In the field of alternative dispute resolution, arbitration has emerged as a favoured mechanism for resolving conflicts efficiently and effectively. The Arbitration and Conciliation Act, 1996 ("the Act") is central to this framework. Among its various provisions, Section 21 of the Act plays a pivotal role in delineating the commencement of arbitration proceedings. This Section establishes the critical timeline for parties involved, thereby impacting the overall efficiency of dispute resolution. Understanding the following key elements is, therefore, vital for legal practitioners and parties engaged in arbitration, as it forms the foundation of a successful arbitration strategy.
I. Mandatory nature of notice under Section 21
A Notice of Arbitration ("NOA") is the primary step in initiating arbitral proceedings and is a mandatory requirement under Section 21 of the Act. As stated by the Delhi High Court in Alupro Building Systems Pvt. Ltd.v.Ozone Overseas Pvt. Ltd.("Alupro"),1
- Considering that the running theme 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 the disputes, the determination of which disputes remain unresolved; of which disputes are time-barred; of identification of the claims and counter-claims and most importantly, on the choice of arbitrator. Thus, the inescapable conclusion on a proper interpretation of Section 21 of the Act is that in the absence of an agreement to the contrary, the 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 unsustainable in law.
(Emphasis supplied)
There is, however, no set format for issuing an NOA under Indian Law; it is a matter inter-partes.2 In the absence of any requirement in the arbitration agreement, there are no specific requirements as to the form of the notice.3 Explaining the rationale behind the same, the Supreme Court of India in Milkfood Ltd. v. GMC Ice Cream (P) Ltd held that the request envisaged under Section 21 has to be construed broadly, and the underlying intent of the communication ought to override the form.4
II. Significance of the NOA
The importance of issuing a 'proper' notice under Section 21 of the Act was highlighted by a Division Bench of the Madras High Court in Indus Ind Bank Ltd.v.Mulchand B. Jain,5 wherein it was held that Section 21 read with Section 34 (2)(iii) of the Act provides for a ground for setting aside an award, if a party was not given proper notice of the appointment of an arbitrator or the arbitral proceedings.
Hence, albeit the lack of a mandatory format, an NOA that is improper can be a ground for setting aside an arbitral award under Section 34 of the Act.6 In lieu of the same, it is paramount to determine the key elements of an NOA, to prevent any unnecessary challenges during enforcement of the arbitral award.
III. Essential elements of a Notice of Arbitration
An analysis of the various arbitral rules and judicial pronouncements of Indian courts reveal the following elements which are required in an NOA:
- Name and address of both the parties.
The NOA must clearly state the names and addresses of both parties. It is ideally addressed to the potential respondent, but a notice addressed to the counsels of the respondent, would not affect its validity.7 Further, non-service of the NOA to certain persons who are party to the arbitration agreement, does not denude the arbitral tribunal from impleading them as parties to the proceedings, at a later stage.8
The timeline for commencement of arbitration proceedings under Section 21 of the Act is calculated from the date of receipt of notice by the respondent, not mere service.9 Therefore, a notice invoking arbitration that is sent to the incorrect address would not be considered a valid invocation.10
- Nature of business activities / relationship between the parties
The NOA should outline the nature of the business activities and the relationship between the parties. Facts showing the cause of action including the obligations that were to be fulfilled by the respondent, have to be listed, in order to constitute a dispute. It is pertinent that the notice broadly identifies the disputes which have led the parties to arbitration.11
In the case of Veena v. Seth Industries Ltd., the Bombay High Court held that even if the notice invoking arbitration does not specify the claims proposed to be made in the reference, it would be necessary in the notice to indicate the disputes that had arisen and to state that the arbitration clause was being invoked.12
- Specific reference to the arbitration clause / agreement
A clear reference to the arbitration clause within the agreement is essential. 13 The arbitration agreement is to be reproduced wherever possible. As stated by the Bombay High Court inD.P. Constructionv.Vishvaraj Environment Pvt. Ltd., merely stating the claims or the nature of the dispute would not suffice. The intent of invoking arbitration "ought to be absolutely clear with reference to the arbitration clause".14
However, the Delhi High Court in Fiitjee Ltd. v. Ashish Khare has also reiterated that mere reference to the wrong provision or term of the agreement cannot invalidate the NOA issued under Section 21 of the Act, where there was no dispute regarding the existence of an arbitration clause.15
- Pre-conditions to the arbitration
Pre-conditions mentioned in the arbitration agreement need to be mandatorily followed before initiating arbitration and invocation of notice under Section 21.16 The NOA must demonstrate compliance with such pre-conditions (if any).
- Procedure prescribed for appointment
Arbitration is not commenced unless the notice requires the other party to take some step in connection with the arbitration or to do something on his part in the matter of arbitration.
The Delhi High Court's judgment in Alupro (supra) explained that Section 21 serves an important purpose of facilitating a consensus on the appointment of an arbitrator.17 In an NOA a party must communicate:
- an intention to report to arbitration; and
- a requirement that the other party should do something on his part in that regard.
Furthermore, it is necessary for the party making the appointment to inform the other party of its nominee and request the respondent to either approve the nomination, or nominate an arbitrator.18 In this regard, a notice issued by a party, merely stating its right to initiate arbitral proceedings, is a unilateral communication which does not qualify as a notice under Section 21 of the Act.19
- List of Claims
To the extent possible, the indicative list of claims along with the relief(s) claimed – damages, declaration, injunction, costs, etc. ought to be mentioned.
In Alupro, the Delhi High Court observed that in a Section 21 notice:20
- The party to the arbitration agreement against whom a claim is made, should know what the claims are, in order to accept or reject them.
- The recipient of the NOA is provided an opportunity to point out if some of the claims are time barred and/or barred by any law and/or that there are counter-claims.
