No Fixed Format For Sending Notice U/S 21 Of A&C Act, Outlining Clear Intention To Adopt Arbitration Is Sufficient: Delhi High Court

The Delhi High Court bench of Justice Jasmeet Singh has held that there is no prescribed format for a notice invoking arbitration. The legal requirement is that the party invoking arbitration must clearly outline the disputes between the parties and state that if these disputes remain unresolved, arbitration proceedings will be initiated. The intention to resolve the disputes through arbitration must be explicitly stated in the notice. Brief Facts: In the present case, Petitioners No. 1 and 2 agreed to provide partial financial assistance amounting to Rs. 90 lakhs to support the respondent's project. As a result, the parties entered into a Tripartite Agreement dated November 23, 2010. The project was completed in January, 2015 and the petitioner No.2 vide letter 19.05.2015 formally informed the respondent regarding completion of the project. The petitioner claims entitlement to the first royalty payment on 31.03.2016 and the second on 31.03.2017. When the respondent failed to pay, the arbitration clause was invoked. The Arbitrator, in an award dated 03.09.2019, ruled the petitioner's claims premature due to lack of evidence of commercial sale by the respondent. The petitioner challenged the award under Section 34, but the petition was dismissed on 11.07.2022. This dismissal was further challenged under Section 37 in ARB.P. 1494/2024, but was withdrawn on 08.07.2024. Subsequently, the petitioner sought arbitration for damages under clause 11(e) of the Agreement, stating the respondent's failure to commercialize the technology, leading to the present petition. Contentions: The Respondent submitted that in the present case, the letter of 05.04.2024 is not a notice invoking arbitration and is only a demand letter. It was further submitted that in terms of the arbitration clause, the petitioner already has named the arbitrator and the matter should have been referred to the same arbitrator as per the arbitration clause. Observations: The court noted that the Supreme Court in Aslam Ismail Khan Deshmukh v. ASAP Fluids Pvt. Ltd. &Anr., 2024 held that when determining the issue of limitation under Section 11(6) of the Arbitration Act, the referral court's role is limited to examining whether the application has been filed within the three-year limitation period. It should not engage in a detailed inquiry into whether the petitioner's claims are time-barred. It further held that such a determination is for the arbitrator to decide. If the referral court identifies any frivolity in the litigation from the pleadings, it would be incorrect to assume that the arbitral tribunal cannot reach the same conclusion, especially given its power to conduct a thorough review of pleadings and evidence. The Apex Court further held that as noted in Krish Spinning, the referral court's powers under Section 11 should be seen in light of the fact that parties cannot appeal its order, whether appointing or refusing to appoint an arbitrator. If the referral court delves into the merits at this stage, it risks leaving the claimant without a remedy. Courts retain the power to review the arbitral award later if necessary. The court noted that the project was completed in January 2015. Under Clause 11(e)(ii), if not commercialized, the respondent had to assign the technology within four years, plus 60 days. Thus, the limitation period ran from March 2019 to March 2022.The issue is whether the petitioner is entitled to the benefit of Section 14 of the Limitation Act, 1963, as the petitioner pursued a mistaken remedy, not the wrong forum. The Supreme Court in Consolidated Engineering Enterprises vs. Principal Secretary, Irrigation Department and Others, (2008) held that section 14 of the Limitation Act aims to exempt time spent on bona fide litigious activities. The principle underlying this section—that a person diligently pursuing a case should not be penalized by limitation if the court fails to provide a trial—applies to applications under Section 34 of the Arbitration Act. The Apex Court further held that this principle is applicable not only when a litigant files in a court without jurisdiction but also when the wrong court is chosen due to a bona fide mistake of law or procedure. Given the legislative intent, the Court believes that Section 14's equity should fully apply, excluding time spent pursuing a remedy in the wrong court. Based on the above, the court noted that the petitioner initially initiated arbitration based on the mistaken belief that the respondent had commercialized the technology and was thus entitled to royalty. The Arbitrator found no commercialization until the date of the Award, ruling the petitioner's claims premature. The Award was challenged under Section 34, dismissed on 11.07.2022, and the Section 37 appeal was withdrawn on 08.07.2024. It further held that the limitation period ended in March 2022....

No Fixed Format For Sending Notice U/S 21 Of A&C Act, Outlining Clear Intention To Adopt Arbitration Is Sufficient: Delhi High Court

Mohd Malik Chauhan

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