Arbitrator Cannot Be Appointed Unless Arbitration Clause Is Invoked With Proper Notice U/S 21 Of A&C Act: Telangana High Court

The Telangana High Court bench of Acting Chief Justice Sujoy Paul has held that unless a proper notice under Section 21 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), suggesting the name of the proposed arbitrator, is sent to the other party, the court cannot exercise its jurisdiction under Section 11(6) of the Arbitration Act. Merely demanding outstanding payment without proposing the name of an arbitrator cannot be construed as a valid invocation of the arbitration clause for the purposes of Section 21 of the Arbitration Act. Brief Facts: This application has been filed under section 11(6) of the Arbitration Act seeking appointment of an Arbitrator. MS Cipher Oncology Private Limited (Applicant) submitted that once there exists an arbitration clause, indisputably, the service of notice and/or issuance of request for appointment of an arbitrator must be held to be determinative of the commencement of the arbitral proceeding. It was further submitted that sending a notice informing the addressee that civil and criminal legal remedies would be available in the event of failure, cannot constitute a notice invoking arbitration. Per contra, the Respondent submitted that although there exists an arbitration clause, the applicant, in the event of demanding appointment of arbitrator, should have said so specifically in its notice. It was also contended that the said notice merely demanded payment of compensation within a stipulated time, failing which the applicant would appoint an arbitrator and initiate appropriate proceedings. However, no such action or request for appointment of an arbitrator was taken when the respondent failed to pay. Thus, the legal notice cannot, by any stretch of imagination, be treated as one issued in accordance with Clause 12.2 of the Agreement. Observations: The court noted that the bone of contention in the notice was to secure compensation within seven days, failing which the applicant reserved the right to appoint an arbitrator and initiate appropriate proceedings. It further added that when the respondent admittedly failed to pay, it was open to the applicant to invoke the arbitration clause as stated. However, no document has been placed on record showing that any such notice was subsequently issued. The Delhi High Court in Shriram Transport Finance Company Limited v. Narender Singh (2024) held that it is necessary for the party making an appointment to inform the other party in advance of the name of the proposed arbitrator to ensure the person's suitability and qualifications under the Arbitration Act. The court in the above case also held that this notice enables both parties to reach a consensus on the appointment. Unless such notice commencing arbitral proceedings is issued, a party cannot proceed under Section 11(6) of the Arbitration Act. Based on the above, the court held that in the present case, admittedly, the applicant's notice is not relating to a demand for appointment of an arbitrator, although it suggests so in the clause of 'subject'. The court further opined that in view of the above, no case is made out for exercising jurisdiction under Section 11(6) of the Arbitration Act, as the applicant has failed to meet the prerequisites for the appointment of an arbitrator. Accordingly, the present application was dismissed. Case Title: MS Cipher Oncology Private Limited vs M S Unimed Health Care Private Limited Case Number: ARBITRATION APPLICATION No.163 of 2024 Judgment Date: 04/04/2025 Click here to download Order/Judgement

Arbitrator Cannot Be Appointed Unless Arbitration Clause Is Invoked With Proper Notice U/S 21 Of A&C Act: Telangana High Court

Mohd Malik Chauhan

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