Arbitration In IndiaBombay High Court Rules No Fresh Section 21 Notice Required for Re-Commencing Arbitration After First Award Set Aside

 The Hon’ble Bombay High Court, in Kirloskar Pneumatic Company v. Kataria Sales Corporation, [Commercial Arbitration Petition no.  16 of 2023 decided on 21.03.2024,] held that a fresh invocation of Arbitration under Section 21 of Arbitration and Conciliation Act 1996 was not required for the purposes of re-commencing Arbitration once the first Arbitral Award has been set aside under Section 34 of the Arbitration and Conciliation Act 1996.

FACTS

In the case of Kirloskar Pneumatic Company Ltd v. Kataria Sales Corporation, the petitioner, sought the appointment of a Sole Arbitrator to resolve disputes arising from a, between the two parties.

 The Kirloskar Pneumatic Company Ltd. (hereinafter referred to as “the Petitioner”),  manufactures and sells compressors and related equipment, and was engaged in trading with Kataria Sales (hereinafter referred to as “the Respondent”), a company engaged in a similar business. The parties entered into a  Dealership Agreement dated 19.06.2013 (hereinafter referred to as the “Agreement”)

Disputes arose after the Petitioner issued invoices totalling Rs. 14,86,932 (Fourteen Lakh Eighty-Six Thousand Nine Hundred Thirty-Two) on 27.03.2015, and later another for Rs. 6,18,879 (Six Lakh Eighteen Thousand Eight Hundred Seventy-Nine), pursuant to  the Respondent’s purchase orders. The Respondent made partial payments and refused to settle the amounts in full, leading to an exchange of communications and further deterioration of their relationship.

The Petitioner invoked the Arbitration Clause under the Agreement on 30.10.2018, and appointed  Mr./Advocate Anurag Jain as the Sole Arbitrator to adjudicate the disputes between the parties.

 On 23.10.2020, the Arbitrator ruled in favour of the Petitioner, and passed an Arbitral Award, directing the Respondent to pay an amount of Rs. 29,90,524 (Twenty-Nine Lakh Ninety Thousand Five Hundred Twenty-Four) with 18% interest per annum, along with costs of Rs. 4,42,500 (our Lakh Forty-Two Thousand Five Hundred) (hereinafter referred to as the “Arbitral Award”). However, this Arbitral Award was challenged by the Respondent before the Ld. District Judge of Pune. On 07.01.2023, the Arbitral Award was set aside on the ground that The Petitioner’s unilateral appointment of the Arbitrator violated the legal principles established by the Hon’ble Supreme Court in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd and TRF Ltd. v. Energo Engineering Projects Ltd..

The Petitioner then filed a petition for the appointment of an impartial Arbitrator. The Respondent opposed this on procedural grounds, arguing that the petition was premature as the Arbitration Clause had not been re-invoked under Section 21 of the Arbitration and Conciliation Act 1996 (hereinafter referred to as “A&C Act”). However, the Court rejected the Respondent’s objection, reasoning that since the arbitration had already been initiated with the original request in 2018, there was no need to issue a fresh invocation notice. The court appointed Mr. Jayprakash Shridhar Kapare (Retd. District Judge) as the Sole Arbitrator to adjudicate the dispute.

ISSUES BEFORE THE BOMBAY HIGH COURT

1. Whether the Petitioner was required to issue a fresh notice invoking the Arbitration Clause under Section 21 of the A&C Act,, after the Arbitral Award was set aside?

2. Whether the disputes between the parties should proceed to arbitration under a newly appointed Arbitrator after the initial Arbitral Award was annulled?

CONTENTIONS OF THE PARTIES

The petitioner, argued that it had validly invoked arbitration due to the ongoing disputes with The Respondent over unpaid invoices.

The Petitioner emphasized that the initial appointment of the Arbitrator, Advocate Anurag Jain, was based on the provisions of their Dealership Agreement.

The Petitioner contended that the arbitration proceedings had been duly initiated on 30.10.2018, and that the appointment of a new, independent Arbitrator was warranted after the Arbitral Award was set aside. The Petitioner relied upon Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2020)20 SCC 760 and TRF Ltd. v. Energo Engineering Projects Ltd.(2017) 8 SCC 377, which highlighted the necessity for impartiality in Arbitrator appointments.

The Respondent Corporation raised objections regarding the maintainability of  the Petitioner’s petition. The Respondent contended that the petition was premature since The Petitioner had not re-invoked arbitration under Section 21 of the act, following the annulment of the original Arbitral Award.

The Respondent argued that the unilateral appointment of the Arbitrator undermined the independence and impartiality required for a fair Arbitration process. They referred to the ruling in BSNL v. Nortel Networks (India) Private Limited(2021) 5 SCC 738, asserting that an application under Section 11 could only be filed after a formal notice of arbitration was issued and the other party failed to appoint an Arbitrator. The Respondent maintained that since no fresh invocation notice had been given, the proceedings initiated under Section 11 were not sustainable.

DECISIONS AND FINDINGS

The Hon’ble Bombay High Court held that the arbitration proceedings had been properly initiated when the Petitioner invoked arbitration on 30.10.2018, and that the disputes between the parties were adequately outlined in their initial correspondence regarding unpaid invoices. The Hon’ble Bombay High Court determined that the annulment of the previous Arbitral Award did not necessitate a fresh invocation of arbitration under Section 21 of A&C Act, because the arbitration process had already commenced.

The Hon’ble Bombay High Court emphasized that the necessity for appointing a new Arbitrator arose from the previous Arbitrator’s unilateral appointment being deemed invalid due to concerns over impartiality and independence. As a result, the court appointed Mr. Jayprakash Shridhar Kapare, a retired District Judge, as the Sole Arbitrator to adjudicate the ongoing disputes between the parties. The decision reinforced the importance of adhering to the principles of fairness and impartiality in the arbitration process while recognizing that existing disputes could still be addressed despite the annulment of the initial Award.

AMLEGALS REMARKS

The case of Kirloskar Pneumatic Company Ltd v. Kataria Sales Corporation underscores the critical importance of adherence to established legal principles governing arbitration, particularly concerning the appointment of Arbitrators and the invocation of arbitration processes. The court’s decision to appoint a new Sole Arbitrator highlighted the necessity for impartiality and fairness in resolving disputes, as mandated by the act, and reinforced by relevant Supreme Court precedents.

By affirming that the arbitration proceedings had already been initiated despite the earlier award’s annulment, the court ensured that the parties’ ongoing disputes would be addressed appropriately. This case serves as a pivotal reminder of the legal framework surrounding arbitration and the need for parties to engage in the process with transparency and integrity. Ultimately, the ruling facilitates the resolution of commercial disputes in a manner that upholds the rule of law, fostering trust in the arbitration mechanism as a viable alternative to traditional litigation.