India: Notice Under Section 21 Is Mandatory Before Referring The Disputes To Arbitration

Last Updated: 31 January 2018
Article by Swati Sinha

Object of Section 21 of The Arbitration and Conciliation Act 1996

The Delhi High Court in a recent judgment dated February 28, 2017, delivered by Justice S. Murlidhar in Alupro Buildings Systems Pvt Ltd Vs. Ozone Overseas Pvt Ltd, has given a much needed interpretation and clarity to the object and purpose of issuing the notice under Section 21 of the Arbitration and Conciliation Act (hereinafter referred to as the Act) holding that the provisions under Section 21 of the Act are mandatory in nature and cannot be dispensed with and forms the preceding act in initiation and reference of the disputes between the parties . It was further held that the provisions of Section 21 are not limited only for the purpose of determining limitation and a party cannot straight away file a claim before the Arbitrator without issuing the notice under Section 21 of the Arbitration and Conciliation Act.

The judgment infused mandatory overtones to the provisions of Section 21 and held it to be a paramount procedure for the initiation of the arbitration process between the parties and dispensing with same could be one of the grounds for challenge of the award under Section 34 of the Act.

The date of the reference of the disputes to arbitration under Section 21 shall be the date from which the limitation will start running for the purposes of computation of limitation under Section 43(2) of the Act. The Court held that in the absence of an agreement to the contrary, notice under Section 21 of the Act by the Claimant invoking the arbitration clause, preceding the reference of disputes to arbitration is mandatory.

In other words, without such notice, the arbitration proceedings that are commenced would be unsuitable in law. The Court further clarified that mere acceptance of supplies by a party on the basis of invoices mentioning an arbitration clause would not amount to acceptance by the party of such arbitration clause. The Court clarified that there could not be an arbitration agreement by implication and a mere endorsement of receipt of goods on such invoices cannot lead to an inference that a party agreed to the arbitration agreement which could be validly invoked. The present case raised objections under Section 34 of the Act to an award rendered by an arbitrator, unilaterally appointed by the Respondent, without invoking arbitration under the terms of Section 21 of the Act. The non-compliance of Section 21 of the Act rendered the arbitration proceedings unsustainable in law, vitiating the award as null and void and without any jurisdiction.

Is the Notice under Section 21 of the Act Mandatory ?

Section 21 of the act reads as under:

"21. Commencement of the arbitral proceedings unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute to be referred to arbitration is received by the Respondent"

A plain reading of the above provision indicates that except where the parties have agreed to the contrary, the date of commencement of the arbitration proceedings would be the date on which the recipient of the notice receives from the Claimant, a request for referring the disputes to arbitration .The reasons why notice under Section 21 of the Act is mandatory in nature is five-fold:

  1. The parties to the Arbitration Agreement against whom a claim is made should know what the claims are. It is possible that in response to the notice, the recipient of the notice may accept some of the claims either wholly or in part, and the dispute between the parties may thus be narrowed down.
  2. Such a notice provides an opportunity to the recipient of the notice to identify if the claims are time barred or is barred by law of estopped or is untenable in view of the factual matrix of the dispute between the parties.
  3. Such notice identifies the procedure to be adopted for the conduct of the arbitral proceedings/ and appointment of an arbitrator. Unless, there is such a notice invoking the arbitration clause, it will not be possible to know whether the procedure for the appointment of an arbitrator, other procedures as envisaged in the arbitration clause have been followed. Invariably, arbitration clauses do not contemplate the unilateral appointment of an arbitrator by one of the parties; there has to be consensus between the parties. The notice under Section 21 serves an important purpose of facilitating a consensus on the appointment of an arbitrator.
  4. Even if the notice under Section 21 of the act permits one of the parties to choose the arbitrator, even then it is necessary for the party making such appointment to let the other party know in advance the name of the person it proposes to appoint. It is quite possible that such person may be 'disqualified' to act as an arbitrator for various reasons. On receiving such notice, the recipient of the notice may be able to point out this defect and the Claimant may be persuaded to appoint a qualified person.
  5. The purposes of Section 11( 6) of the Act, without the notice under the Section 21 of the Act, a party seeking reference of disputes to the arbitration will be unable to demonstrate that there was a failure by one party to adhere to procedure and accede to the request for the appointment of an arbitrator. The trigger for the court's jurisdiction under Section 11 of the Act is such failure by one party to respond.


Considering that the fulcrum of the Act is the consent or agreement between the parties at every stage, Section 21 performs an important function of forging such consensus on several aspects viz. the scope of disputes, the determination of which disputes remain unresolved, which disputes are time-barred, identification of claims and counter-claims and most importantly, on the choice of the arbitrator. Thus, the inescapable conclusion on a proper interpretation of Section 21 of the Act is that the absence of an agreement to the contrary, the notice under Section 21 of the Act by the Claimant invoking the arbitration, preceding the reference of the disputes to arbitration, is mandatory and without such notice, the arbitration proceedings which are commenced would be unsustainable in law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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