In Kirloskar Pneumatic Company v. Kataria Sales Corporation, the Hon'ble Bombay High Court ("High Court") has held that, when arbitration proceedings have already been initiated and the award has been set-aside under Section 34of the Arbitration and Conciliation Act, 1996 ("Act"), it is not necessary to issue afresh notice under Section 21 of the Act before seeking appointment of a new arbitrator under Section 11 of the Act.
FACTS
The Petitioner and the Respondent entered into a Dealership Agreement for supply of certain equipment ("Agreement"). Pursuant to the Agreement, the Respondent raised purchase orders on the Petitioner for purchase of certain equipment, for which the Petitioner raised invoices, however, the Respondent refused to honour the said invoices and clear payment.
Consequently, the Petitioner invoked arbitration and unilaterally appointed a sole arbitrator for adjudication of the disputes inter-se the Petitioner and the Respondent. The sole arbitrator passed an award directing the Respondent to pay a sum of Rs. 29,90,524 along with 18% interest to the Petitioner, and also awarded costs in favour of the Petitioner ("Award").
The said Award was challenged by the Respondent under Section 34 of the Act, before the District Judge, Pune ("District Court"). The District Court set-aside the Award on the ground that the sole arbitrator was appointed unilaterally by the Petitioner. In view of the order of the District Court setting aside the Award, the Petitioner filed an application under Section 11 of the Act, before the Hon'ble High Court, for appointment of a new arbitrator. The said application was opposed by the Respondent on the ground that the application was not preceded by a notice under Section 21 of the Act, invoking arbitration.
ISSUES
The main issue before the Hon'ble High Court was whether the application filed by the Petitioner under Section 11 of the Act seeking appointment of arbitrator is maintainable since the same was filed without issuing a notice under Section 21of the Act, invoking arbitration.
CONTENTIONS OF THE PARTIES AND FINDINGS
The Petitioner contended that the application was not premature since the arbitration was already invoked at the time when the earlier arbitrator was appointed.
The Respondent placed their reliance on the judgment of the Hon'ble Supreme Court in BSNL vs Nortel Networks (India) Private Limited (2021) 5 SCC 738,wherein it has been held that an application under Section 11 of the Act, can be filed only after issuance of a notice invoking arbitration and the parties failure to appoint an arbitrator mutually. The Respondent contended that once the Award was set-aside, the Petitioner ought to have invoked arbitration a fresh, by issuing a notice under Section 21 of the Act.
The Hon'ble Court after noting the scheme of Act, observed that Section 21 of the Act clearly stipulates that arbitral proceedings, in respect of a particular dispute, commence on the date on which the request for the dispute to be referred to arbitration, is received by one party from another party. Considering the facts of the case, the Hon'ble Court rejected the contention of the Respondent, and held that merely the fact that the Award passed by the arbitrator was set-aside, does not change the nature of the dispute and the dispute inter-se the Petitioner and the Respondent still remains the same. The Hon'ble Court held that since the Petitioner had already invoked arbitration at the time of appointing the earlier arbitrator, the arbitral proceedings in respect of the dispute between the Petitioner and the Respondent, had already commenced.
The Hon'ble Court held that since arbitration had already been initiated, upon the issuance of the notice under Section 21 of the Act, it is not necessary that an application seeking appointment of a new arbitrator, under Section 11 of the Act, should be preceded by a fresh notice under Section 21, as the arbitration proceedings had already commenced and the Respondent is aware about the existence of a dispute and also of the fact, that this dispute in terms of the Agreement between the parties is to be resolved through an independent arbitrator. Accordingly, the Hon'ble Court appointed a sole arbitrator for adjudication of disputes between the Petitioner and Respondent.
CONCLUSION
The judgment has brought much needed clarity in relation to the need for reinitiation of arbitration once an arbitral award is set-aside under Section 34 of the Act. The Court has made it abundantly clear that once notice under Section21 of the Act is issued, the parties are not required to issue fresh notice(s) to reinvoke arbitration for adjudication of the dispute. The judgment will also save costs involved in re-invoking arbitration, thereby benefiting bona fide litigants.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.