[Archisman and Sanidhya are students at National Law University Odisha.]
The Delhi High Court in Rahul Jain v. Atul Jain recently held that initiating an arbitration process requires issuing a notice of arbitration initiating. Justice Prateek Jalan, who delivered the judgement, emphasised that the party the arbitration has an obligation to serve the other party with a written notice expressing its intention to refer the dispute to arbitration, as mandated by the Arbitration and Conciliation Act 1996 (Act).
This notice helps the receiving party gain the advantage of understanding the claims made and is able to narrow down the dispute by deciding whether to accept or reject the claims. Additionally, the notice under Section 21 of the Act serves an important purpose in arbitration proceedings. This notice clarifies claims, identifies potential defenses, outlines the arbitration procedure, facilitates consensus on arbitrator appointment, and triggers court jurisdiction in case of non-compliance. Due to irreconcilable judgments, it has been a matter of judicial conundrum whether its performance is absolutely critical or whether substituted performance can override it.
In this article, we discuss the nature of the requirement of notice of arbitration as to whether serving it is compulsory or a mere technical requirement. Primarily, we delve into discussing the differing judicial opinions rendered by the courts. Secondly, we analyze the relevant issue by relating it to certain basic principles of the Civil Procedure Code 1908 (CPC) and scope the importance of issuing notice as part of new updates after proceedings have started. Lastly, we compare the procedure followed in foreign jurisdictions and that the Indian practice concerning the issue in question.
Conflicting Judicial Opinions
Earlier in 2017, the Delhi high court, in a landmark judgement in Alupro Buildings v. Ozone (Alupro), accorded a similar interpretation to the need to provide a notice. In that case, the court delved into the main object and purpose of Section 21 of the Act in order to declare it as mandatory in nature. The court reasoned that the notice formed an essential primary step in commencing the arbitration process between the parties. Thus, it appears to us from the ruling of the court that any proceedings started without fulfilling the prerequisite criteria under Section 21 of the Act would be invalid in law.
On similar lines, the Madras High Court, in Globe Detective v. Gammon, held that the notice under Section 21 is of paramount importance since it facilitates a consensus on the appointment of an arbitrator. The court concluded that issuing the notice would be mandatory to initiate the arbitration unless a contrary intention is established validly. However, the case of Kailesh v. Aaren saw a different ruling which gives greater importance on the need to issue a notice. It held that treating the non-compliance of the notice as a mere irregularity and overriding its requirement is possible if the other party does not object to it before the arbitrator.
The Delhi High Court once again in De Lagen v. Parhit (Lagen) issued a different ruling that deviates from the stance taken in Alupro. The court reasoned that if the defendant is already aware of the arbitration proceedings either by notice or other routes, then Section 21 takes the nature of a mere formality. Once the notice achieves its intended purpose, fulfilling its compliance becomes optional. Herein, we argue that the court's approach was less restrictive and diverged significantly from the other judgments, potentially leading to confusion and a lack of uniformity in interpreting the provision.
Strict Procedural Necessity
The SC, in a number of judgments, settled the law that adherence to every procedure in CPC should not cause injustice. Provisions of arbitration law will always take precedence over CPC, but the principles of CPC in line with the Act and not explicitly ousted ought to be incorporated in it. In DP v. Vishvaraj (DP), the court held that service of a mere legal notice and from whose contents the invocation of arbitration can be inferred, would lead to the wavering of the requirement of Section 21. This ruling, along with the one in Lagen, shows that the court took a more relaxed approach while interpreting the provision.
As it appears to us from Lagen and DP, on the satisfaction of the objective and purpose behind giving notice to the other party, albeit in an implied and indirect manner that is not wholly compliant with Section 21, the need to serve it becomes discretionary. The authors argue that heavily relying on compliance with procedural requirements can hamper party's interests since arbitration is inherently a consent-driven process. Denial of setting up an arbitral tribunal due to the absence of notice runs wholly opposite to the pro-arbitration approach of Indian courts. The principles of CPC can act as guideposts for courts to interpret the degree of necessity of giving notice by striking a balancing act between the purpose of the provision and the deleterious effect it would have on the party who failed to give notice but conveyed its initiation.
Post Commencement Notice
Arbitration considers certain events to be critical, to the extent that such events are almost equivalent to the re-commencement of proceedings. For instance, on the death of the arbitrator or the termination of their mandate, proceedings can resume only after the appointment of substitute arbitration. This leads to the question as to whether its continuance becomes contingent on the serving of a fresh notice. The Jharkhand High Court in Central Coalfields v. Powertech opined that if and when a substitute arbitrator is to be appointed during the proceedings, there is no requirement incumbent upon the parties to issue a fresh notice.
However, in this judgement, since the respondent (Powertech) failed to act on the initial notice, the High Court appointed an arbitrator based on an application under Section 11(6) of the Act. It appears that the court removed the need to issue another notice since the respondent failed to act on the first notice. We argue that this approach of the court places more reliance on the specific facts of the case by considering the past acts of the parties. Contrary to that, Section 21 specifically mentions that the proceedings “commence” on the date the notice is given and is completely silent on the event of recommencement. Herein, a verdict from the apex court could provide the much-needed clarity by deciding on the more beneficial approach.
The Arbitration Act 1996 governs the UK's arbitration and requires a party to serve a notice if they wish to initiate arbitral proceedings. A comprehensive reading of the statute indicates that if the arbitrator is named or designated in the arbitration agreement, one party can initiate proceedings by serving a notice requiring submission to the named arbitrator. On the same lines, Article 3 of UNCITRAL Arbitration Rules also states the mandatory requirement of serving an arbitration notice. In Glencore Agriculture v. Conqueror Holdings, it was held that the service of notice and the compliance with the institutional rules is important to avoid challenges to the validity of the award.
The UNCITRAL rules comprehensively discuss the notice of arbitration, covering various aspects including the timeframe within which the respondent has to send out his communication to the claimant. The rules emphasise that the respondent's failure to respond to the arbitration notice should not hinder the constitution of the arbitral tribunal. In contrast, the arbitration law in India takes a simpler approach regarding service of notice and does not delve into the specifics of its content or the subsequent response. This disparity highlights the differing approaches these two legal frameworks take in addressing the notice requirements in arbitration proceedings.
The authors argue that the provision of serving the arbitration notice is crucial for communicating the initiation of arbitration to the other party. It also sets the ground for the start of arbitration proceedings. On the other hand, if someone fulfils the purpose of service of notice in some other valid way, then insisting on its mandatory nature could create unnecessary delays in the proceedings, which will cause inconvenience to the parties. This effect would be in complete contravention of pro-arbitration approach advocated by the apex court and would hinder the object of the law i.e., fast and efficient resolution of disputes. In light of this, the authors suggest that a clear interpretation bestowed upon this issue by the Supreme Court has the potential to adequately address it.
To sum it up, the arbitration notice is an essential, if not mandatory, requirement for initiating the arbitration process. The language of the statute showcases its extremely important role in the entire process while leaving the determination of its nature up to interpretation. Despite the conclusion that service of notice of arbitration is not a mere formality according to some courts, conflicting judicial opinions have held it to be a mere technical requirement. However, in light of the underlying principles of CPC, if too great an emphasis is placed on its completion, it could hamper party's interests by preventing them from participating in the arbitration process in a timely manner. Thus, striking the right balance between procedural compliance with a statute and fulfilment of its intent and object through a purposive approach should be of prime consideration.