition is not maintainable against Apoorv as he never signed the agreement.
• The consent of the mother was obtained by fraud and misrepresentation; therefore, the agreement is not enforceable against her.
• The petitioners have not come to the court with clean hands and have suppressed material facts from the Court regarding the dismissal of their application under Section 8 in a suit filed by Apoorv against them.

Analysis By The Court

Firstly, the Court examined the issue of validity of the invocation of arbitration. The Court observed that the petitioner did not issue the mandatory notice of arbitration, as provided under Section 21, to the respondents, but proceeded to directly issue a communication to the arbitrator.

The Court held that a notice of arbitration is sine qua non for commencing an arbitral proceeding and invalidity of invocation goes to the very root of the matter and hits the jurisdiction of the Court to entertain applications arising out of the arbitration proceedings.

The Court held that requirement of a notice of arbitration is not a mere technicality and its non-compliance cannot be ignored merely because the instrument was a family settlement agreement.

Next, the Court dealt with issue of reference to arbitration qua Apoorv. The Court observed that although Atul had entered into the agreement on behalf of his entire family, however, the agreement also provided for concurrence of the respective family members. Admittedly, all the members of the family, except for Apoorv, signed on all the pages of the agreement. In absence of his signatures, he could not be relegated to arbitration. Moreover, the Court had already rejected the petitioner's application under Section 8 of the Act in a suit filed by Apoorv against them.

The Court also held that the finding of the Court, regarding the non-existence of the arbitration agreement, made on an application under Section 8 of the A&C Act would be final and binding on the parties if remains unchallenged before the filing of the petition under Section 11 of the A&C Act.

Finally, the Court dealt with the issue regarding suppression of material facts by the petitioners. The Court observed that the petitioners did not disclose in their application the fact of rejection of their application under Section 8 on the ground of non-existence of the arbitration agreement qua Apoorv. The Court rejected the submission that it was due to an error by the Counsel for the petitioners. The Court held that a party would be responsible for material suppression of facts and cannot take garb under the mistake of the counsel.

The Court held that suppression of the fact by petitioner regarding the rejection of its application under Section 8 of the Act would disentitle it from seeking the appointment under Section 11 of the Act.

Accordingly, the Court dismissed the petition.

Case Title: Rahul Jain v. Atul Jain, ARB. P. 539 of 2017

Citation: 2022 LiveLaw (Del) 1143

Counsel for the Petitioners: Mr. Ratan K. Singh, Senior Advocate with Mr. Sumit Kaushal, Mr. Rajeev Gurung & Ms. Kanishka Shivhare, Advocates

Counsel for the Respondents: Tanmaya Mehta, Ankit Jain, Neha Jain, Abhay P. Singh, Aditya Chauhan, Jai Sahai Endlaw, Ashish Kumar and Padmapriya.

Click Here To Read/Download Order