Notice under S. 21 of Arbitration and Conciliation Act, 1996 is mandatory to initiate arbitral proceedings

Delhi High Court: Petitioners appeared before the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, 1996 to challenge the arbitral award. Over a dispute between petitioner and respondents (buyer and seller), petitioners one fine day received a notice from a sole arbitrator appointed by the respondent that the dispute between them will be arbitrated over by him.

The grievance of the petitioner was that the unilateral appointment of the arbitrator by the respondent was bad in law and without issuing notice under Section 21 of the Act invoking the arbitration clause; the respondent could not have proceeded to arbitration. The Court on hearing both the parties considered the question whether notice under Section 21 is mandatory very carefully. The Court observed that with the plain reading of the provision, it is clear that the date of commencement of arbitration proceedings would be the date on which the recipient of the notice receives from the claimant a request for referring the dispute to arbitration. Ascertaining the object behind the provision, it said that the party to the arbitration agreement against whom a claim is made should know what the claims are and it impossible that in response to notice, the issues on dispute may be narrowed down.

It also observed that the notice under Section 21 serves an important purpose of facilitating a consensus on the appointment of an arbitrator. Lastly, the Court explained that as per Section 11(6) of the Act, without the notice under Section 21 of the Act, a party seeking reference of disputes to arbitration will be unable to demonstrate that there was a failure by one party to adhere to the procedure and accede to the request for the appointment of an arbitrator. The Court held that mere acceptance of supplies by one party to another on the basis of invoices containing arbitration clause would not mean that the same had been accepted by the other party and endorsement on receipt of goods and the invoices would not lead to a conclusion that a party agreed to the arbitration clause printed on the said invoices and therefore, the alleged arbitration agreement in the case was held to be invalid. The Court accordingly set aside the arbitral award for the agreement was null and void and also, for the reason that the mandatory requirement of supplying the notice under Section 21 was not complied with. [Alupro Building Systems Pvt Ltd v. Ozone Overseas Pvt. Ltd., 2017 SCC OnLine Del 7228, decided on 28.02.2017]


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