Arbitration In IndiaBombay High Court Rules No Fresh Notice Required to Recommence Arbitration After Setting Aside Award

The Hon’ble Bombay High Court, in the case of Kirloskar Pneumatic Company Ltd. vs Kataria Sales Corporation,decided on 21/0003/24, held that a fresh notice is not required to recommence arbitration proceedings if an arbitration award has already been set aside under Section 34 of the Arbitration and Conciliation Act 1996. (hereinafter referred to as A&C Act) The Court while rejecting the Respondent’s argument stated that as the arbitration proceedings was already initiated and parties were aware of the dispute and therefore there was no need for a fresh invocation.

FACTS

Kirloskar Pneumatic Company Ltd. (hereinafter referred to as the Petitioner) filed an arbitration petition against Kataria Sales Corporation (hereinafter referred to as the “Respondent”) to seek relief against a dispute arising out of the dealership agreement dated 19.06.2013. The Petitioner was engaged in the business of manufacturing and selling various types of air & gas compressors, accessories, spare parts etc entered into an agreement with the Respondent who was also engaged in the similar business domain. Subsequent to the dealership agreement, the Respondent raised the purchase order on the Petitioner Kirloskar Pneumatic Company, which raised an invoice for an amount of Rs. 14, 86,932 (Fourteen Lakh Eighty-six Thousand Nine hundred Thirty-nine) dated 27/03/2015. However, the Respondent refused to pay the full amount leading to exchange of multiple email for approximately one year. A subsequent purchase order resulted in an invoice of Rs. 6,18,879, but only partial payment was received. Following these payment disputes, the Petitioner invoked arbitration on 30.10.2018, appointing Advocate Anurag Jain to act as a sole arbitrator.

On 23.11.2020, the sole arbitrator ruled in favor of the petitioner, ordering the Respondent to pay Rs. 29,90,524 (Twenty-Nine Lakh Ninety Thousand Five Hundred Twenty-Four) along with interest and costs. However, this award was challenged by the Respondent in the District Court, which set aside the award citing the unilateral appointment of the arbitrator as invalid under the precedents established by the Supreme Court in the case of Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Limited (2020) 20 SCC 760, as well as the position of law as laid down in TRF Limited vs. Energo Engineering Projects Limited (2017) 8 SCC 377.

It is in this context; the Petitioner submitted an application seeking the appointment of an independent arbitrator to address disputes arising from the dealership agreement. However, the Respondent raised a preliminary objection, contending that the petition is “premature” since it was filed under Section 11(6) of A&C Act without first invoking the arbitration clause as required by Section 21 of A&C Act.

ISSUES BEFORE THE HIGH COURT

1. Whether the arbitration proceedings initiated by Kirloskar Pneumatic Company Ltd. were valid despite the previous award being set aside due to the unilateral appointment of the arbitrator.?
2. Whether the petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, was premature, given the respondent’s argument that the Petitioner failed to properly invoke the arbitration clause under Section 21 before seeking the appointment of a new arbitrator?
3. Whether a fresh invocation of arbitration was necessary after the previous award was set aside, or if the existing dispute could continue to be addressed through the appointment of a new arbitrator without a new notice under Section 21?

CONTENTIONS OF THE PARTIES

The Petitioner argued that the arbitration process had already been initiated with the notice sent on dated 30.10.2018. They contended that the subsequent setting aside of the award did not negate the existence of the dispute.

The Petitioner sought the appointment of a competent arbitrator to resolve the ongoing disputes, emphasizing that the essence of the arbitration agreement remained intact despite the earlier procedural flaws.

The Respondent raised a preliminary objection regarding the maintainability of the petition, asserting that it was premature. They argued that without a proper invocation of the arbitration clause under Section 21 of A&C Act, the proceedings under Section 11(6) of A&C act? were not maintainable.

The Respondent highlighted that the arbitration clause did not contemplate a “re-invocation” of arbitration.

DECISION AND FINDINGS

The Hon’ble Bombay High Court ultimately ruled in favour of Petitioner. It found that the arbitration proceedings had indeed commenced with the initial notice, and the setting aside of the previous award did not require a fresh invocation of arbitration under Section 21 of A&C Act.

The Hon’ble Bombay High court further clarified that when an arbitral award is set aside due to the ineligibility of the arbitrator, a fresh notice under Section 21 of the Arbitration and Conciliation Act 1996 is not required for the appointment of a new arbitrator. The rationale behind this ruling was that the arbitration mechanism had already been triggered with the initial notice, and the underlying dispute remained unchanged.

The Hon’ble Bombay High court highlighted that the dispute between the parties could continue to be addressed through the appointment of a new arbitrator without necessitating a new invocation of arbitration. This approach aims to streamline the arbitration process and avoid unnecessary delays, thereby promoting efficiency in resolving commercial disputes.

Ultimately, the court held that it was within its jurisdiction to appoint a new arbitrator to adjudicate the ongoing disputes, reinforcing the principle that parties should have access to a competent and impartial adjudicator to resolve their issues effectively. This decision underscores the importance of maintaining the integrity of the arbitration process while ensuring that parties can seek redress in a timely manner.

The court appointed Mr. Jayprakash Shridhar Kapare, a retired District Judge, as the sole arbitrator to adjudicate the disputes between the parties. The court also mandated that the arbitrator disclose any potential conflicts of interest and set forth the procedural framework for the arbitration process.

AMLEGALS REMARKS

The judgment regarding the need for a fresh notice in arbitration cases emphasizes the importance of procedural clarity and fairness. It suggests that when an arbitration notice is deemed invalid, a fresh notice may not always be necessary, provided that the parties have already engaged in the arbitration process. This approach aims to prevent unnecessary delays and to uphold the principle of efficiency in dispute resolution.

The court’s decision indicates that the context in which the arbitration notice was issued plays a crucial role. If the parties have already participated in the arbitration process, requiring a fresh notice could be seen as redundant.

The ruling reinforces that the rights of the parties are preserved even if the initial notice is found to be deficient. This means that the substantive issues can still be addressed without the need for restarting the process. By eliminating the requirement for a fresh notice, the court promotes judicial efficiency, allowing disputes to be resolved more swiftly and reducing the burden on the arbitration system.

This judgment sets a precedent that could influence future arbitration cases, encouraging parties to focus on the substance of their disputes rather than getting bogged down by procedural technicalities.

In conclusion, the judgment reflects a pragmatic approach to arbitration, balancing the need for procedural integrity with the practicalities of dispute resolution, thereby facilitating a smoother arbitration process without unnecessary interruptions.

Team AMLEGALS Assisted by  Ms. Kritika Dwivedi (Intern)