Agreement On The Name Of The Arbitrator Would Not Amount To A Waiver Of Notice Under Section 21 Of The A&C Act: Bombay High Court

The Single Bench of Justice N.J. Jamadar has held that the use of the word "Unless otherwise agreed by the parties" in Section 21 means that the parties can dispense with the requirement of giving a notice of arbitration, however, the mere fact that the parties have named the Arbitrator would not imply that the parties have agreed to waive the requirement of the notice contemplated under Section 21 of the Act.

The Court held that keeping in mind the limited judicial intervention permissible under the Act, the court is only required to satisfy itself that an arbitration agreement exists between the parties and an issue as to the validity of the notice invoking arbitration shall be left to be decided by the arbitrator under Section 16 of the Act.

The Court reiterated that the issue of limitation of the substantive claims is an admissibility issue which shall also be decided by the arbitral tribunal under Section 16 of the Act and the Court under Section 8 and 11 would not render a finding on such an issue unless it is ex-facie clear that the claims are barred by limitation.

Facts

The applicants executed a deed of conveyance in favour of the respondent. The deed had a dispute resolution clause which provided that any dispute would be referred to Mr. Kirti K. Shah who would act as the sole arbitrator.

A dispute arose between the parties; accordingly, the applicants filed a reference before the said arbitrator who later recused as his appointment was hit by Section 12(5) of the Act. Thereafter, the parties exchanged various communications, however, they failed to agree on the same of the substitute arbitrator. Therefore, the applicant approached the High Court under Section 11(5) for the appointment of the arbitrator.

The Contention Of The Parties

The applicant requested the court to appoint an arbitrator on the following grounds:

• That the parties have failed to appoint an arbitrator in terms of the arbitration agreement, therefore, the Court can exercise power under Section 11(5) and appoint the sole arbitrator.
• The parties had agreed on the name of the arbitrator, therefore, there was no requirement to give the other party a notice under Section 21 of the Act. Moreover, while laying its statement of claim before the arbitrator, it had forwarded a copy of the said communication to the respondents, therefore, it complied with the requirement of Section 21 of the Act.
• That its claims are within limitation. Moreover, the issue of limitation shall only be decided by the arbitrator.

The respondent objected to the maintainability of the application on the following grounds:

• It is mandatory for a party seeking reference to arbitration to issue a notice under Section 21 of the Act and on the failure of the applicants to comply with such mandatory requirement, the court cannot entertain the application for appointment of the arbitrator.
• The claims of the applicants are hopelessly barred by limitation; therefore, the parties cannot be referred to arbitration.
• The issue of limitation is an admissibility issue that requires adjudication by the court while appointing the arbitrator.

Analysis By The Court

The Court held the requirement to issue a notice of arbitration under Section 21 of the Act is mandatory subject to an agreement of the parties to dispense with such a requirement. The Court held that an inference that the parties had waived the notice cannot be drawn merely for the reason that the parties had named an Arbitrator.

The Court refuted the argument of the applicant that since the parties had agreed on the same of the arbitrator, there was no requirement to give the notice of arbitration. The Court held that use of the word "Unless otherwise agreed by the parties" under Section 21 means that the parties can dispense with the requirement of giving a notice of arbitration, however, the mere fact that the parties have named the Arbitrator would not imply that the parties had agreed to waive the requirement of the notice contemplated under Section 21 of the Act.

However, since the applicant had forwarded to the respondents, a communication issued by it to the arbitrator while lodging its claims with it. The applicant claimed that in the said communication the applicant had stated that it has invoked the arbitration thus it would constitute a valid invocation. Therefore, the Court appointed an arbitrator to decide on the validity of the said communication along with the claims of the parties.

The Court held that keeping in mind the limited judicial intervention permissible under the Act, the court is only required to satisfy itself that an arbitration agreement exists between the parties and an issue as to the validity of the notice invoking arbitration shall be left to be decided by the arbitrator under Section 16 of the Act.

The Court reiterated that the issue of limitation of the substantive claims is an admissibility issue which shall also be decided by the arbitral tribunal under Section 16 of the Act and the Court under Section 8 and 11 would not render a finding on such an issue unless it is ex-facie clear that the claims are barred by limitation and since the claims of the petitioner prima facie appear to be within the limitation, the court cannot do a detailed examination of the issue.

Accordingly, the court allowed the application and appointed the arbitrator.

Case Title: Malvika Rajnikant Mehta & Ors v. JESS Construction, Arbitration Application No. 425 of 2019.

Date: 28.04.2022

Citation: 2022 LiveLaw (Bom) 169

Counsel for the Applicants: Mr. Tejas Bhide

Counsel for the Respondent: Mr. Gourav Srivastav, a/w Smeet Savla, i/b S. K. Srivastav & Co.

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