Delhi High Court: Whether A Communication Claiming The Disputed Amount And Contemplating Arbitration Is A Notice Of Arbitration?

Delhi-High-Court

In Badri Singh Vinimay Pvt. Ltd. v. MMTC Ltd. O.M.P. 225/2015, decided on 6 January 2020 by the Delhi High Court, the award debtor challenged the award under Section 34 of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’). In these proceedings, the award debtor contended that the proceedings of the arbitration themselves were vitiated by an improper invocation of arbitration since no notice of commencement of arbitration in terms of Section 21 of the Arbitration Act was served upon the award debtor.

Per contra, the award creditor contended that any dispute regarding compliance of Section 21 was within the province of the arbitrator and cannot be raised in Section 34 proceedings.

Further, the award creditor argued that the contents of one of its communication (provided below) meets the criteria of valid notice of arbitration under Section 21. The relevant portion of the correspondence reads as under:-

“Under the facts and circumstances stated herein above, I by way of this notice to pay a sum of Rs.88,08,932/- alongwith interest @ 18% p.a. w.e.f. 05.10.2011 till the date of payment/realization; to my client within a period of 15 days from the receipt of this notice, failing which my client shall be constrained to initiate appropriate legal action against you for recovery of the said amounts and interest thereon including initiation of arbitration proceedings entirely at your risk, costs and consequences.”

Analyzing the above clause, the Delhi High Court noticed that award debtors contention on the basis of Section 21 is wholly unmerited for the following reasons:-

  • Section 21 requires a party to send a request to the counter-party for the dispute to be referred to arbitration and the above communication from award creditor meets this requirement;
  • The facts leading to the dispute, and the nature of the award creditor’s claim were made sufficiently clear in this communication.
  • The award creditor also stated that legal recourse would be taken by the award creditor if its claim was not satisfied. Thus, the initiation of arbitration proceedings in such a situation was expressly contemplated.
  • The award debtor’s response of the above communication dealt with award creditor’s claim on merits and, in fact, raises a claim on behalf of the award debtor itself, alongwith a threat of legal action.

In view thereof, the Court held that a communication claiming a disputed amount and contemplating arbitration in the alternative is sufficient notice of a request for arbitration. [RIICO Ltd. Jaipur & Ors. vs. Manoj Ajmera & Anr., (2008) 2 ArbLR 388]

On the merits of award debtor’s petition under Section 34 in the instant case, the Delhi High Court noticed that the award is based on facts and evidence led before the arbitrator. Therefore, it is beyond the scope of Section 34 of the Arbitration Act.

Similar view was taken by the Rajasthan High Court in RIICO Ltd. Jaipur & Ors. In that case, the Rajasthan High Court noticed that the Contractor in its purported arbitration notice to Employer, stated that it demands justice from the Employer and request for totally reviewing the contract in its final determination, by paying them all their claim amount so as to end up without any contractual disputes and differences in it.

It was further stated that in the event of their non discharge of the Contractor’s legitimate claim in 30 days of receipt of the notice, they shall be compelled to knock the doors of justice in obtaining it, for which the first available legal remedy to the Contractor would be to seek Arbitration to which Contractor was contractually entitled under clause 23 of the underlying agreement.

Thus, in view of the contents of the letter, the Rajasthan High Court held that even if the notice did not directly ask for making a reference to the Arbitration, none-the-less it did make the intention of the Contractor full well known that he specifically demanded the payment of the claimed amount and failing which, he expressed his intention to seek Arbitration for which, it was stated, that he was contractually entitled for in terms of clause 23 of the underlying agreement. In Court’s view, the intention expressed therein fulfilled the requirement of notice of arbitration.

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