Introduction
Section 21 of the Arbitration and Conciliation Act, 1996, exists at the nucleus of the arbitral process in India, providing the procedural anchor for the commencement of arbitration proceedings. While the statutory language may appear sharply defined, the interpretation and application of Section 21 involve several nuanced considerations for parties engaged in the procedure.
Inevitable questions frequently arise before courts and arbitral tribunals: Is the issuance and receipt of a notice under Section 21 a strict and mandatory requirement before initiating arbitration? Does it determine the point at which the limitation is computed? Can the parties, by agreement or conduct, dispense with or modify this step?
Landmark precedents derived from various High Courts have shed light on these issues, reinforcing the need for parties to approach Section 21 as an unavoidable milestone during arbitration. It becomes vital to examine the framework of this provision, including its nature, the necessity and the limitation.
Nature Of Section 21- Mandatory Or Directory
The Hon'ble High Court of Delhi has given clarity on the interpretation of Section 21 of the Act. In Alupro Building Systems Pvt. Ltd. v. Ozone Overseas Pvt. Ltd.1 the court held that notice by the claimant invoking the arbitration clause and requesting reference of the dispute to arbitration is a mandatory precondition. The court explained that without such a notice, the arbitration proceedings commenced are "illegal and unsustainable". The rationale is that the notice serves to inform the respondent of the claims, enabling them to accept, reject, or narrow the issues, and importantly, to ensure consensus on the appointment of the arbitrator.
The same was reiterated by the Hon'ble High Court of Delhi in Florentine Estates of India Ltd v. Lokesh Dahiya & Anr.2 wherein the principle from the Alupro Building Systems (Supra) was upheld, stating that Section 21 of the Arbitration Act is a mandatory precondition and requires that a notice invoking arbitration must be sent and received by the respondent before arbitral proceedings can commence. Without this notice, arbitration cannot be said to have started, and consequently, a Petition under Section 11(6) to appoint an arbitrator cannot be maintained. The Court observed that since Petitioner No. 2 (the assignee) had not issued such notice, the Petition filed by Petitioner No.1 was not maintainable and thus dismissed.
The Hon'ble High Court of Judicature at Bombay maintained a similar stance in M/S DP Construction v. M/S Vishwaraj Environment Pvt Ltd.3, wherein it stated that "Considering that the running theme of the Act is the consent 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 scope of the disputes, the determination of which the disputes remain unsolved; of which disputes are time-barred; of identification of the claims and counter-claims and most importantly, on the choice of the arbitrator. Thus, the inescapable conclusion on proper interpretation of Section 21 is that in the absence of an agreement to the contrary, the notice under Section 21 of the Act by the claimant invoking arbitration is mandatory. In other words, without such notice, the arbitration proceedings that are commenced would be unsustainable in law." (Para 30) This stand is in complete synchrony with the view taken by the Hon'ble High Court of Delhi.
In 2022, the Bombay High Court further elaborated that the waiver of Section 21 cannot be practiced by the parties simply by naming an arbitrator. This principle was laid in the case of Malvika Rajnikant Mehta & Ors. v. JESS Construction4 where the court held that "the submission on behalf of the applicants that the parties had named the arbitrator cannot be stretched to the applicants' desire. The mere fact that the parties have named their arbitrator would not imply that the parties have agreed to waive the requirement of notice contemplated under Section 21 of the Act." (Para 31) This judgment emphatically extends that the notice under Section 21 is so essential that the arbitral proceedings cannot move to the next stage without touching upon this provision.
The Hon'ble High Court of Calcutta in W.B. Power Development Corporation Ltd. v. Sical Mining Ltd.5 while deciding on merits had taken into account the Delhi High Court judgment in Alupro Building Systems (Supra) and the Bombay High Court judgment in Malvika Rajnikant Mehta (Supra) to reiterate the mandatory nature of Section 21 of the Arbitration and Conciliation Act, 1996.
Waiver Of Notice Under Section 21
The Section 21 of the Act is read under as:
21. Commencement of arbitral proceedings – 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.
A plain reading of the provision provides an indication that the mandate can be waived if both parties are in agreement. Even the Hon'ble Delhi High Court, in Alupro Building Systems (Supra), upheld this in Para 29 of the judgment – "of course, as noticed earlier, parties may agree to waive the requirement of such notice under Section 21. However, in the absence of such express waiver, the provision must be given full effect to."
Computation Of Limitation
The Supreme Court in State of Goa v. Praveen Enterprises6 clarified that Section 21 provision on the commencement date of arbitration proceedings applies to claims made by the claimant and establishes that limitation begins when the respondent receives the notice requesting arbitration.
In Bharat Sanchar Nigam Ltd. & Anr. v. Nortel Networks India Pvt. Ltd.7, the Hon'ble Supreme Court of India tied the limitation of Section 11 of the Act with the notice of commencement under Section 21. It established that, "11. It is now fairly well-settled that the limitation for filing an application under Section 11 would arise upon the failure to make the appointment of the arbitrator within a period of 30 days from issuance of the notice invoking arbitration. In other words, an application under Section 11 can be filed only after a notice of arbitration in respect of the particular claim(s)/dispute(s) to be referred to arbitration [as contemplated by Section 21 of the Act] is made, and there is failure to make the appointment."
Conclusion
On the perusal of the judgments passed by the respectable High Courts of the country, it is unmistakably apparent that the Section 21 not only holds an imperative position in the arbitral proceedings as a step for commencement, but also is a mandatory prerequisite to move onto the further stages of the arbitration, such as the appointment of the arbitrator, and even the derivation of limitation. It enriches the statute with a procedural base, and the mandatory nature of this provision cannot be bypassed.
Footnotes
1.2017 SCC OnLine Del 7228
2.2022 SCC OnLine Del 3689
3. 2022 SCC OnLine Bom 1410
4. 2022 SCC OnLine Bom 920
5. 2022 SCC OnLine Cal 3036
6.2011 SCC OnLine SC 860
7.(2021) 5 SCC 738
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