Semester VII B.Com. LL. B (Hons.

)
Course

Subject – Arbitration, Conciliation and

Alternate Dispute Resolution

Case Analysis

Submitted To: Submitted

By: Mrs. Foram Patel Nivesh
Dixit 20BBL37

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 Malvika Rajnikant Mehta &Ors. v. JESS Construction

Abstract –

Mr. Rajnikant Dhirajlal Mehta along with applicant nos. 2 and 3 (“Applicant”) executed a
Deed of Conveyance (“Deed”) in favour of JESS Construction (“Respondent”) according to
which, the Respondent had to construct a new building on the suit premises and hand over the
premises within the period of 42 months. In case, any default occurs during the execution of
Deed, the Respondent had agreed to pay an amount of interest and liquidated damages at the
end of each month following the expiration of the 42-month term.

Subsequently, the terms of the Deed were modified to stipulate that the Respondent would
deliver the newly built premises within 34 months. The Deed further stipulated Arbitration as
the dispute resolution mechanism which would be presided over by the Arbitrator, an
Architect, named Mr Kirti K. Shah.

The Applicant claimed that the Respondent failed to perform its part of the contract, and
invoked Arbitration on 7th June, 2018 by lodging a Statement of Claim before the named 
Arbitrator. However, with the support of Section 12(5) read with the Seventh Schedule of the
Arbitration and Conciliation Act, 1996 (“the Act”) the Respondent claimed that the
appointment of Arbitrator was ineligible.

Due to Arbitrator’s professional and familial relationship with the Applicant the Respondent
filed an application before the Arbitral Tribunal, calling upon the Arbitrator to recuse
himself. Resultantly, Arbitrator recused himself from the Arbitration Proceedings.

Following this, multiple attempts were made by the Applicant and the Respondent to appoint
a new Arbitrator but consensus between both the parties could not be established.

Through a notice dated 29th April, 2019 the Respondent brought claims against the Applicant
in connection with the same transaction, invoked Arbitration, and proposed a former judge of
the Bombay High Court as the Sole Arbitrator. The Applicant rejected the said appointment
and called upon the Respondent to have a joint adjudication of the Applicant’s and the
Respondent’s claims, and the Applicant proposed the name of a person for appointment as
Arbitrator. In response, the Respondent offered the names of two more Arbitrators. The said
names were rejected by the Applicant.

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In light of the above facts, the Applicant approached the Hon’ble High Court of Bombay
(“High Court”) and filed an application under Section 11(5) read with Section 15 of the Act
for the appointment of an Arbitrator.

Issues –

 Whether notice invoking Arbitration under Section 21 of the Act is vitiated for the
entire exercise of invoking Arbitration and seeking appointment of an Arbitrator?
 Whether the substantive claim is ex-facie barred by limitation?

Commentary and Analysis –

The Hon’ble High Court by relying on various judgments observed that after the amendment
the scope of inquiry under Section 11 of the Act was restricted to the examination of the
existence of an Arbitration Agreement. The purpose for such amendment was to minimize the
judicial intervention at the appointment stage and respect the party autonomy. The High
Court was of the view that there was no dispute on the existence of the main contract or
Arbitration Agreement.

The Hon’ble High Court on the issue of limitation observed that even if the present issue falls
under the realm of admissibility issue such a question should be decided by the Arbitral
Tribunal.  In other words, refusal to refer to arbitration would be justifiable only in those
cases where the purported dispute is nothing but a deadwood. The High Court was also of the
view that in the present case it is difficult to establish that whether the substantive claim is ex
facie barred by limitation and therefore, appointment of an Arbitrator is required so that the
issue of limitation can be considered by him.

The Hon’ble High Court observed that as the Section 21 of the Act begins with the exclusion
clause “Unless otherwise agreed by the parties”, it implies that the parties can by agreement
opt-out of the precondition of giving prior notice of Arbitration. Though the requirement of
notice under Section 21 of the Act, 1996 can be waived off, the submission on behalf of the
applicants that the parties had named the Arbitrator for resolution of the disputes cannot be
stretched to the extent the applicant’s desire.

The Hon’ble High Court observed that the Applicants did not send any notice to the
Respondent before lodging the Statement of Claim. The notice under Section 21 of the Act

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serves various purposes along with the purpose of fixing the date of commencement of
Arbitration. Therefore, the requirement of notice under Section 21 of the Act cannot be
waived off simply because parties had named the Arbitrator.

The Hon’ble High Court also observed that the issue between the parties is over the
appointment of the Arbitrator. The question of whether the Arbitration was invoked under
Section 21 when communication was made to the named Arbitrator should be left to be
examined by the newly appointed Arbitrator.

Hence, the Hon’ble High Court allowed the application and appointed a former Judge of the
High Court as the Sole Arbitrator to adjudicate upon the dispute arising out of the Deed. The
High Court also mentioned that the parties will be at liberty to raise all the claims and counter
claims permissible by law before the Arbitrator.

The High Court noted that the scope of legislative inquiry after the Arbitration and
Conciliation (Amendment) Act, 2015 (hereinafter referred to as “the Amendment Act”) is
restricted to the examination of existence of an Arbitration Agreement.

