In our article titled as “Efficient Strategies for Expeditious Recovery of Monetary Dues in India”, we have addressed the subject of arduous and long process of traditional civil suit in India and have discussed various remedies for expeditious recovery of monetary dues including the proceedings of Arbitration inter alia explaining that the Indian Arbitration and Conciliation Act, 1996 (“the Act”) provides for resolution of disputes requiring full fledged trial within statutory time limit of one year which can be extended for further six months with the consent of both the parties. The Indian law enables the choice of Indian or Foreign Substantive Law of Contract for adjudication of disputes through the process of Arbitration, which can be used for expeditious resolution of disputes involving complex factual as well as legal issues e.g. disputes arising out of Investment Contracts, Engineering Procurement Construction Contracts, International Agency Contracts, Intellectual Property Rights Licensing Contracts and many more.
In this Article to we seek to discuss how to initiate the proceedings of Arbitration and whether in terms of Indian Arbitration Act, pre-action Letter/Notice under Section 21 is mandatory.
Concept of Letter before Action/Pre-Action Notice in India
In India, it is not mandatory to issue a Letter before action or a Pre-action Notice for initiation of a proceeding, unless mandated specifically under a given statute. For Example: –
- Before initiation of Criminal Prosecution under Section 138 of the Negotiable Instruments Act, 1881, it is statutorily mandated to issue a notice making a demand for money involved in dishonour of a cheque;
- In terms of Insolvency and Bankruptcy Code, 2016, an Operational Creditor is required to issue a statutory notice upon the Corporate Debtor before it could initiate the Proceedings under IBC for initiation of Corporate Insolvency Resolution Process;
- SARFAESI Act, 2002, requires the banks and financial institutions to issue the notice under Section 13(2) before taking action of Enforcement of Security Interest in terms of Section 13(4) of the Act.
However, for other proceedings where it is not specifically mandated under statute, no Letter before Action or Pre-action Notice is required to be issued.
Position under Arbitration and Conciliation Act, 1996
Section 21 of the Act provides that: –
“21. Commencement of arbitral proceedings.—Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.”
Looking at the above provision, though it does not specifically mandate issuance of a Notice or a Letter before action for commencement for arbitration proceedings, it is clear that unless otherwise agreed by the parties, arbitration proceedings in respect of a particular dispute commences on the date on which request for the dispute to be referred to arbitration is received by the opposite party.
In the case of Amit Guglani & Anr. v. L&T Housing Finance Limited & Anr., the Delhi High Court in a petition filed under section 11(6) of the Act for appointment of Sole Arbitrator was faced with the contention that such a petition was not maintainable as the mandatory Notice of invocation of arbitration under Section 21 of the Act was not required as the Arbitration Clause in the agreement concerned envisaged unilateral appointment of the Arbitrator which was in violation of Section 12(5) of the Act and no purpose would have been achieved by issuing a Notice under Section 21 of the Act.
The Delhi High Court taking note of various judgements on Section 21 of the Act of the Supreme Court of India and different High Courts held that in terms of Section 11(6) of the Act, the party approaching the Court for the appointment of the Arbitrator will not be able to establish that the opposite party failed to act in line with the procedure without a notice u/s.21 of the Act; the cause of action for jurisdiction of the Court in terms of Section 11 of the Act is failure by opposite party to respond or to follow agreed process.
The High Court held that while parties may agree to waive the requirement of such notice under Section 21, in the absence of such express waiver, the provision must be given full effect to and that in the absence of an agreement to the contrary, a notice under Section 21 of the A&C Act by the claimant invoking the arbitration clause and seeking to refer the disputes to arbitration is mandatory. Court further held that without such notice, the arbitration proceedings that are commenced would be unsustainable in law.
In summary, notice u/s.21 for referring the disputes to arbitration is mandatory for commencement of arbitration unless any other mechanism is agreed by the parties for commencement of arbitration proceedings. The same is evident from the bare wordings of s.21 as well. We, recommend issuing a formal notice, even if the parties have agreed for a different process as issuance of the Notice will also have implications for calculating the period of limitation and it also could help parties to narrow down the controversies and possibly arrive at an agreement on the scope of the disputes, identification of the claims and counter-claims, choice of arbitrator, venue of proceedings and language of proceedings etc.
Minimum Content of the Notice for Commencement of Arbitral Proceedings
The Act generally and Section 21 of the Act specifically do not postulate any specific requirement as regards the contents of the Notice which could be issued by a party to arbitration agreement for a request for the disputes to be referred to arbitration.
While, what should be the content of the Notice for reference of a dispute to arbitration is an aspect discussed in various judgements, in the case of M/s D.P. Construction v/s M/s Vishwaraj Environment Private Limited, the Bombay High Court, referring to various judgements on subject matter 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 rival party to proceed for appointment of an arbitrator and referring the disputes to arbitration.
- Unless there is a request by a party that the dispute is to be referred to arbitration, merely stating the claims and disputes in the notice would not suffice.
Thus, any notice for initiating arbitral proceeding will be valid and effective if it is absolutely clear regarding the arbitration clause and if it calls the opposite party to have the reference made to arbitration.
Recommended Content of the Arbitral Notice under the Section 21 of the Act
We pointed out above as to what should be the minimum content of the Notice for referring the disputes to arbitration. We, however, will recommend and suggest to include other specific aspects in the Notice for referring the dispute to arbitration beyond the minimally required content of the Notice as pointed out above.
It will be advisable to indicate the aspects of relationship of the parties, factual matrix giving rise to the disputes, clear expression of the disputes, specific monetary or other demands, proposed arbitrator, proposed venue of arbitral proceedings and proposed language of arbitration proceedings, if they have not been decided beforehand in terms of the agreement between the parties.
Any reference to previous communications/meetings is also recommended to be included in such a Notice. While, the clear expression of disputes in specific demands is recommended, it is also recommended to expressly state that any other connected and incidental disputes are also requested to be referred to arbitration so as not to confine the reference to only the specific monetary and other demands expressly stated in the Notice.
*The content of this article is intended to provide general information. No reader or user should act or refrain from acting on the basis of the information written above without first seeking legal advice from a qualified law practitioner.
Author: Ravish Bhatt, Managing Partner, R & D Law Chambers LLP
Connect with Author on LinkedIn or on Email – info@rdlawchambers.com
*R & D Law Chambers is a firm providing Legal advisory and International and Domestic Tax Advisory services. To know more visit https://rdlawchambers.com/