Arbitration | Lack Of S. 21 Notice Not Fatal If Claim Is Otherwise Valid & Arbitrable : Supreme Court

The Supreme Court set aside a Kerala High Court judgment which had held that an arbitral tribunal cannot decide disputes beyond a specific issue referred to it and that a party cannot raise additional disputes without issuing a separate notice under Section 21 of the Arbitration and Conciliation Act, 1996.

The Court set aside a judgment of the Kerala High Court and restored an arbitral award in favour of M/s Bhagheeratha Engineering Ltd in a contractual dispute with the State of Kerala arising out of road maintenance works under the Kerala State Transport Project.

A bench of Justices JB Pardiwala and KV Viswanathan held that the High Court had erred in concluding that the arbitral tribunal lacked jurisdiction to decide disputes beyond one specific issue and in holding that the contractor was barred from raising other issues for want of a separate notice under Section 21 of the Arbitration and Conciliation Act, 1996.

“Section 21 is concerned only with determining the commencement of the dispute for the purpose of reckoning limitation. There is no mandatory prerequisite for issuance of a Section 21 notice prior to the commencement of Arbitration. Issuance of a Section 21 notice may come to the aid of parties and the arbitrator in determining the limitation for the claim. Failure to issue a Section 21 notice would not be fatal to a party in Arbitration if the claim is otherwise valid and the disputes arbitrable”, the Court held.

The dispute arose out of four Road Maintenance Contracts awarded to appellant Bhagheeratha Engineering for development of roads in Kerala with World Bank assistance. The contracts contained a dispute resolution mechanism under which disputes were first to be referred to the Engineer, then to an Adjudicator, and thereafter to arbitration.

In April 2004, the contractor approached the Adjudicator raising four disputes relating to calculation of price adjustment for bitumen and POL, release of escalation during extended periods, price of bitumen for escalation purposes, and interest for delayed payments. The Adjudicator decided two disputes in favour of the contractor and two against it.

The State of Kerala expressed its intention to refer Dispute No. 1 alone to arbitration and nominated its arbitrator. The arbitral tribunal was constituted in January 2005. The State filed an application to treat the entire decision of the Adjudicator as null and void. It also objected to the appellant being allowed to file a claim petition with regard to all the issues which, according to the state, led to enlargement of the jurisdiction.

The tribunal held that the appellant's claims remained unsettled and that the arbitration clause was wide enough to cover disputes arising out of or connected with the contract. It proceeded to adjudicate all four disputes and, by an award dated June 29, 2006, allowed all claims, awarding Rs. 1,99,90,777 with post-award interest at 18 per cent per annum.

The District Judge, Thiruvananthapuram set aside the award and restored the Adjudicator's decision. The Kerala High Court upheld the setting aside of the award on the ground that the arbitral tribunal was constituted only to decide Dispute No. 1 and that the contractor had not issued a notice under Section 21 for the remaining disputes. Thus, the contractor approached the Supreme Court.

The Supreme Court held that the High Court had “totally erred” in its approach. The Court noted that the conduct of the State showed that it never treated the Adjudicator's decision as final and binding and had itself sought to reopen all disputes by asking for the entire decision to be declared null and void. The Court held that a party cannot take advantage of its own conduct to defeat arbitration.

On Section 21, the Court held that issuance of a notice under that provision is procedural and meant to determine the commencement of arbitral proceedings for limitation purposes. It held that non-issuance of a Section 21 notice by one party is not fatal to raising claims before the arbitral tribunal if the disputes are otherwise covered by a broadly worded arbitration clause.

Holding that the contract permitted arbitration of any dispute arising out of or connected with the agreement, the Court concluded that the arbitral tribunal had not exceeded its jurisdiction.

The Supreme Court accordingly set aside the Kerala High Court's judgment and upheld the arbitral award in its entirety.

Case no. – Civil Appeal No. 39 of 2026

Case title – M/s Bhagheeratha Engineering Ltd. v. State of Kerala

Citation : 2026 LiveLaw (SC) 31