[Arbitration Act] Opposite Party's Failure To Reply To S.21 Notice Doesn't Imply Consent To Appointment Of Named Arbitrator: Delhi High Court
The Delhi High Court bench of Justice Jyoti Singh while setting aside an arbitral award has observed that unilateral appointment of arbitrator vitiates the award and if the opposite party fails to reply to the notice under Section 21, Arbitration and Conciliation Act, 1996 (“ACA”), then such inaction cannot lead to an inference as to implied consent or acquiescence of the...
The Delhi High Court bench of Justice Jyoti Singh while setting aside an arbitral award has observed that unilateral appointment of arbitrator vitiates the award and if the opposite party fails to reply to the notice under Section 21, Arbitration and Conciliation Act, 1996 (“ACA”), then such inaction cannot lead to an inference as to implied consent or acquiescence of the party to appointment of the named Arbitrator. The Court held that in such a situation the only recourse available to the party is to invoke the jurisdiction of the Court for appointment of an arbitrator.
Facts
The Petitioner was awarded work for construction of an additional office complex for the Supreme Court in Pragati Maidan, New Delhi. On 24.07.2014, CPWD terminated the contract with the Petitioner. Invoking the arbitration clause contained in the work order, the Respondent purportedly sent a notice to the Petitioner under Section 21, ACA which was never served upon the Petitioner.
Subsequently, Respondent unilaterally appointed a Sole Arbitrator. The Petitioner was not informed about the appointment of the Arbitrator and the notice sent by the Arbitrator was never received and as a result, Petitioner was unaware of the commencement or pendency of the arbitral proceedings. It is stated that on 15.03.2016, arbitral proceedings culminated in an ex parte arbitral award, however, the signed copy of the award was not served on the Petitioner as required under Section 31(5), ACA.
On or around 10.04.2024, the Respondent filed a petition under Section 9, Insolvency and Bankruptcy Code, 2016 against the Petitioner before NCLT, Mumbai pursuant to which NCLT sent a copy of the petition to the Petitioner by e-mail dated 28.06.2024 and it is on this date as per the Petitioner that it became aware of the arbitral proceedings and the ex parte arbitral award.
The present petition has been filed by the Petitioner under Section 34, ACA challenging the aforesaid Award dated 15.03.2016.
Contentions
The Senior Counsel for the Petitioner submitted that the notice under Section 21, ACA allegedly sent by the respondent was not received by the Petitioner. The notice was purportedly sent on two addresses, but neither on them was the address mentioned on the Work Order. Assuming that the Respondent could have sent the notice on the two addresses, notices were never delivered on these addresses and this is evident from the courier and speed post vouchers. Thus, in the absence of the notice under Section 21, ACA, the very commencement of the arbitral proceedings was invalid, thereby vitiating the award.
It was further argued that Petitioner did not receive notice of initiation of the arbitral proceedings from the learned Arbitrator and was thus unable to place its response to the claims of the Respondent and that this is sufficient ground to set aside the impugned award.
It was further argued that since the Petitioner did not receive notice under Section 21, ACA and the Respondent on its own appointed the Sole Arbitrator, the appointment is a unilateral appointment and cannot be sustained in law, vitiating the entire arbitral proceedings and consequently the impugned award. Assuming for the sake of argument that Petitioner had received the notice under Section 21, ACA and failed to respond to the same, the only course open to the Respondent was to invoke the jurisdiction of the Court for appointment of an Arbitrator. Petitioner's non-response to Respondent's proposal for appointment of a Sole Arbitrator named by it could not be construed as consent.
Learned Counsel for the Respondent defended the impugned award and submitted that no ground has been made out by the Petitioner for setting aside the same. It was submitted that the Respondent had sent a notice under Section 21, ACA at the addresses known to it and it is not mandatory that the notice ought to have been sent at the addresses mentioned in the Work Order.
Insofar as the alleged unilateral appointment is concerned, it was urged that when Petitioner failed to respond to the notice under Section 21, ACA, it was presumed that Petitioner had consented to the appointment proposed by the Respondent and waived its right to contest the same.
Observations
The Court observed that 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, unless otherwise agreed by the parties. If no notice sent by one party is received by the other party, arbitral proceedings cannot be stated to have commenced and obviously, something that has not commenced cannot continue.
The Court observed that from a conjoint reading of Section 21 and precedents, it was clear that in absence of an agreement to the contrary, notice under Section 21, invoking arbitration clause, preceding reference to disputes is mandatory and without such notice, arbitration proceedings that have commenced would be unsustainable in law.
The Court noted that the address mentioned in the Work Order was intended to be the address for all purposes including correspondences between the parties. Admittedly, no notice was sent on this address by the Respondent as it claimed to have sent the notices on two other addresses. However, the Court noted that the Respondent was unable to demonstrate the delivery of the notices under Section 21, ACA on these two addresses by any material on record. In view of the fact, that the Petitioner has not received the notice under Section 21, the arbitral proceedings in question cannot be sustained in law and consequently, the award deserves to be set aside.
Addressing the issue related to the unilateral appointment of arbitrator, the Court observed that party autonomy and appointment of an impartial and independent arbitrator are both foundations of arbitration regime. An arbitrator can only be appointed with the consent of both the parties and any unilateral appointment would be void and mere inaction by the party called upon to act by the other one to act, cannot lead to an inference as to implied consent or acquiescence of such party to such appointment of the Arbitrator.
The Court held that it is a settled position of law that if one party to the arbitration agreement does not consent for an appointment of the Arbitrator and/or there is no response from the recipient of the notice under Section 21 of the 1996 Act, the sender invoking the arbitration agreement can only fall back on the Court appointing the Arbitrator.
The Court observed that, assuming for the sake of argument that the notice sent by the Respondent invoking arbitration under Section 21, ACA was delivered to the Petitioner and it was the Petitioner which did not respond to the notice. Even in this circumstance, the only option open to the Respondent was to have invoked the jurisdiction of the Court for appointment of an arbitrator and reference of the disputes.
Thus, for all the aforesaid reasons, the impugned arbitral award dated 15.03.2016 passed by the Arbitrator was set aside by the Court.
Case Title – M/s Supreme Infrastructure India Limited v Freyssinet Memard India Pvt. Ltd.
Citation: 2025 LiveLaw (Del) 599
Case No. – O.M.P. (COMM) 395/2024 & I.A. 39304/2024, 39307/2024
Appearance-
For Petitioner- Mr. Ashish Mohan, Senior Advocate with Mr. Subhro Prokas Mukherjee, Mr. Ashok Tripathi, Mr. Avinash Shukla and Ms. Sagrika Tanwar, Advocates.
For Respondent- Mr. Sidharth Borah, Advocate.
Date – 05.05.2025