India: 'Prior Notice' Requirement Under Section 34(5) Of The Amended Arbitration And Conciliation Act, 1996 Is Directory And Not Mandatory

Last Updated: 27 February 2018
Article by Chakrapani Misra, Sairam Subramaniam and Urvashi Mehta

Most Read Contributor in India, August 2018

By a judgment dated 21 January 2018 in the matter of Global Aviation Services (P) Ltd v Airport Authority of India1 and other connected petitions passed by Hon'ble Mr Justice R D Dhanuka, the Hon'ble Bombay High Court (High Court) has, to an extent, clarified the issue regarding whether the issuance of notice under the amended Section 34(5) of the Arbitration and Conciliation Act, 1996 (Arbitration Act), introduced by the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act), is mandatory or directory. The High Court, in an attempt to settle this contentious preliminary objection raised in a batch of similar petitions, has inter alia held that Section 34(5) and Section 34(6) of the amended Arbitration Act shall not be applicable to petitions arising from arbitral proceedings commenced before the enforcement of the Amendment Act i.e. 23 October 2015 and further that the abovementioned provisions are merely directory and not mandatory in nature. The court, thereby, may consider the admission of a petition in exercise of its discretion despite no prior notice being served on the other side.

Background

The Respondents had invited bids for setting up flying schools at 11 airports all over India. The final bid of the Petitioner was accepted by the Respondents. A dispute arose between the parties. The Petitioner issued a notice to the Respondents on 28 February 2011 invoking the arbitration agreement to settle the claims between the parties. Pursuant to the arbitral proceedings, an award was rendered by the learned sole arbitrator on 12 April 2017 rejecting the claims. Being aggrieved by this award, the Petitioner had challenged the said award vide the present Arbitration Petition under Section 34 of the Arbitration Act. Similar petitions were filed challenging arbitral awards under Section 34 of the Arbitration Act. The Respondents in all these petitions raised a preliminary issue of maintainability on the ground that no prior notice as mandated under Section 34 (5) of the amended Arbitration Act had been issued by the Petitioners to the Respondents before filing these arbitration petitions and thus the petitions are liable to be dismissed on that ground itself.

Issues for consideration before the High Court

  • Whether Section 34(5) and Section 34(6) of the Arbitration Act as amended would be applicable to arbitration petitions filed after the enforcement of the Amendment Act in the following instances:
    • The arbitral proceedings are initiated prior to the enforcement of the Amendment Act but the arbitral award is passed after the enforcement of the Amendment Act i.e. 23 October 2015 where the arbitration agreement between the parties provides for the parties to be governed by the Arbitration Act or any other statutory modifications thereof
    • The arbitral proceedings are initiated prior to the enforcement of the Amendment Act but the arbitral award is passed after the enforcement of the Amendment Act i.e. 23 October 2015 where there is no arbitration agreement between the parties that provides for the parties to be governed by the any other statutory modifications to the Arbitration Act thereof
    • The arbitral proceedings are initiated and the arbitral award is passed prior to the enforcement of the Amendment Act i.e. 23 October 2015
  • Whether Section 34(5) and Section 34(6) of the Arbitration Act i.e. issuance of notice to parties prior to filing of the petition under Section 34 of the Arbitration Act is mandatory or directory in nature and what is the consequence, if any, for non-compliance of such prior notice?

Findings and Conclusions

The High Court held that once arbitral proceedings have commenced, it cannot be stated that the right to be governed by the erstwhile provisions of the Arbitration Act was an inchoate right. The parties would be governed by the right and remedy available to the parties on the date of invocation of the arbitration agreement. If a notice invoking arbitration is received by the other party prior to 23 October 2015, the arbitration proceedings would commence prior to 23 October 2015. In such an instance, the provisions of the Arbitration Act in force prior to 23 October 2015 would be applicable to such matters for all purposes unless otherwise agreed between the parties. Thus, only in an event there is an explicit agreement between the parties to be governed by statutory modifications in the arbitration law, the Amendment Act would be applicable.

Further, the High Court observed that there is neither a form nor a manner prescribed under Section 34(5) for issuing of notice to the other party nor any consequence provided thereof. In lieu of the same, it was held that the provisions under Section 34(5) and 34(6) are directory and not mandatory in nature. The court has ample power to direct the petitioner to issue notice along with papers and proceedings upon the respondent after the petitioner files an arbitration petition under Section 34(1) before such petition is heard by the Court at the stage of admission.

Comment

This decision of the Bombay High Court clearly sets out the applicability of Section 34(5) and 34(6) of the amended Arbitration Act to petitions arising from arbitral proceedings initiated after its enforcement i.e. after 23 October 2015. Petitions arising from arbitral proceedings prior to 23 October 2015 will be governed by the Arbitration Act as it existed prior to the amendment. This decision has resolved various disputes pertaining to the interpretation of the 'prior notice' requirement contemplated under Section 34(5) of the amended Arbitration Act by declaring it to be directory and not mandatory. Apart from providing clarity on the aforementioned provisions, the High Court has ensured that it upholds arbitration proceedings to be flexible and convenient for all. Mere procedural lapses should not deter the parties from enforcing their vested rights prescribed under Section 34(1) of the amended Arbitration Act.

Footnote

1. Commercial Arbitration Petition No 434 of 2017

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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