Separate Notice For Counter Claims U/S 21 Of A&C Act Not Required When Arbitration Proceedings Are Pending Between Parties: Delhi HC

Facts

The present petition under Section 11, ACA has been filed by the Petitioner seeking appointment of an independent sole arbitrator to adjudicate upon disputes arising under a Definitive Agreement dated 27.02.2018. The Agreement provided for a back-to-back payment structure, whereby payments to the Respondent were contingent upon the Petitioner receiving payment from RISL. The Respondent's scope of work included supply, installation, commissioning, and maintenance of the relevant equipment and infrastructure, in accordance with the RFP issued by RISL.

Clause 18.2 of the Agreement contained an arbitration clause providing for dispute resolution through arbitration under the aegis of Delhi International Arbitration Centre (DIAC). Disputes having arisen between the parties; the Respondent invoked the arbitration clause. This Court vide order dated 14.03.2024 in ARB P No. 364/2024, appointed a Sole Arbitrator under the aegis of DIAC to adjudicate disputes between the parties which commenced on 13.05.2024.

On 11.11.2024, the Petitioner filed its counter claim, along with an application seeking condonation of delay. Vide Order dated 18.11.2024, the learned arbitrator dismissed the Petitioner's counter claim observing that the application seeking condonation of delay was filed belatedly. It is submitted by the Petitioner that the dismissal was done without hearing and thus contrary to the principles of natural justice.

The dismissal was challenged by filing an appeal under Section 37(2)(a), ACA which came to be dismissed by this Court vide order dated 09.12.2024. However, in para 11 of the said order, this Court granted liberty to the Petitioner to initiate independent proceedings for appointment of an arbitrator in accordance with law.

Contentions

The Petitioner contended that its counter claim was dismissed by the Arbitrator without adjudication on merits, on the ground of delay and without affording an opportunity of hearing. The Petitioner further highlighted that in the appeal against the order of the arbitral tribunal dismissing its counter claims, the Court granted it liberty to initiate independent proceedings for appointment of an arbitrator. In the same judgment it was also recorded that the Respondent had conceded that the Petitioner may initiate independent proceedings for such appointment.

The Petitioner further contended that the requirement of notice under Section 21 ACA stood fulfilled through various steps already undertaken including issuance of a notice dated 26.09.2024 by the Respondent itself, the prior arbitral proceedings and liberty granted by this Court. The Petitioner submitted that the purpose of Section 21, ACA is to notify the existence of a dispute to the other party, which has already occurred in this case. In view of the Respondent's recorded concession and the liberty granted by this Court, the Petitioner argued that no further notice is required.

The Respondent opposed the petition, primarily on the ground that the Petitioner has failed to issue a mandatory notice under Section 21 ACA which according to the Respondent is a condition precedent to commencement of arbitral proceedings. It was contended that this failure rendered the present petition under Section 11, ACA as non-maintainable.

Observations

The Court observed that the principal issue for determination was whether the present petition seeking appointment of an independent Arbitrator for adjudication of the Petitioner's claims is maintainable in light of the alleged non-issuance of a separate notice under Section 21, ACA.

The Court noted that it was undisputed that the Petitioner had filed a Statement of Defence but did not initially file a counter claim. The counter claim was filed belatedly along with an application seeking condonation of delay, which was dismissed by the arbitrator without adjudication on merits. The Court also pointed to para 10.3 of the judgment passed by this Court in an appeal against the impugned order of the arbitrator, whereby the Respondent is recorded to have conceded that the Petitioner may initiate independent arbitration proceedings. The court opined that the issue of compliance with Section 21, ACA must be examined in the context of the facts of the present case.

The Court reiterated that object of Section 21 is to ensure that the Respondent is aware of the disputes sought to be referred to arbitration and is afforded an opportunity to respond. In the present case, the disputes between the parties were already the subject matter of an earlier arbitral reference. The Petitioner attempted to raise its claims therein as counter claims. The record discloses that the Respondent was not only aware of these claims but also participated in arbitral proceedings where the Petitioner attempted to assert them.

In view of the above and particularly the liberty granted by this Court in the judgment dated 09.12.2024, the requirement of separate invocation under Section 21, ACA must be deemed to have satisfied or rendered unnecessary by judicial determination. A hyper-technical view cannot be adopted to defeat the Petitioner's right to seek adjudication of its claims especially when such adjudication has not taken place on merits.

The Court observed that while it is true that the notice under Section 21, ACA is a sine qua non of arbitration proceedings but where arbitration proceedings have been initiated by one party seeking for reference for the arbitration proceedings under Section 21, ACA for adjudication of disputes, a separate notice under Section 21, ACA would not be necessary only for the purposes of counter claim. This is not the mandate of ACA. Thus, the instant petition need not be dismissed only on the ground that further notice for the purpose of counter claim was not given.

The Court clarified that is was not making any observation regarding the merits or maintainability of the counter claim and as to whether the counter claim is barred by limitation or not. And in order to avoid conflicting orders, the Court directed Dr. Justice Satish Chandra (Retd.) who is adjudicating the main dispute to adjudicate upon the counter claims as well.

Case Title – Railtel Corporation of India Limited v. Primatel Fibcom Limited

Citation: 2025 LiveLaw (Del) 496

Case No. – ARB.P. 2075/2024

Appearance-

For Petitioner - Mr. Alok Singh, Mr. B.R. Menon, Mr. Jaivardhan Jeph, Advocates

For Respondent - Mr. Rohit Gandhi, Mr. Adhish Srivastava, Mr. Hargun Singh Kalra and Ms. Akshita Nigam, Advocates

Date – 22.04.2025

Click Here To Read/Download The Order