Separate Notice For Counter Claims U/S 21 Of A&C Act Not Required When Arbitration Proceedings Are Pending Between Parties: Delhi HC

The Delhi High Court bench of Justice Subramonium Prasad has observed that where the disputes between the parties are already the subject matter of an earlier arbitral reference, a separate notice under Section 21, Arbitration and Conciliation Act, 1996 (“ACA”) would not be necessary for separate proceedings to adjudicate counter claims. Facts The present petition under Section 11, ACA has been filed by the Petitioner seeking appointment of an independent sole arbitrator to adjudicate upon disputes arising under a Definitive Agreement dated 27.02.2018. The Agreement provided for a back-to-back payment structure, whereby payments to the Respondent were contingent upon the Petitioner receiving payment from RISL. The Respondent's scope of work included supply, installation, commissioning, and maintenance of the relevant equipment and infrastructure, in accordance with the RFP issued by RISL. Clause 18.2 of the Agreement contained an arbitration clause providing for dispute resolution through arbitration under the aegis of Delhi International Arbitration Centre (DIAC). Disputes having arisen between the parties; the Respondent invoked the arbitration clause. This Court vide order dated 14.03.2024 in ARB P No. 364/2024, appointed a Sole Arbitrator under the aegis of DIAC to adjudicate disputes between the parties which commenced on 13.05.2024. On 11.11.2024, the Petitioner filed its counter claim, along with an application seeking condonation of delay. Vide Order dated 18.11.2024, the learned arbitrator dismissed the Petitioner's counter claim observing that the application seeking condonation of delay was filed belatedly. It is submitted by the Petitioner that the dismissal was done without hearing and thus contrary to the principles of natural justice. The dismissal was challenged by filing an appeal under Section 37(2)(a), ACA which came to be dismissed by this Court vide order dated 09.12.2024. However, in para 11 of the said order, this Court granted liberty to the Petitioner to initiate independent proceedings for appointment of an arbitrator in accordance with law. Contentions The Petitioner contended that its counter claim was dismissed by the Arbitrator without adjudication on merits, on the ground of delay and without affording an opportunity of hearing. The Petitioner further highlighted that in the appeal against the order of the arbitral tribunal dismissing its counter claims, the Court granted it liberty to initiate independent proceedings for appointment of an arbitrator. In the same judgment it was also recorded that the Respondent had conceded that the Petitioner may initiate independent proceedings for such appointment. The Petitioner further contended that the requirement of notice under Section 21 ACA stood fulfilled through various steps already undertaken including issuance of a notice dated 26.09.2024 by the Respondent itself, the prior arbitral proceedings and liberty granted by this Court. The Petitioner submitted that the purpose of Section 21, ACA is to notify the existence of a dispute to the other party, which has already occurred in this case. In view of the Respondent's recorded concession and the liberty granted by this Court, the Petitioner argued that no further notice is required. The Respondent opposed the petition, primarily on the ground that the Petitioner has failed to issue a mandatory notice under Section 21 ACA which according to the Respondent is a condition precedent to commencement of arbitral proceedings. It was contended that this failure rendered the present petition under Section 11, ACA as non-maintainable. Observations The Court observed that the principal issue for determination was whether the present petition seeking appointment of an independent Arbitrator for adjudication of the Petitioner's claims is maintainable in light of the alleged non-issuance of a separate notice under Section 21, ACA. The Court noted that it was undisputed that the Petitioner had filed a Statement of Defence but did not initially file a counter claim. The counter claim was filed belatedly along with an application seeking condonation of delay, which was dismissed by the arbitrator without adjudication on merits. The Court also pointed to para 10.3 of the judgment passed by this Court in an appeal against the impugned order of the arbitrator, whereby the Respondent is recorded to have conceded that the Petitioner may initiate independent arbitration proceedings. The court opined that the issue of compliance with Section 21, ACA must be examined in the context of the facts of the present case. The Court reiterated that object of Section 21 is to ensure that the Respondent is aware of the disputes sought to be referred to arbitration and is afforded an opportunity to respond. In the present case, the disputes between the parties were already the subject matter of an...

Separate Notice For Counter Claims U/S 21 Of A&C Act Not Required When Arbitration Proceedings Are Pending Between Parties: Delhi HC

Arpita Pande

Tags