Introduction

The 1996 Arbitration and Conciliation Act aims to speed up commercial disputes by the way of private arbitration. The law of arbitration is mentioned in the 1996 arbitration and conciliation act. It went into force on August 22, 1996, after going into effect on January 25, 1996. This Act covers all aspects of the local, international, and foreign arbitral award. Many people assume that arbitration is much more economical than court proceedings because of the costs are significantly lower. 

Another benefit of arbitration is that the parties can choose an arbitrator who is knowledgeable about the subject area of said dispute. The two primary types of arbitration mentioned are, in fact, ad hoc arbitration and the arbitration conducted in well-established institutions. Ad Hoc arbitration is carried out independently, following the standards that the parties have agreed upon. The parties in this process choose the arbitrators. The International Chamber of Commerce is a prime illustration of this type of organization (ICC). 1 The word “arbitration” simply means a settlement in its most basic sense. Arbitration, adjustment, and compromise are all interchangeable phrases.

Domestic arbitration is a significant option or choice for settling domestic disputes. In India, both domestic and international arbitration are covered by the Arbitration and Conciliation Act, 1996. The 1996 Act did not define the phrases “domestic” and “international commercial arbitration properly.” In its 176th Report on the Indian Arbitration and Conciliation (Amendment) Bill 2003, the Law Commission of India proposed the following definition of the term “domestic arbitration” after carefully evaluating the subject and taking into consideration the differing viewpoints of several High Courts in India. India made substantial revisions to the arbitration-related laws in the 1990s. The primary reason was because earlier arbitration legislation was thought to be quite problematic, which caused delays and extra expenses.

Notice under Article 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 would indicate that, unless the parties agreed differently, the arbitration process should commence on the day the recipient of the notice learns that the claimant wishes to submit the issues to arbitration. But when is the notice considered to have been received by the respondent? 

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 delivered.

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

Notice under Section 21 of the Act is compulsory in Nature: Why?

1. The parties to the arbitration agreement which are the targets of a claim ought to be aware of those claims. It’s likely that in responding to the notice, the receiver might acknowledge a few of the allegations in entirety or in part, which would help to focus the parties’ disagreement.
2. Notice gives the recipient the chance to determine whether the claims are barred by time, prohibited by law of estopped, or unsustainable in light of the factual circumstances surrounding the parties’ disagreement.
3. This notice specifies the procedures to be used for the arbitration procedures and arbitrator’s appointment. It won’t be feasible to determine whether the processes for the selection of an arbitrator and other processes as envisioned in the arbitration provision have been followed until notice invoking the arbitration clause has been given. Arbitration agreements almost often prohibit the unilateral selection of an arbitrator by any of the sides; the choice of the arbitrator must be agreed upon by both parties. An essential purpose of the notice provided under Section 21 is to facilitate agreement on the selection of an arbitrator.
4. Regardless of whether the notice required by Section 21 of the act allows one of the parties to select the arbitrator, the party making such appointment must nonetheless inform the other side in advance of the individual it intends to nominate. Such an individual could very well be “disqualified” from serving as an arbitrator for a variety of reasons. After obtaining such notice, the receiver may be able to draw attention to this flaw and convince the claimants to designate a qualified individual.
5. For the objectives of Section 11(6) of the Act, a party requesting to submit a disagreement to arbitration won’t be able to show that the opposing party failed to follow procedure and agree to the request for the selection of an arbitrator without the notice required by Section 21 of the Act. Such failure by one side to respond establishes the court’s jurisdiction u/s 11 of Arbitration and Conciliation Act.

Things to be mentioned in the notice:

1. Names and addresses for each party.
2. What types of commercial interactions exist between your customer and the other party to the agreement?
3. facts demonstrating the cause of the action.
4. Mention the responsibilities that the other side has to perform.
5. Refer and quote the arbitration clause that you used to request arbitration.
6. Prescribe a deadline by which the respondent must send their response.
7. In the event that an arbitration tribunal is to be established, ask the respondent to nominate the arbitrator.

Case Laws

In case of Alupro Buildings Systems Pvt Ltd vs. Ozone Overseas Pvt Ltd, which was delivered on February 28, 2017, by Justice S. Murlidhar, the High Court of Delhi provided new,  much-needed interpretation & clarification to the same and on application of issuing a notice u/s 21 of the Act, holding that under this act, all the regulations are mandatory in essence and should not be discharged.

In case of M/s D.P. Construction v. M/s Vishvaraj Environment Private Ltd, Court held that:

• “The notice invoking arbitration ought to be absolutely clear with reference to the arbitration clause and with clear intent of calling upon the opposite party to proceed for the appointment of an arbitrator and for reference of disputes to arbitration.

• Unless there is a request by the party to refer the disputes to arbitration, mere setting out of the claims and disputes would not suffice.

• When the parties have not triggered the agreed procedure (in the arbitration clause) for reference of the dispute to arbitration, the question of failure does not arise. Therefore, the precondition of invoking jurisdiction under section 11 of the Act is not satisfied. This aspect goes to the root of the matter and hits the jurisdiction of the Court.

• As elaborated in the judicial precedents, there are legal consequences which follow once notice is issued in accordance with section 21 of the Act, including computation of limitation.”

In this case’s  circumstances, It was observed by the court that the requirements of a valid notice u/s 21 of the Act were not satisfied. The Court further in this case reserved the right of applicant and directed the Applicant to initiate arbitration again by issuing a fresh and valid notice as per section 21, and if parties failed in appointing arbitrator then court also gave right to file a fresh application u/s 11 of Arbitration and Conciliation Act. 

The Supreme Court in the case of Nortel Networks Private Ltd, noted the importance of section 21 of the Act to compute and calculate  the date from which the limitation period is to begin for an application under section 11 of the Act. 

In case of Malvika Rajnikant Mehta, the Court considered how arbitration should be invoked in accordance with Section 21 of the Act and the intent behind these notice under Section 21 of the Act, namely, it gives the opposing party (a) notice of the nature of the claim, (b) an opportunity to contest the admissibility of the claim at the threshold, and (c) an opportunity to raise any concerns regarding the arbitrator’s impartiality. Additionally, the start date of the arbitration is influenced by the date on which notice is received. The Bombay High Court determined in Veena wd/o Naresh Seth that even though the notice requesting arbitration doesn’t specify the claims which are intended, it would still be essential for the notice to specify the disputes that had emerged and that the subject for which the arbitration clause had been invoked.

Conclusion

This Act revolves around agreement or consent among the parties at all stages, Section 21 has an important function of forging consensus on various aspects. It all includes choosing arbitrator, the scope and the determination of disputes and what to do when they remain unresolved, identification of claims and counter-claims and of disputes which are barred by any ground like time. Accordingly, an accurate interpretation of Section 21 of the Act leads to the inevitable conclusion that, when there is absence of contrary agreement, the notice required by Section 21 of the Act by the Claimant bringing up the arbitration, prior the referral of the disputes to arbitral proceedings, is compulsory by law and that, if such notice is absent, the arbitration proceedings that have been commenced would just be legally unsupportable.

Section 21 of the arbitration and conciliation act begins with `unless otherwise agreed by the parties.” It shows to us that the party has the biggest autonomy in arbitration law. Therefore, parties have power to waive off the requirement of notice as provided under section 21 of the Act. However, if such waiver is not done then the provision of act 21 must be followed. Judiciary has tried to shed light on the importance of section 21 while essential ingredients have not been set expressly in the act. Courts have stated in cases that arbitration clauses must be referred to while making a notice. 

Written By: Gourav Bavishi