The High Court of Delhi, vide its judgment dated May 5, 2025, in the case of Messrs Supreme Infrastructure India Limited v. Freyssinet Menard India Priavte Limited, [O.M.P. (COMM) 395/2024], while setting aside an arbitral award, has held that opposite party's failure to reply to the notice under Section 21 of the Arbitration and Conciliation Act, 1996 ("Act"), unilaterally appointing an arbitrator, does not imply consent to appoint the named arbitrator. It reiterated that in such a situation, the only recourse available to the party is to invoke the jurisdiction of the Court for appointment of an arbitrator.
Brief Facts:
On October 15, 2012, Messrs Supreme Infrastructure India Limited ("Petitioner"), was awarded work contract for construction of an additional office complex for the Supreme Court, New Delhi, which included RCC Framework with a three-level basement. On 06.02.2013, The Petitioner issued a work order dated February 6, 2013, to Freyssinet Menard India Private Limited ("Respondent") for design, supply and installation of pre-stressed soil anchors. However, the work contract of the Petitioner came to be terminated by the Central Public Works Department on July 24, 2014.
Respondent invoked arbitration against the Petitioner under the work order by sending a notice under Section 21 of the Act, which was never received by the Petitioner. Subsequently, Respondent unilaterally appointed a sole arbitrator, and the arbitration proceedings commenced. On March 15, 2016, arbitral proceedings culminated in an ex parte arbitral award ("Impugned Award"), however, the signed copy of the same was not served on the Petitioner.
It was averred by the Petitioner that it became aware of the arbitral proceedings and the Impugned Award only on June 28, 2024, when a copy of the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("Code"), filed by the Respondent against the Petitioner, was sent to the Petitioner by National Company Law Tribunal, Mumbai ("NCLT"), by email. Aggrieved, Petitioner challenged the Impugned Award under Section 34 of the Act before the Delhi High Court.
Issue:
Whether failure to reply to the notice under Section 21 of the Act imply consent for appointment of named arbitrator and whether the subsequent arbitral award so passed is liable to be set aside for unilateral appointment of arbitrator?
Contentions of the Petitioner:
The Petitioner challenged the validity of the Impugned Award on the following grounds:
1. The notice under Section 21 of the Act was sent to two other addressed of the Petitioner, as against the address provided in the work order, and that the notice was not delivered at even these addresses. It is thus argued that in the absence of the notice under Section 21 of the Act, the very commencement of the arbitral proceedings was invalid, thereby vitiating the award.
2. Petitioner further argued that it did not receive any notice from the arbitrator and was thus unable to place its response to the claims of the Respondent and that this is sufficient ground to set aside the impugned award.
3. It was argued by the Senior Counsel appearing for the Petitioner that since the Petitioner did not receive notice under Section 21 of the Act, the unilateral appointment of the sole arbitrator, appointed by the Respondent, cannot be sustained in law.
Contentions of the Respondent:
Respondent defended the Impugned award and submitted that no ground has been made out for setting aside the same. It was argued that the Respondent had sent a notice under Section 21 of the Act at the addresses known to it and it is not mandatory that the notice ought to have been sent at the addresses mentioned in the work order. Further, in respect of the unilateral appointment of the arbitrator, it was urged that when Petitioner failed to respond to the notice under Section 21 of the Act, it was presumed that Petitioner had consented to the appointment proposed by the Respondent and waived its right to contest the same.
Decision by the High Court:
The High Court allowed the petition under Section 34 of the Act and set aside the Impugned order, as follows:
1. The High Court first examined the maintainability of the petition under Section 34 of Act on the ground of limitation. Placing reliance on Section 31(5) of the Act and the judgments of the Supreme Court in Union of India v. Tecco Trichy Engineers & Contractors, (2005) 4 SCC 239, and in Benarsi Krishna Committee v. Karmyogi Shelters Private Limited, (2012) 9 SCC 496, the High Court held that it is only upon receipt of a 'signed copy' of the award by the 'party' to the arbitration agreement, limitation period under Section 34(3) of the Act commences and therefore, the petition of the Petitioner was not barred by limitation. Section 31(5) of the Act reads thus:
"31. Form and contents of arbitral award.—(1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.
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(5) After the arbitral award is made, a signed copy shall be delivered to each party.
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2. The High Court then placed reliance on the judgments of Delhi High Court in Bharat Chugh v. MC Agrawal HUF, 2021 SCC OnLine Del 5373, and in Shriram Transport Finance Company Limited v. Narender Singh, 2022 SCC OnLine Del 3412, and observed that proceedings in respect of a particular dispute commences on the date on which a request for that dispute to be referred to arbitration is received by the Respondent, unless otherwise agreed by the parties. If no notice sent by one party is received by the other party, arbitral proceedings cannot be stated to have commenced and obviously, something that has not commenced cannot continue. The High Court held that a notice under Section 21 of the Act, invoking arbitration clause, preceding reference to disputes is mandatory and without such notice, arbitration proceedings that have commenced would be unsustainable in law, as also held by the Delhi High Court in Alupro Building Systems Private Limited v. Ozone Overseas Private Limited, 2017 SCC OnLine Del 7228. The High Court further observed that non-receipt of the notice under Section 21 of the Act also impacts another aspect of arbitration regime, vis-à-vis party autonomy in appointing an arbitrator, and reiterated that unilateral appointment of an arbitrator is untenable in law. Section 21 of the Act is reproduced herein for ready reference:
"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."
3. The High Court then observed even though the present matter relates to a period prior to amendment of Section 12(1) of the Act, and relying on the judgment of Delhi High Court in Vineet Dujodwala v. Phoneix ARC Private Limited, 2024 SCC OnLine Del 5940, held that unilateral appointment of the arbitrator is a sufficient factor to vitiate the arbitral award. High Court also relied upon the judgment of Delhi High Court in S.K. Builders v. CLS Construction Private Limited, 2024 SCC OnLine Del 5498, to hold that even in respect of arbitrations which commenced prior to introduction of Section 12(5) of the Act, arbitrators could not be unilaterally appointed and any arbitration by a unilaterally appointed Arbitrator would be a nullity ab initio.
4. Lastly, it was held by the High Court that even presuming that the notice under Section 21 of the Act was delivered upon the Petitioner and the Petitioner failed to reply to the same, the only recourse available to the Respondent would have been to invoke the jurisdiction of the Court under Section 11 for appointment of the Arbitrator and reference of disputes.
Conclusion:
The High Court set aside the Impugned Award dated March 15, 2016, observing that unilateral appointment of arbitrator vitiates the award and if the opposite party fails to reply to the notice under Section 21 of the Act, then such inaction cannot lead to an inference as to implied consent or acquiescence of the party to appointment of the named Arbitrator. The High Court held that in such a situation the only recourse available to the party is to invoke the jurisdiction of the Court for appointment of an arbitrator. By this judgment, the High Court has reiterated and reaffirmed the significance of party autonomy in arbitration regime.
Please find attached a copy of the judgment.
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