Fresh 'Invocation Notice' U/S 21 A&C Act Not Necessary When Party Seeks Appointment Of Arbitrator After Setting Aside Of Award By Ineligible Arbitrator: Bombay HC

The bench of Justice Bharathi Dangre observed, “…Merely because the award passed by an ineligible arbitrator is set aside, is not sufficient enough to give new contour to the dispute, as the dispute between the parties still remain the same…” Merely Because 

Advocate Sunny Shah appeared for the Appellant and Advocate Dormaan Dalal appeared for the Respondent.

Brief Facts-

The Petitioner, Kirloskar Pneumatic Company Ltd being engaged in the business of manufacturing and selling various types of air & gas compressors, accessories, and spare parts struck a deal with the respondent, Kataria Sales Corporation which is also engaged in a similar business and the business deal found its way in the Dealership Agreement. Under the purchase order raised by the respondent on the petitioner, which raised an invoice, Kataria Sales refused to pay the amounts.

Kirloskar Pneumatic Company invoked arbitration and appointed a sole arbitrator, who declared an award in favour of the petitioner.

The award was challenged before the District Judge and was set aside on the ground that the Sole Arbitrator was appointed unilaterally by the claimant/ Kirloskar Pneumatic Company. Therefore, the Petitioner approached the High Court with this petition seeking the appointment of an Arbitrator.

On behalf of the respondent, Advocate Dalal raised a preliminary objection about the maintainability of the petition. He argued that the petition was premature since it was filed under Section 11 (6) without first invoking the arbitration clause under Section 21.

He further argued that the cause for filing an application under Section 11, would arise upon the failure to make the appointment of an arbitrator within 30 days from issuance of the notice by invoking arbitration.

He submitted that when there is no invocation, the appointment of the arbitrator cannot be sustained.

As per the Court, Section 21 provides that the commencement shall be the date on which the respondent received a request from the applicant for referring the dispute to arbitration.

The Court further observed, “Upon receipt of such a notice at the end of the respondent, the applicant has triggered the arbitral proceedings, but if the party at the other end fails to act as required i.e. agree to the appointment of the arbitrator or a panel of arbitrators as decided between the parties and set out in the arbitration agreement, which comply the test of Section 7, or if the parties, who have appointed the respective arbitrator fail to reach a consensus, under the procedure, upon an application being preferred under sub-section (6) of Section 11, the arbitrator/s shall be appointed to take the process of arbitration ahead.”

The Court rejected the contention of the respondent that when a unilateral appointment of an arbitrator was frowned upon and the award passed by an illegal arbitrator was set aside, once again the arbitration, will have to be invoked by issuing a notice under Section 21.

The Court noted that the petitioner has already forwarded a request to the respondent for referring the dispute that had arisen between them to arbitration and the arbitral proceedings in respect of that dispute have commenced.

The Court stated that now what is sought by the petitioner was the appointment of a competent arbitrator to arbitrate the dispute and the petitioner expects the arbitrator to be eligible to act as such i.e. he shall be a neutral and independent person.

It further stated that the disagreement between the parties before the Court arose long back when the respondent refused to pay the amounts due under the invoices and made only part payment.

Hence, according to the Court arbitration mechanism is already triggered and the proceedings have commenced upon the issuance of the notice by the petitioner to the respondent, and therefore when the petitioner seek appointment of an independent and impartial arbitrator, through the mechanism of sub-section (6) of Section 11, it necessary that it should be preceded by a fresh notice under Section 21.

The Court stated that the respondent was aware of the existence of a dispute and also of the fact, that this dispute in terms of the agreement between the parties deserves to be resolved through an independent arbitrator.

The Court appointed the arbitrator while exercising its powers under Section 11(6) of the Act.

Accordingly, the Court allowed the Petition.

Cause Title: Kirloskar Pneumatic Company Ltd v. Kataria Sales Corporation (Neutral Citation: 2024:BHC-AS:14828)

Appearance:

Appellant: Adv. Sunny Shah, Adv. Devanshi Sethi, Adv. Hemant Sethi

Respondent: Adv. Dormaan Dalal

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