Notice Invoking Arbitration: Indian Law- Section 21 of the Indian Arbitration Act

Notice for invoking Arbitration

The arbitration proceeding commences with the notice invoking arbitration as provided under 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, it was held 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 only limited for the purpose of determining limitation but also a party cannot straight away file a claim before the Arbitrator without issuing this notice. The judgment infused mandatory overtones to the provisions of Section 21 and dispensing with same could be one of the grounds for challenge of the award under Section 34 of the Act. The notice served is not only for the date of the reference of the disputes to arbitration but shall also qualify to be the date from which the limitation will start running for the purposes of computation of limitation under Section 43(2) of the Act in the absence of an agreement to the contrary. Before initiating arbitration, a party must examine arbitration agreement and to see whether such arbitration agreement provides for any procedure to be followed before invoking arbitration agreement.

If any procedure is required to be followed as a condition precedent before invoking arbitration agreement, such procedure has to be followed before invoking arbitration agreement. If such mandatory procedure is not followed before invoking arbitration agreement, the opponent may raise an objection about non-compliance of the mandatory procedure provided in the agreement before invoking arbitration agreement. If no such mandatory procedure is followed by the party who seeks to invoke arbitration agreement but no objection is raised by the opponent before the arbitral tribunal, it would amount to waiver under Section 4 of the Arbitration and Conciliation Act, 1996.

Section 43 of the Limitation Act

A party who seeks to invoke the arbitration agreement has to be careful in drafting notice invoking arbitration agreement. When disputes and differences arise between the parties, a party to the arbitration agreement as defined under Section 2(1)(h) has to issue notice invoking arbitration agreement and has to call upon the opponent to appoint an arbitrator in accordance with the arbitration agreement. If the arbitration agreement provides for appointment of sole arbitrator or if the arbitration agreement is silent about the number of arbitrators, the arbitral tribunal shall consist of a sole arbitrator. A party who invokes the arbitration agreement can suggest the name of few arbitrators and may call upon the opponent to agree to one of the names suggested by that party or to suggest any other names if the names suggested by that party is not agreeable by the other party within thirty days from the date of receipt of the said notice. Section 43(2) provides that for the purposes of Section 43 of the Arbitration and Conciliation Act, 1996 and the Limitation Act, 1963, arbitration proceedings shall be deemed to have commenced on the date referred in Section 21.

Supreme Court in the case of State of Goa Vs. Praveen Enterprises – (2012) 12 SCC 581  has held that the limitation for counter claim should be computed, as on the date of service of notice under Section 21 of the Arbitration and Conciliation Act, 1996 of such claim on the claimant and not on the date of filing of the counter claim.

Section 21 of the Act

“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.

Receipt of the Notice Served

Section 21 talks about recipient of the notice by the respondent but when does a notice is deemed as received by the respondent?

Section 3 of the Act deals with this question.

Section 3 reads as:

Receipt of written communications.—(1) unless otherwise agreed by the parties,—

(a) Any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address, and

(b) if none of the places referred to in clause (a) can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee’s last known place of business, habitual residence or mailing address by registered letter or by any other means which provides a record of the attempt to deliver it.

(2) The communication is deemed to have been received on the day it is so delivered.

(3) This section does not apply to written communications in respect of proceedings of any judicial authority.

Delhi high court in Alupro Building Systems Pvt Ltd v. Ozone Overseas Pvt. Ltd., 2017 SCC Online Del 7228 held that mere acceptance of supplies by one party to another on the basis of invoices containing arbitration clause would not mean that the same had been accepted by the other party and endorsement on receipt of goods and the invoices would not lead to a conclusion that a party agreed to the arbitration clause printed on the said invoices and therefore, the alleged arbitration agreement in the case was held to be invalid.

Objective for sending the Notice

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.

Things to be mentioned in the notice

1. Name and address of both the parties.
2. Kind of business activities are going on between your client and the opposite party to the agreement.
3. Facts that shows the cause of action.
4. Mention obligations to be fulfilled by the opposite party.
5. Quotes the arbitration clause through which you invoke arbitration.
6. Prescribe the time limit in which respondent can send the reply.
7. Request the respondent to appoint the arbitrator if arbitration tribunal to be formulated.

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