Reinitiating Arbitration Proceedings And Section 21 Of The Arbitration Act

Is Section 21 of the Arbitration Act mandatory?

Section 21 titled, “Commencement of arbitral proceedings” states that arbitral proceedings “commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent” subject to a contrary agreement between the parties. Generally, once an invocation notice suggesting the name of an arbitrator, (let us presume a sole arbitrator), is successfully served upon the responding party, the following possibilities arise; (i) the responding party agrees to the name of the sole arbitrator so suggested; (ii) the responding party disagrees with the name of the sole arbitrator so suggested but does not deny the existence of the arbitration clause or simply does not reply to the invocation notice; (iii) the responding party does not deny the existence of the arbitration clause but disputes the unilateral appointment procedure under the clause or; (iv) the responding party denies the very existence of the arbitral clause. If possibility (ii) or (iii) apply, then the party invoking arbitration approaches the concerned High Court under Sections 11(5) or 11(6) of the Arbitration Act requesting it to appoint an arbitrator since the disputing parties are unable agree upon one.

In BharatSanchar Nigam Limited and another v. Nortel Networks India Private Limited, the Supreme Court held that “an application under Section 11 can be filed only after a notice of arbitration in respect of the particular claim(s) / dispute(s) to be referred to arbitration [as contemplated by Section 21 of the Act] is made, and there is failure to make the appointment.” This decision has been followed by several High Courts including the Bombay High Court in D.P.Construction v. Vishvaraj Environment Pvt Ltd.

But what if the arbitration proceedings have to be reinitiated? Can parties approach the High Court under Section 11 of the Arbitration Act without serving an invocation notice under Section 21 of the Act?

Is a request/notice under Section 21 mandatory for reinitiating arbitration proceedings?

This aspect has been touched upon, though not directly, by a Single Bench of the Bombay High Court in Associated Constructions v. Mormugoa Port Trust (Mormugoa Port Trust ) in a petition filed under Section 11 of the Arbitration Act. The contention raised before the High Court was that the arbitration clause had ceased to have any effect, as pursuant to an earlier invocation thereof, the award had been set aside. It is pertinent to note that the High Court observed that the award had been set aside for reasons other than merits expect for one claim. The question before the High Court was whether the petition under Section 11 of the Arbitration Act was maintainable in view of the said award having been set aside on grounds other than merits. The High Court placed reliance on a previous Division Bench of the Bombay High Court in PushpaMulchandani v.Admiral Radhakishan Tahliani (Retd.) and others in which it was observed that “if the court finds that the award is vitiated because of violation of principles of natural justice or such other reasons, which cannot be called as "adjudication" on merits, the court can set aside the Award and if the Award is set aside for such reasons, it is open to the parties to invoke the arbitration clause again and initiate arbitration proceedings.” Though the judgment of the Division Bench has been subsequently overruled by the Full Bench of the Bombay High Court in R.S.Jiwani (M/S.), Mumbai v. Ircon International Ltd., Mumbai, the Single Bench in Mormugoa Port Trust was of the view that the observations made by the Division Bench pertaining to reinvocation of the arbitration clause had not been set aside by the Full Bench. Therefore, by relying on the aforementioned observations, the Single Bench in Mormugoa Port Trust opined that where an award is set aside as in the case before it,

“the commencement of the arbitration again is pursuant to and under the existing arbitration clause. The same is neither based on nor dependent upon a fresh arbitration agreement between the parties.”

The above quoted opinion in Mormugoa Port Trust has also been subsequently followed by at least two decisions of the Bombay High Court referred to below:

1. WadhwaGroup Holdings Pvt. Ltd. v. Homi Pheroze Ghandy and Anr: An application was filed under Section 11 of the Arbitration Act. The case pertained to two arbitral awards. In one award, the claim was dismissed on the ground of limitation and in the other award, the counterclaim was also dismissed on the ground of res judicata and limitation. Both awards, which were not dismissed on merits, were challenged before a Single Bench of the Bombay High Court under Section 34 of the Arbitration Act by two separate petitions by the Applicants. By a common order under Section 34, the petition challenging dismissal of the counterclaim was allowed and the award was set aside and since the award dismissing the counterclaim was set aside, the second petition was disposed as it did not survive. The Respondent thereafter challenged the aforementioned common order before the Division Bench in appeal under Section 37 of the Arbitration Act. During the pendency of the appeal, the Applicant invoked the arbitration clause once again by a “notice invoking arbitration” which was resisted by the Respondent. The Applicant thereafter filed an application under Section 11 of the Arbitration Act. The Respondent opposed the application on the grounds that the application was premature as the appeal under Section 37 was pending. The High Court allowed the application filed under Section 11 by relying on several decisions including Mormugoa Port Trust and appointed an arbitrator.

2. In R.J. Shah & Co. Ltd. v. State of Maharashtra and others, the Bombay High Court after referring to Mormugoa Port Trust also reiterated that when an award is set aside, “the commencement of arbitration again is pursuant to, and under the existing arbitration clause and the same is neither based on, nor dependent upon a fresh arbitration agreement between the parties.”

Apart from the Bombay High Court, more recently, the Delhi High Court has had the occasion to directly deal with this issue in AmitGuglani & Anr v. L and T Housing Finance Ltd through Managing Director&Anr in a petition under Section 11 of the Arbitration Act. Before the Delhi High Court was an arbitration clause in a Tripartite Agreement that envisaged a unilateral appointment (not contemplated by law) of a sole arbitrator by the Respondent lender. Since disputes were not resolved between the parties, the Petitioners invoked the arbitration clause which envisaged unilateral appointment by the Respondent lender by directly filing a petition under Section 11 of the Arbitration Act without serving a mandatory notice of invocation under Section 21 of the said Act upon the Respondents. The Petitioners thereafter filed an application in the petition filed under Section 11 seeking exemption from serving the invocation notice under Section 21 on the ground that the arbitration clause envisaged a unilateral appointment which was contrary to law and therefore, serving an invocation notice would be futile. After referring to several of its earlier decisions, the Delhi High Court dismissed the Section 11 Petition and held that the notice under Section 21 was mandatory and the argument of the Petitioner that the exercise of sending an invocation notice was futile due to the unilateral invocation clause was not accepted.

Therefore, the judicial opinions set out above lead to the inescapable conclusion that a notice/request under Section 21 of the Arbitration Act is mandatory not only when proceedings are initiated for the first time but also when arbitration proceedings are reinitiated. Setting aside an award other than on merits contemplates a clean slate, as if the proceedings had never been initiated. Therefore, if as per the Bombay High Court, the arbitration clause continues to exist when an award is set aside on grounds other than merits, then the arbitration proceedings can only commence or be reinitiated by first serving a notice under Section 21 of the Arbitration Act and in no other manner.

The author is a practicing Advocate at the Bombay High Court. Views are personal.