Dispensing with the Notice under section 21 of the Arbitration and Conciliation Act, 1996 for re-commencement of arbitration proceedings

Introduction

Section 21 of the Arbitration and Conciliation Act, 1996 (“the Act”) pertains to commencement of arbitral proceedings and reads as follows:

“Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.”

Section 21 effectively indicates that arbitral proceedings would commence upon issuance of a notice on the respondents. The notice is crucial for the recipient to be made aware that a dispute resolution clause in an agreement has been invoked, thereby enabling them to prepare to potentially contest claims in the arbitral proceedings. 

In a situation where an arbitral award has been set aside and parties wish to re-commence the arbitration, the question arises as to whether compliance with requirement under section 21 of the Act is necessary. The Act is silent on the event of such re-commencement. This ambiguity was addressed in the recent judgment of a Single Judge of the Bombay High Court in Kirloskar Pneumatic Company vs Kataria Sales Corporation1 decided on 22 March 2024 where a party approached the Court for appointment of an arbitrator under section 11(6). 

Brief Background: 

The Petitioner, Kirloskar Pneumatic Company Ltd (“Petitioner”), and the Respondent, Kataria Sales Corporation (“Respondent”), were engaged in the business of manufacturing and selling air and gas compressors and entered into a Dealership Agreement in 2013. Disputes arose when the Respondent refused to pay amounts invoiced by the Petitioner, leading to invocation of arbitration in 2018. Thereafter, an arbitration award was passed in favor of the Petitioner in 2020 for Rs 29.90 lakhs plus interest and costs. The award was challenged by the Respondent before the Pune District Court which set aside the award in 2023, citing unilateral appointment of the arbitrator by the Petitioner. Subsequently, the Petitioner sought to re-commence the arbitration and approached the Bombay High Court by way of a petition under section 11(6) of the Act for appointment of an arbitrator. 

Decision of the Single Judge of the Bombay High Court: 

At the outset, the Respondent argued that the petition was premature and not maintainable as it was filed without invoking the arbitration clause under section 21 of the Act. According to the Respondent, the section did not contemplate ‘re-invocation’ of proceedings and therefore the petition filed under section 11(6) was liable to be dismissed. It was the Respondent’s case that upon a challenge to the award and the subsequent setting aside of the first award, the proceedings were in effect complete and an application seeking reappointment of the arbitrator could be made only pursuant to a new invocation notice under section 21 of the Act. The Court clarified that arbitration proceedings had already commenced upon the Petitioner’s initial/first request to submit the dispute to arbitration, and that the subsequent appointment of an arbitrator, post the award being set aside was necessary to advance the process. To buttress their reasoning, the Court rejected the argument that issuance of a new notice was required, noting that the dispute had long been ongoing and both parties were aware of the need for arbitration. 

Elucidating on section 21 of the Act, the Court went on to hold that, “the moment a request for referring a dispute to arbitration is received by one party from the other, it shall mark the commencement of arbitral proceedings.” This would have the effect of triggering the arbitration proceedings. The Court went on to hold that merely because the award was passed by an ineligible arbitrator and thereafter set aside, such facts were “not sufficient enough to give a new contour to the dispute”. A dispute, which in common parlance is understood as being a disagreement between the parties, remained the same to the best of knowledge of the partiesin as much as it arose upon the Respondent’sfailure to pay the amounts due under the invoices raised by the Petitioner. The Court noted that the only reason for which this petition was preferred was for the appointment of a new arbitrator.

Accordingly, the Court granted the Petitioner’s request for appointment of an arbitrator under Section 11(6) of the Act. 

Conclusion:

This judgment of the Single Judge of the Bombay High Court is significant as it addresses the issue as to whether a fresh notice is required under section 21 of the Act for re-commencing the arbitration after an award is set aside under section 34 of the Act.