Judgment Name: West Bengal Power Development Corporation Limited v. Sical Mining Limited

Citation: A.P. No. 555 of 2022.

Court: The High Court of Calcutta

Coram: Hon’ble Prakash Shrivastava, J.

Date: 30th September 2022.

Keywords: Section 11, Arbitration & Conciliation Act, 1996 (the ‘A&C Act’), Appointment of Arbitrator, Notice of Invoking Arbitration Clause, Section 21, Arbitration & Conciliation Act

Overview

A single-judge bench of the Calcutta High Court adjudicated that the requirements of Section 21 of the A&C Act must be complied with before the jurisdiction of a court can be invoked under Section 11 of the A&C Act. Given that the requirement of Section 21 to give notice to the Respondent that the arbitration clause was being invoked was not given to the Respondents, the Court held that the Application under Section 11 was premature and must be set aside.

Facts

West Bengal Power Development Corporation Limited (“WBPCL”) and Sical Mining Limited (“SML”) entered into a coal mining agreement dated 27th October 2016. Clause 42.3 of the said agreement provided that if any dispute between the parties was not resolved amicably through conciliation then it will be referred to arbitration by an arbitral tribunal. The arbitral tribunal, as per clause 42.3.2, was to be appointed by the Additional Chief Secretary/Principal Secretary to the Government of West Bengal, Department of Power and Non-Conventional Energy Sources.

When the dispute arose between the parties, clause 42.3.2 was invoked and the Additional Chief Secretary, Power Department vide order dated 10th February 2022 had appointed Sri Debidas Datta, Advisor to the Department as sole arbitrator for redressal of dispute. The Applicant, however, challenged this appointment under Section 14, A&C Act.

A single-judge bench of the Commercial Court allowed the application under Section 14 and duly terminated the appointment of the arbitrator vide order dated 18th May 2022. Consequently, the application was disposed and the Petitioner-Applicant filed an application under Section 11 for the appointment of another arbitrator.

The Respondent, however, raised the contention that the Application under Section 11 was premature on the ground that the requirement under Section 21, to give a notice requesting the Respondent for the dispute to be referred to arbitration, was not satisfied by the Petitioner. Section 21 of the A&C Act specifically provides that unless an agreement to the contrary exists between the parties, arbitral proceedings in respect of a particular dispute commence on the date on which the aforementioned request for that dispute to be referred to arbitration is received by the respondent.

Issue

Whether the requirements of Section 21 of the A&C Act must be complied with before invoking the jurisdiction of a court under Section 11 of the Act?

Analysis

The Court relied on the findings of the Delhi High Court in the matter of Alupro Building Systems Pvt. Ltd. v. Ozone Overseas Pvt. Ltd. which took note of Section 21 of the Act and found that:

i. The section clearly mentions that when there is no agreement to the contrary, the arbitration proceedings are said to commence on the date when the recipient of the notice receives a request from the claimant to refer the dispute to arbitration. The Court found that the object of this provision is to make the party, against whom the claim is made, aware of said claims. It may be the case that the recipient may accept some of the claims in whole or in part thereby narrowing down the disputed claims between the parties. Secondly, the recipient of the claim may at the time of receiving the claim itself, point out if some or any of the claims are time-barred or barred by law or if the claims stand untenable in fact and/or there are counter-claims by the recipient.

ii. Another important observation made by the court was that where the agreement between parties specifies the mode of appointing an arbitrator, there would be no way for the other party to verify whether or not this mutually decided procedure had been followed unless a notice of invoking the arbitration clause was provided to them by the claimant. The purpose of an arbitration clause envisages a consensus between the parties on the appointment of an arbitrator and not a unilateral appointment by one party. Therefore, the mandatory notice under Section 21 enables a consensus on the appointment of an arbitrator.

iii. Addressing a situation where an arbitration clause may permit one of the parties to appoint an arbitrator, the Court observed that even in such a situation the party having such control is bound to give advance notice to the other party, intimating them about the individual they seek to appoint. On being made aware of the proposed individual, the recipient may then point out ‘defects’, if any, that render this individual ‘disqualified’ to act as an arbitrator. The claimant may then be persuaded to reconsider the appointment and appoint a more qualified individual. This process also prevents unnecessary wastage of time and resources that would result in arbitration proceedings if an unqualified individual was appointed. The second, third and fourth reasons outlined by the court were in consonance with the requirements of natural justice which in any case govern arbitral proceedings.

iv. Lastly, the Court specifically observed that for the purpose of Section 11(6) of the A&C Act, without there being a notice as mandated by Section 21 of the Act, the party that wishes to reference the dispute to arbitration cannot claim that there was a failure by one party to adhere to the procedure and accede to the request for the appointment of an arbitrator. The Court’s jurisdiction under Section 11 may be invoked only if the other party fails to respond.

This judgement was also followed by the High Court of Bombay in Malvika Rajnikant Mehta and Others v. JESS Construction.

Conclusion

In the present case, since the requirement of Section 21 had not been satisfied, the Calcutta High Court dismissed the Application for being premature. However, the Court gave liberty to the Applicant to follow the due process and give notice to the Respondent and in the event an arbitrator cannot be appointed in the stipulated time as per the requirements of the A&C Act, to approach the Court with an appropriate prayer.

[This case note has been authored by Nankee Arora, an Editor at Mapping ADR.]