The High Court cited the Supreme Court’s decision in Duro Felguera S.A. v. Gangavaram
Port Limited (2017) 9 SCC 729 with regard to the legislative changes introduced by the
Amendment Act, wherein it was observed the wide scope of inquiry at the stage of Section 11
of the Act continued only till before the Amendment Act was enforced, as held in the cases
of SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618 and National Insurance Co. Ltd.
v. Boghara Polyfab Pvt. Ltd. (2009) 1 SCC 267.

The High Court observed that following the Amendment Act, the Courts are only required to
determine the existence of an Arbitration Agreement, in accordance with the legislative
policy to minimize Court’s intervention as incorporated in Section 11(6A) of the Act and held
in Mayawati Trading (P) Ltd. v. Pradyuat Deb Burman (2019) 8 SCC 714 and Bharat
Sanchar Nigam Limited and Others vs. Nortel Networks India Private Limited (2021) 5
Supreme Court Cases 738 (“Nortel Networks case”). The High Court emphasized the
below mentioned position in law taken by the Supreme Court in the Nortel Networks case:

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“47.  It is only in the very limited category of cases, where there is not even a vestige of doubt
that the claim is ex facie time-barred, or that the dispute is non-arbitrable, that the court may
decline to make the reference. However, if there is even the slightest doubt, the rule is to
refer the disputes to arbitration. Otherwise, it would encroach upon what is essentially a
matter to be determined by the tribunal.”

Taking into consideration the aforementioned judicial precedents, the High Court noted that
there was no dispute about the existence of the main contract evidenced by the Deed or the
existence of an Arbitration Agreement therein, and the fact that disputes had arisen between
the parties was not contestable.

Regarding the issue of the claim being time barred, the High Court relied on the decision in
Nortel Networks Case, wherein the Supreme Court held that:

“53.2 In rare and exceptional cases, where the claims are ex facie time-barred, and it is
manifest that there is no subsisting dispute, the Court may refuse to make the reference.”
In light of the Supreme Court’s decision in Nortel Networks case, the High Court stated that
the issue of limitation, which is generally a mixed question of fact and law, must be
addressed by the Arbitral Tribunal. The High Court noted that the only case where the Court
can decline to exercise jurisdiction under Section 11 of the Act is when the substantive claim
is hopelessly barred by limitation, to ensure that a non-existent dispute is not referred to
Arbitration.

The High Court thus held that the substantive claim cannot be inferred to be barred by
limitation, as the lodging of Statement of Claim before the named Arbitrator, whereby the
Applicant claimed to invoke Arbitration, prima facie appears within the period of limitation.
With regards to the issue of non-compliance with Section 21 of the Act, the High Court stated
that as Section 21 of the Act begins with the exclusion clause “Unless otherwise agreed by
the parties”, it is implied that the parties can by agreement opt out of the precondition of
giving prior notice of Arbitration.
The High Court observed that the Applicant’s submission that the parties had named the
Arbitrator for resolution of disputes cannot be stretched to their desire, and held that:

“The mere fact that the parties have named the Arbitrator would not imply that the parties
have agreed to waive the requirement of notice contemplated under Section 21 of the Act.

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The notice under Section 21, as we have seen above, serves definite purposes. One, it puts
the adversary on notice as to the nature of the claim, even when the Arbitrator is named by
the parties. Two, it provides an opportunity to the adversary to contest the admissibility of
the claims on the threshold. Three, it allows adversary to raise the issue of the impartiality of
the Arbitrator and the consequent disqualification. Four, the date of the receipt of the notice
has a bearing upon the date of the commencement of the arbitration. Therefore, an
inference that the parties had waived the notice cannot be drawn merely for the reason
that the parties had named an Arbitrator.”

The High Court noted that it is at dispute that whether the communication made by the
Applicant to the Arbitrator was also served upon the Respondent, and whether the said
communication constituted a notice of invocation of Arbitration under Section 21 of the Act.

In accordance with the legislative policy and judicial precedents of minimal intervention at
the stage of reference to Arbitration, the High Court held that the said questions are to be
legitimately left to be examined by the Arbitrator.

The High Court, therefore, noted that the other contentions raised by the parties in this
application pale in significance and that the parties are at liberty to raise all other contentions
as permissible in law before the Arbitrator, including those envisaged by Section 16 of the
Act.

Resultantly, the High Court allowed the application and appointed a former Judge of the High
Court as the Sole Arbitrator to adjudicate upon the claims and counterclaims, and the dispute
arising out of the Deed between the parties.

Conclusion –

In this judgment, the Hon’ble High Court being mindful of the need for minimal judicial
intervention in Arbitral proceedings made crucial observations. The Court emphasized that in
an Arbitral dispute the need of issuing and serving a notice to the opposite party under
Section 21 of the Act to invoke Arbitration serves an important purpose. Without the notice,
Arbitration Proceedings may become unsustainable in law. Though there are exceptions
under which the requirement of notice can be waived off but filing a Statement of Claim with
the named Arbitrator does not fall under such an exception.

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