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Mandatory compliance of Section 21 Arbitration and Conciliation Act, 1996, but can you still bypass it?

Section 21:
Commencement of arbitral proceedings. Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.

In 2017, Delhi High Court Justice S. Murlidhar in the case Alupro Building System Pvt. Ltd. v. Ozone Overseas Pvt. Ltd. (2017) SCC Online Del 7228 (O.M.P 3/2015 decided on 28.02.2017) held that the compliance of sending a notice of invocation of arbitration to the other party is mandatory in nature and a party cannot straight away file arbitration petition before the High Court or Arbitrator.

However, in 2020, Delhi High Court Justice Prateek Jalan in the case Badri Singh Vinimay Pvt. Ltd. v. MMTC Limited held that even if a party has not provided an arbitration invocation notice to the other party, but has provided a legal notice which expressly mentions that, 'on the failure of payment we shall resort to legal proceedings especially arbitration', then in such a scenario, legal notice fulfils the requirement of Section 21.

Facts: Disputes between the parties arose and the Respondents had initiated arbitration proceedings. The Petitioner contended that the petition was not maintainable as the compliance under section 21 was not done and relied on the Alupro judgement. On the other hand, the Respondent counsel contended that the petitioner had the notice of the arbitration and did not participate in the proceedings.

The court drew its attention to a legal notice wherein the Respondents had expressly mentioned that in case of '...failure to comply my client shall be constrained to initiate legal proceedings including arbitration proceedings....'. The Court also relied on the judgement passed by Rajasthan High Court in the case of Riico Ltd., Jaipur & Others v. Manoj Ajmera & Anr. (2008) 2 ArbLR 388, wherein it was held that a communication claiming a disputed amount and contemplating arbitration in the alternative is sufficient notice of a request for arbitration.


Reasoning: 'This judgment in Alupro (supra) is distinguishable on facts. First, there was no notice to the respondent at all in that case. In the present case, the legal notice dated 14.12.2012 fulfils the requirement of Section 21. The purpose of Section 21, as set out in paragraph 25 of Alupro, was clearly fulfilled by the said notice and the subsequent correspondence between the petitioner and the ICA. Second, the parties in the present case had agreed on the applicability of the ICA Rules.

The petitioner expressly declined to appoint an arbitrator in terms thereof. In Alupro also, the Court notices that parties can agree to waive the requirements of Section 21. This judgment itself makes it clear that the provisions are derogable, and it is possible in a given case that agreement on the rules to be followed would constitute waiver of the statutory requirement. As I have held that the statutory requirements were in fact fulfilled in the present case, it is not necessary to consider this in greater detail in the present case.'

Conclusion:
Compliance of Section 21 is mandatory however, clear indication of initiating arbitration proceeding in legal notice also fulfils its requirements and the same cannot be bypassed if no notice is provided.

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