However, failure to provide a detailed list of claims in the NOA will not prejudice the rights of the claimant to amend the same later, by virtue of Section 23(3) of the Act.
IV. Broader scheme of Section 21
Despite being the preliminary step in the arbitration proceedings, the NOA also has potential implications on allied procedures which are governed by different provisions of the Act.
- Limitation under Section 43 of the Act
As held by the Apex Court, where the NOA makes specific references to claims, the limitation period for such claims would begin from the date of receipt of proper notice, while the time limit for the amended claim would be calculated pursuant to the amendment.21
A party raising a counter-claim would not be required to issue a formal notice invoking arbitration in respect of the said counter-claim, and the date on which the counter-claim is made before the arbitrator will be considered for calculating limitation.22
- Interim Applications under Section 9 of the Act
The 2015 Amendment to the Act introduced sub-section (2) in Section 9 which mandates that arbitral proceedings shall be commenced within 90 days from the date of the interim order where an application under Section 9 has been made before issuing an NOA.
Although it is not necessary to issue an NOA before an application under Section 9 is filed, where a party has sought interim relief under Section 9 prior to issuing the NOA, "there has to be manifest intention" by such party to commence arbitral proceedings.23
- Appointment of Arbitrator under Section 11 of the Act
It is pertinent to note that the requirement for a notice appointing an arbitrator, varies with respect to Section 11 of the Act.
As observed by the Delhi High Court in Zion Promoters & Developers Pvt. Ltd. v. Ferrous Infrastructure Pvt. Ltd. 2016 SCC OnLine Del 1668 (and subsequently followed in Prime Interglobe (P) Ltd. v. Super Milk Products (P) Ltd., 2023 SCC OnLine Del 8116)
5.1... In Datar Switchgears Ltd. v. Tata Finance Ltd. (paras 5 to 7), the Supreme Court observed that Section 11(5) can be invoked where one party has failed to appoint an arbitrator despite notice to appoint. However, there is no requirement of notice in Section 11(6) which provides for failure of procedure/mechanism for appointment meaning thereby that a party can invoke Section 11(6) even if no notice has been given.
The importance of a Section 21 notice for an application under Section 11 of the Act was reiterated in a recent decision of the Supreme Court, Adavya Projects Pvt. Ltd. v. M/S Vishal Structurals Pvt. Ltd. & Ors, wherein it was stated that "invocation of arbitration as provided in Section 21, and the subsequent failure of the respondent to appoint its arbitrator or agree to the appointment of a sole arbitrator as provided in Sections 11(4) and 11(5), are necessary for invoking the court's jurisdiction under Section 11."24
V. Key Considerations for Parties
A comprehensive analysis of Section 21 demonstrates how this provision can potentially facilitate or complicate the arbitration process, ultimately influencing the dynamics of legal agreements and conflict resolution. While the Section itself prima facie seems fairly simple, deficient NOAs can lead to various challenges in the arbitral process inter alia, the appointment of the tribunal, recourse to interim reliefs, calculation of limitation, and even constitute a ground for setting-aside the award.
Parties would need to be vigilant at the stage of drafting, to ensure the arbitral process is not rendered redundant due to lack of clarity in the NOA. Since non-compliance with the requirements of Section 21 can be examined by an arbitrator itself,25 defects in the notice can largely be rectified before it results in any adverse consequences. By adhering to these guidelines, parties can effectively initiate arbitration proceedings, thereby safeguarding their rights and interests in the dispute resolution process.
Footnotes
1 2017 SCC OnLine Del 7228
2 Justice R S Bachawat, 'Arbitration and Conciliation' Volume I, Part I, Chapter 5
3 Malhotra 'Commentary on the Law of Arbitration' 4th Edition, Vol I, Chapter 21
4 Milkfood Ltd. v. GMC Ice Cream (P) Ltd., (2004) 7 SCC 288 (para 40-44, 69)
5 2013 SCC OnLine Mad 555
6 Alupro, Para 36
7 Osa Vendita (P) Ltd. v. Bausch & Lomb (India) (P) Ltd., 2018 SCC OnLine Del 12721
8 Adavya Projects Pvt. Ltd. v. M/S Vishal Structurals Pvt. Ltd. & Ors, (Neutral Citation: 2025 INSC 507)
9 Indus Ind Bank Limitedv.Mulchand B. Jain 2013 SCC OnLine Mad 555 Para 8
10 Active Media v. Divisional Commercial Manager, Northern Railway 2020 SCC OnLine Del 1999
11 Malhotra, Pg. 667
12 2010 SCC OnLine Bom 1707 at para 18
13 Bharat Chughv.MC Agrawal HUF 2021 SCC OnLine Del 5373
14 2022 SCC OnLine Bom 1410 at Para 25
15 Fiitjee Ltd. v. Ashish Khare (2023) 1 HCC (Del) 698) at para 20
16 National Highways Authority of India v. Progressive Constructions Ltd., 2015 SCC OnLine Del 7887
17 Alupro, Para 26
18 DP Construction, Para 27
19 Shriram Transport Finance Co. Ltd. v. Narender Singh (2022) 6 HCC (Del) 275 at para 34
20 Alupro, Para 25
21 State of Goa v. Praveen Enterprises (2012) 12 SCC 581 at Para 16
22 State of Goa v. Praveen Enterprises (2012) 12 SCC 581 at Para 17; Oil Industry Development Board v. Godrej & Boyce Mfg. Co. Ltd. 2022 SCC OnLine Del 325
23 Sundaram Finance Ltd. v. NEPC India Ltd., (1999) 2 SCC 479 Para 19
24 Adavya Projects, para 10.3
25 Oval Investment Pvt. Ltd.v.Indiabulls Financial Services Limited 165 (2009) DLT 652 (SB)
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