In ARBITRATION APPLICATION NO.425 OF 2019-BOM HC- Mere fact that parties have named Arbitrator would not imply that they have agreed to waive requirement of notice u/s 21 of Arbitration & Conciliation Act: Bombay HC Justice N.J. Jamadar [28-04-2022]

Read Order: MALVIKA RAJNIKANT MEHTA & ORS Vs. JESS CONSTUCTION 

Mansimran Kaur

Mumbai, May 02, 2022: Appointing a sole arbitrator to resolve all the disputes between the parties arising out of the Conveyance Deed, the Bombay High Court has observed that refusal to refer a matter to arbitration would be justifiable only in those cases where the purported dispute is nothing but a deadwood.

The Bench of Justice N.J. Jamadar affirmed,“The notice under Section 21, as we have seen above, serves definite purposes. One, it puts the adversary on notice as to the nature of the claim, even when the Arbitrator is named by the parties. Two, it provides an opportunity to the adversary to contest the admissibility of the claims on the threshold. Three, it allows adversary to raise the issue of the impartiality of the Arbitrator and the consequent disqualification. Four, the date of the receipt of the notice has a bearing upon the date of the commencement of the arbitration. Therefore, an inference that the parties had waived the notice cannot be drawn merely for the reason that the parties had named an Arbitrator.”

An application under Section 11 (5) read with Section 15 of the Arbitration and Conciliation Act, 1996 was instituted with the objective of appointing an Arbitrator  in order to resolve all the disputes between the applicants and the respondent arising out of the Conveyance Deed dated December 31, 2020. 

The facts in brief were that the predecessor in title of the first, second and third applicant and one Rajnikanth Dhirajlal Mehta were owners of the properties situated at Ogadhbhai Chawl.  Thereafter on December 31, 2012 the said Rajnikanth, the second and third applicants executed a Deed of Conveyance in favor of the respondent. The Deed Conveyance contained the respondent’s obligation to construct a new building on the suit premises and handover the premises along with two parking areas within the time frame of 42 months. However, the same was modified wherein the time frame for delivering the suit premises  was reformed from 42 to 34 months. 

Asserting that the respondent failed to perform its part of the contract, the petitioners claimed to have invoked the arbitration by lodging a statement of claim with the named Arbitrator Mr. Kirti K. Shah, on June 8, 2018. The respondent took a stand that the Arbitrator was ineligible for being appointed as an Arbitrator in the light of the provisions contained in Section 12(5) read with Seventh Schedule of the Act, 1996. 

Meanwhile, by notice dated April 24,  2019, the respondent raised certain claims against the applicants in respect of the same transaction and invoked the arbitration and suggested the name of a former Judge of this Court as the sole Arbitrator. The applicants conveyed their regret. By another communication dated July 8, 2019, the applicants called upon the respondent to have a joint adjudication of the claim of the applicants and respondent and suggested the name of an Arbitrator. In response, the respondent suggested names of two other Arbitrators. The applicants declined to accept the nomination of the Arbitrator, as proposed by the respondent, and instead suggested the name of another Advocate practicing in this Court.

After perpetual disagreements on the subject of appointment of Arbitrator between both the parties, the applicants approached the Court to appoint a sole Arbitrator by mutual consensus, by virtue of Section 11 of the Act , 1996. However, the same was disputed by the respondent.

The respondent questioned the maintainability of the application and submitted that the applicants did not invoke the arbitration agreement contained in the Deed of Conveyance by issuing a  notice as stipulated under Section 21 of the Act, 1996 before filing the statement before the named Arbitrator. It was further submitted that as the notice under Section 21 of the Act was mandatory.

Further the contention with respect to limitation was also raised by submitting that the cause of action arose on October 31st, 2015 upon expiry of the period of 34 months from the execution of the conveyance deed. However, the applicants called upon the respondent to give consent to the appointment of the Arbitrator by notice dated January 18, 2019 for the first time. Thus, in view of the same the respondent submitted that the claim was ex – facie barred by limitation. 

Lastly , the respondent submitted that one Mr. Ashish Chandrakant Mehta instituted a suit before this Court seeking a declaration that he had 1/5th undivided interest in the subject premises and, thus, the application for appointment of an Arbitrator in respect of the subject matter of the said suit didnot deserve countenance, the respondent submitted. 

