09 August 2021 | De Lage Landen Financial Services India Pvt. Ltd. v. Parhit Diagnostic Private Limited and others | ARB. P. 267 of 2021| Delhi High Court | Sanjeev Narula J

A notice under Section 21 ACA invoking arbitration is mandatory, decided a single judge of the Delhi High Court (S Muralidhar J) in Alupro Building Systems Pvt. Ltd. v. Ozone Overseas Pvt. Ltd. (2017) SCC OnLine Del 7228. The Madras High Court followed Alupro in Globe Detective Agencies v. Gammon India Ltd. MANU/TN/4774/2019.

Now Sanjeev Narula J has distinguished Alupro to say that the Alupro rationale of giving a notice was fulfilled in the facts.

The dispute arose from a loan agreement and two guarantee agreements. All had identical arbitration clauses that gave the lender the unilateral right to appoint a sole arbitrator. After disputes arose, the lender sent a letter demanding payment “ ..failing which [it would] commence legal proceedings …” Then the lender appointed an arbitrator. Later, however, on the lender’s request the arbitrator withdrew because the decision in Perkins made his appointment invalid.

After that, the lender applied under Section 11 ACA for the appointment of an arbitrator. without sending a notice. But the borrower objected contending that: (a) Arbitration was not validly invoked because a notice was not given; (ii) the unilateral appointment earlier did not meet the invocation requirement under Section 11 (5) ACA; (iii) alternatively, even if the letter sent was a valid invocation, it was in respect only of the loan and not the guarantee agreement; (iv) the proceedings had not commenced validly in the earlier round. [Ed. Notice requirements under Sections 21 and 11 ACA should not be confused with each other]

Rejecting every argument, Narula J concluded that the respondent was aware of the petitioner’s intent to arbitrate, the choice of arbitrator, and the claims. Thus, no prejudice was caused (or even pleaded). He also said:

1. The ACA does not provide a “defined or specific requirement” but the notice “must specify that arbitration is being resorted to.”
2. Limitation begins from the date when the other party fails to appoint an arbitrator (or respond). Such failure, Alupro held, gives the court jurisdiction under Section 11 ACA. Thus, a notice under Section 21 ACA was held mandatory. But Alupro is distinguishable because a notice was not sent “at all.” Here, the respondent had due notice of the arbitration proceedings.
3. Also, a co-ordinate bench in Badri Singh Vinimay Pvt. Ltd. v. MMTC Ltd., 2020 SCC OnLine Del 106, considered a letter informing that “ …appropriate legal action … including initiation of arbitration proceedings” as sufficient notice.
4. The purpose of notice was unachievable in this case because the lender had complete discretion to make an appointment.
5. The argument that regardless of the arbitration clause, a notice was necessary to enable the respondent to oppose the appointment, is inconsequential in the facts.
6. In the facts, limitation is not an issue.

Because the petition had been pending for around four months, Narula J also rejected the submission that thirty days was mandatory under Section 11 ACA to come to an agreement on the name of the arbitrator.

Read the judgment here.