The Court, after hearing the submissions of both the parties at length, dealt with the scope of inquiry under Section 11 of the Act, 1996 . The Court opined that with the legislative change, brought about by the Arbitration and Conciliation (Amendment) Act, 2015, the scope of inquiry under Section 11 of the Act is restricted to the examination of existence of an arbitration agreement. 

The Bench preferred the judgment of the Top Court in Duro Felguera S.A. v. Gangavaram Port Limited with reference to the legislative change brought about by the Amendment Act, 2015, wherein it was tersely observed that the wide scope of inquiry, at the stage of Section 11, as enunciated in the cases of SBP & Co. v. Patel Engineering Ltd., and National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd,   continued till the amendment brought about in 2015. After the amendment, all that the Courts need to see is whether an arbitration agreement exists-nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court’s intervention at the stage of appointing the Arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.This was reiterated in Mayawati Trading (P) Ltd. vs. Pradyuat Deb Burman, the Court added. 

 The aforesaid limited nature of the jurisdiction under Section 11 of the Act, 1996 was again reiterated by the Supreme Court inBharat Sanchar Nigam Limited and Another vs. Nortel Networks India Private Limited wherein it was opined that it is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is non-arbitral, that the court may decline to make the reference. However, if there is even the slightest doubt, the rule is to refer the disputes to arbitration. Otherwise it would encroach upon what is essentially a matter to be determined by the tribunal.

The second question of law Court dealt with was regarding the fact if in case the Court may refuse to make the reference under Section 11 where the claims are ex facie time-barred. The Apex Court answered the same by referring to the judgment in Nortel Networks’ Case (supra) case wherein it was held that in rare and exceptional cases, where the claims are ex facie time-barred, and it is manifest that there is no subsisting dispute, the Court may refuse to make the reference.

It was further observed that the Apex Court elucidated that the issue of limitation, which is invariably a mixed question of fact and law, is required to be decided by the arbitral tribunal, even though the issue falls in the realm of admissibility issues. In addition to this it was observed that the refusal to refer to arbitration would be justified only in those cases where the purported dispute is nothing but a deadwood. 

Thus, in view of the same it was observed that the lodging of the statement of June 7, 2018 before the named Arbitrator, whereby the applicants claimed to have invoked the arbitration, prima facie appeared within the period of limitation. 

 Further the Court noted that Section 21 evidently begins with an exclusionary clause- “Unless otherwise agreed by the parties”. The Bench said, “This implies that the parties can by agreement provide that the arbitral proceedings shall commence otherwise than a request made by one of the parties to refer the dispute to arbitration having been received by the other party. The requirement of notice under Section 21 of the Act, 1996 can be waived. Secondly, the notice under Section 21 serves the purpose of fixing the date on which the arbitration shall be deemed to have commenced. Section 43(2) of the Act, 1996 provides that for the purpose of the said section and the Limitation Act, 1963, an arbitration shall be deemed to have commenced on the date referred in Section 21.”

Consequently, the mere fact that the parties had named the Arbitrator would not imply that the parties agreed to waive the requirement of notice contemplated under Section 21 of the Act, added the Bench.

With respect to the issue that communication dated  June 7, 2018 to the named Arbitrator constituted a notice to the respondent of invocation of the arbitration, the Bench observed that consistent with the legislative policy of minimal interference at the stage of reference to the arbitration, this question as to whether the communication to the named Arbitrator dated 7th June, 2018, constitutes lawful invocation of the arbitration under Section 21 of the Act, 1996 can be legitimately left to be examined by the Arbitrator. The  language of Section 16(1) of the Act, 1996 is elastic enough to subsume in its fold determination of the question as to whether arbitration is lawfully invoked under Section 21 of Act, 1996, noted the Bench.

However, it was also observed by this Court that the respondent also invoked arbitration through its notice date April 24, 2019. The invocation of arbitration by the respondent underscores the existence of the arbitration agreement, disputes between the parties and even the arbitrability of disputes. Thus, the only dispute between the parties was with respect to appointment of an Arbitrator. Accordingly all claims and counter-claims could be lawfully determined by the Arbitrator as both the parties in the instant case claimed to have invoked the arbitration, the Court submitted. Thus, the application was allowed and the Court appointed Justice M. S. Sanklecha, a former Judge of this Court, as the Sole Arbitrator.